A barrage of bad news is hitting stocks today, but the S&P is just 0.8% off yesterday’s closing price. The risks appear to be mounting up quickly, but investors remain wildly confident in a long and sustainable recovery ahead:
- Goldman criminal probe increases risks of further bank investigations. As we said two weeks ago this sector cannot be touched with the White House’s war on Wall Street unfolding.
- GDP was weaker than expected and several economists and analysts question the sustainability of the growth. Edward Harrison at Credit Writedowns sees the news as a full blown negative.
- The sovereign debt problems in Europe appeared to be resolved, however, the painful austerity measures will not only weaken the European economy, but do nothing to resolve the actual issue at hand – it’s the currency, stupid! In addition, the potential for contagion is on the rise as Portugal and Spain will likely be forced into similarly painful austerity measures that further weaken the region and increase the risk of sovereign debt and a deepening recession in Europe. In my opinion, the precedent set by the bailout is nothing short of atrocious and will impose severe strains on the citizens of Europe.
- The Fed officially announced a tool to begin draining liquidity. In addition to the MBS program this is the beginning of a series of moves that lay the foundation for future rate increases.
- Updated: I forgot to mention the growing support for the Volcker Rule on Steroids….
Despite all this, the market is down just 0.8%. Is the market hanging tough or is this just more signs of investor complacency?
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.