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Old 11-23-2011, 09:29 PM   Nav to Top  #1
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Money European Fears Drive Markets Lower

European fears continued today which I will talk about in the near future. We have now seen days of declines of nearly 10% over the last week and change. I wrote on November 8th, that I would sell into any strength as we had run up to the 12k DOW range again too fast ( Nov 8th article). If you listened to this, you are doing well and have dry powder that will be able to be used before the end of the year. The global stock markets are trading solely on European fears right now as fundamentally there are still many solid stories. Take just this week John Deere reporting a fabulous quarter while raising guidance. Market added 3% to the stock when two weeks ago the stock would have went up 10% on the same conference call. European fears are driving everything now.

Sovereign Debt European Fears

The biggest headline today of European fears was an ugly German debt auction. They could only sell half of the issuance which is unheard of. German paper is now more expensive than US Treasuries which has not happened in a while. This horrific German auction comes on the heals of very bad Italian debt auction and Spanish bonds jumping in cost to borrow as well. All in all, the European fears are starting to become more realistic as financing becomes more expensive and their is gridlock in the negotiations between France and Germany. These two countries are holding up any forward movement in the region similarly to how the US government is choking the US economy. Politicians themselves are the biggest liability currently to the global economy.

European Fears Lead to Restructure

Now something that I feel will need to happen is a restructure of the European Union as a whole. It will need to become one sovereign state of some sort with leadership over the entire Union similar to that of the United States. Currently, there are global leaders needing to agree on terms when that is just too many cooks in the kitchen if you ask me with some having ego problems. With that being said, I feel this is inevitable since the Union cannot continue in its current form. It also should boot Greece out all together. Now will this happen? I do not know for sure, but this is the best solution to the Union surviving. I do know that until a resolution is met, the European fears of the credit crisis will spread elsewhere quickly which could cause major issues. There are some banks in the Union that need very large sums of cash infusions to survive. Combined this with the possibility of Sovereign states needing assistance, and I do not feel the ECB has enough funds to back it. Needless to say, the Euro will continue to fall making the dollar stronger which hopefully will start to viewed as a positive again.

Do I think the worst will happen, no. But I called this pullback and I feel it will continue for a bit until the European fears are lightened. Something drastic will have to happen in the near term for this to occur. I do not see it happening before next week so until then, remember to keep a shopping list as names go lower. We always say these European fear sell offs take even the good companies down with the bad. Names that have reported phenomenal quarters and raised guidance are going on sale right now and use that dry powder to average into these names. Deere just reported and you can get it today for 25 points off its 52 week highs. Caterpillar is now trading in the 80′s after an amazing quarter and outlook. Google is down the $570 when I think it is the best run company at the moment hitting on all cylinders. Ford is back into single digits when it just had its debt rating raised and said it will start a dividend in the near future. That just screams positive news.

Some high yielding dividend names have yields that you cannot overlook. Southern Peru is now trading with a 10% yield. Annaly has a 15% yield. McDonald’s currently has a 3% yield and is running on all cylinders. Terra Nitrogen has a juicy 10% yield as well. So many options out there to start positions in as the European fears take all companies down with it regardless if it is deserving or not.

Good luck and happy holidays,

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