Goldman Sachs behind the 8 ball again

I have been saying for at least a year that the U.S. economy was going to grow at only 1.5 to 2% this year (2011).  Many other analysts, including the mighty Goldman Sachs, have been saying that growth would be substantially high--3% or more.  Goldman just slashed their GDP forecast from 3% to 2% for 2011.  Once again they have failed to recognize the obvious, which is that the U.S. economy is a lot closer to falling back into a recession than it is to a strong, sustainable recovery.  Greece is the tip of the iceberg, and after they default, which they will sooner or later, we will see Portugal, then Ireland, and then probably Spain follow close behind.  The IMF, which is largely funded by the U.S. is already deeply involved in the Greek bailout, and will have to pony-up a lot more cash as the crises intensifies.  Greece is run by a Socialist government, and the people that put this government into power are not happy that they are turning off the free cash to citizens that they promised to get elected.  The Greek situation is comparable to the mortgage mess we have experienced, with the government trying to force banks to offer "mortgage modifications" meaning letting borrowers extend the terms of their loans to reduce their monthly payments.  All these programs did was to delay the inevitable, which is exactly what the Greek bailout is doing--delaying the inevitable default.  Greece currently owes 350 billion Euros, which is 150% of its annual GDP.  They will never, ever be able to pay this money back, period.  They can't even balance their budget.  Even if they balance their budget, how are they ever going to pay-down 350 billion Euros?  It is simply impossible.  They will default and they will take other countries down with them.  In all likelihood, they will dump the Euro and go back to the drachma so they can devalue the currency and thereby reduce the value of what they owe.  Once they break away from the EU, this will cause a chain reaction of other countries in trouble also breaking away, reverting back to their home currencies, bringing to the end the EU and the Euro.

Going nowhere fast

Despite all of the volatility in the markets this week, stocks did nothing.  The S&P 500 ended last week at 1,270, and closed today at 1,271.  It is comical to watch the day-to-day trading action, with the markets being shoved around by traders reacting to the same old news from Greece.  Nothing has changed - Greece is bankrupt and can't pay its bills.  That's it.  Nothing is new and nothing has changed.  Nothing is going to change either.  The EU will provide the money (170 billion Euros at last count) to keep Greece afloat, and they will never pay it back.  They will simply take that money, roll over their debt, and anything that is left-over, they will give to their citizens as they always have.  The most concerning part of this bail-out is that each EU member country, including Spain, Portugal, and Ireland, will have to pony-up their proportionate share of the 170 billion Euros, even though all three countries are completely broke and in equally poor shape.  Where will the money ultimately come from?  Go look in the mirror.

Phlly Fed throws a right cross to the markets

Stocks attempted to rebound after yesterday's drubbing (178 point drop for the Dow), but the Philadelphia Fed Index came out for June at a -7.7.  That was a huge miss, and is a big drop from the May number of 3.9.  In March this index was at 43.  Wow.

Stocks had been up slightly, with the Dow advancing about 35 points just prior to this report, but as soon as the number was released, we went negative.  The S&P 500 and NASDAQ are both lower, and the  Dow, which went negative at the release, is bouncing around the flat line.

We still have more data to come this week and the problems in Greece persist.  Investors (speculators and traders), seem to forget about all the problems in Europe and with Greece in particular, and rally stocks back up each time we get a sell-off.  Big mistake, as we saw what happened yesterday, after traders ran stocks up on Tuesday.

Greece is effectively in default on their national debt.  I think they will get the money they need to keep things moving forward, but they will never be able to pay-back this money, ever.  Ireland will also never pay back what they owe.  Portugal will never pay-back what they owe.  More importantly, these governments are basically Socialist, and the give-away programs that citizens in these countries have become accustomed to, that they have known all their lives, are simply unsustainable.  Although this is a fact, these governments are going to find it extremely difficult to change the entire cultures of their countries, as we see so glaringly, with people in these countries throwing rocks at police and protesting en mass.  This is not going away, and investors should keep these problems in mind when making investment decisions.

Don't be fooled!

We are bouncing today, up about 125 points on the Dow so far.  Don't be fooled!  There is a lot of economic data due out this week, and everything that was so negatively interpreted from last week is still valid.  This is exactly what I wrote about from last week - traders/speculators are looking for any opportunity to jump in if the market pulls-back, because they incorrectly think it is a great bargain.  It's not.

Nearing a short-term bottom?

We closed around 1,270 on Friday, with a forceful smack in the face for bullish traders.  I am hoping to see 1,250 or lower this week, and if we get there, I will be a buyer.  I have been phasing into stocks, using the significant cash positions I am holding, to add exposure to equities at more reasonable valuations.  I will continue to add to positions as the market reaches technical support levels on the way down.  We should get some bounces along the way, as bullish traders see what they believe to be opportunities to get bargains, and to profit from short-term volatility.  I am a long-term investor (not a speculator), and only want to purchase stocks that I believe are good, long-term investments, that are in the sectors of the economy that should perform best given the current economic environment, and that are at favorable valuations.  Caution and patience are paramount.

Stocks sinking in last hour of trading

The Dow is only off 45 points, but stocks in general are fading as we enter the last hour of the session.  The S&P 500 is down 11, at 1,288, which means it has broken down through the 1,300 level and the April low of 1,294.  We are headed towards the 1,250 level as the next support.    1,288 is also the 150-day moving average, so if we crack that level, technical traders will see that as yet another technical break-down.

Bank stocks, in particular today, with Citi off 4%, and Wells getting a downgrade.  It's not a pretty picture and things appear to be deteriorating quickly.  I advise cautious optimism.  Have your game plan in hand and be ready to pull the trigger on your key purchases of those stocks you wish to own long-term.  I will be looking to put some cash to work at 1,250 and then, if the S&P 500 falls further, around 1,200 if we get that low.

Dow off 200!

Wow, we are getting hammered today!  Stocks are down hard after the ADP employment report showed only 38,000 jobs added last month (economists were expecting an add of 175,000), and the ISM index was down to 53.5 (economists were expecting 57.1).  Ugly, ugly, ugly.

The 10-year treasury broke below 3% in yield.  I feel that bonds are in a bubble.  Long maturity bonds are especially vulnerable to price declines when rates start to rise.  We also saw Australia's GDP growth for the first quarter at -1.8%.  China is also struggling, with the slowest pace of manufacturing growth in 3 quarters.  European problems persist.  There are a lot of reasons to be cautious at present.