I think the big picture on the overall economic situation is pretty scary right now. The factors I see, in increasing scariness:
- The debt limit drama in Washington is probably only a side show, but each side might believe that a bit of a crisis might help their cause.
- The USA economy is cooling off a bit, with the companies mortally wounded by the recession nearing their death rattle (e.g., Borders, Blockbuster, Sears), and ones with damaged strategies (e.g., Cisco, HP) moving into layoffs and other cost cuttings
- The breakdown of the Euro. Previously I posted that I think it is a matter of when, not if some members of the Eurozone will be forced to default on their Euro-Bonds, and resurrect their national currencies. Greece appears to be the first one that will go. The big question is whether Italy and Spain will topple too. I suspect these two will be able to stay in the Euro club, at least for a couple of years, but until things settle out I think there will be a lot of uncertainty—which will be bad for the market.
From a market standpoint, Mark Sebastian, at option pit, has posted that this pullback looks different from the June correction. This time the major players are buying premium, not selling it like they did in June. He sees this as a setup for a major sell off.
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I have closed out my XIV positions and battened down the hatches. Most likely this storm will pass without a major correction, but right now I’m much more comfortable being on the sidelines.
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