There wasn’t any major action in markets today as the S&P 500 only moved up 0.20%. And although Europe’s problems haven’t gone away, the Euro has picked up lost ground against the dollar, now sitting at $1.33/Euro.
Although the 10-year Treasury rose to 1.97%, the fact that it’s below the 2% mark nevertheless indicates significant risk aversion among investors given continued difficulties in Europe.
With regards to Greece, a clear resolution is still not in sight as it missed another bailout deadline as talks keep getting pushed out due to internal dissension among Greece’s political parties.
At this point in time, Greece still has to come to an agreement with the Troika over the details of its $170 billion plus rescue deal. Adding in more strikes from the unions and persistent public sector backlash, Greece has a substantial hurdle to overcome if it stands any chance of receiving bailout funds.
Portugal is also facing similar obstacles as a major union leader pressed for the country to renegotiate its debt rather than to impose austerity. Regardless, Portugal’s sky high yields will likely put the country on the same path as Greece.
While nothing new, Bernanke stressed that the impact of a Eurozone breakdown remains a major potential threat to U.S. markets. Furthermore, he added that despite better jobs numbers as of late, the U.S. economy is still far off from a recovery.
In relation to monetary policy, although Bernanke believes sticking to near 0% interest rates is the most prudent course of action, PIMCO’s Bill Gross disagrees. Gross argues that doing so will fail to spur the economy and put the economy into a Japan-esque economic stagnation.
In China, the central bank is taking measures to avoid a bursting property bubble by helping individuals looking to buy their first home. It’s hard to determine the potential global impact of a Chinese property bubble, but the last thing the U.S. needs is a bigger currency war with China if the Chinese economy takes a dive.
In the last few weeks, ETFs have had a hot streak that might have you adding more equity exposure. That is fine as long as you are prepared to deal with (via my recommended sell stop discipline) a possible downside scenario given the amount of uncertainty in the markets.
In regards to trends, our International Trend Tracking Index (TTI), which started to cross its long-term trend line last week, has now rallied above it by +2.83% generating a ‘Buy’ for that area.
Again, this only applies to “broadly diversified international equity ETFs/mutual funds.” If you are not fully invested at this point, you may consider allocating to this area as well. If you do, it is absolutely imperative that you maintain a trailing sell stop on your positions at all times, in case this new cycle runs into resistance and heads back into bear market territory.
For monitoring purposes, the effective date of this International ‘Buy’ will be tomorrow February 8, 2012.
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