Think about this for a second.
- The government is fighting over raising the debt ceiling which could lead to a debt default. A debt default would immediately crush the economy in a real depression.
- Italy is now on the verge of a default and they are a much larger economy than Greece so the impact would be far more significant.
- Ireland, Portugal, Spain aren’t far behind.
- It is just a matter of time now until Greece erupts once again and default there is ultimately not an option.
- Earnings for corporations have moving into negative territory on a year over year basis which usually signals a more intermediate term top in stock prices.
- Unemployment is 9.2% and climbing.
- Unemployment relative to the total population is at the lowest level since 1984.
- Wages have been declining on a year over year basis as costs of food and energy consume more than 20% of those wages.
- Small businesses see no real final demand from consumers so they remain locked down in defensive positions which reduces hiring.
- The housing market is getting weaker.
- The economy is slowing down overall.
My point here is this. Imagine that you are sitting on the beach and looking off in the distance and you see a massive storm blowing towards the shore. Do you just sit there? Or do you start to think about packing things up, calling the kids in from the water and start walking towards the car. That is where we are today.
On the horizon there is a massive storm cloud. It is possible that it will never hit shore and that it will dicipate or blow off in another direction. However, investors are absolutely betting on this happening. The markets remain near their peaks from the run up over the last two years and analysts are saying that now is still a great time to be getting into the market.
As shown here by the Volatility Index, which is an indicator of the amount of “fear” by investors, even with all of the potential problems that exist today they are still sitting on the beach, enjoying the view and ignoring the giant shadow swimming through waves…da dum…da dum…da dum.