If Only We Could Ignore Europe!
BEING STREET SMART
by Sy Harding
If Only We Could Ignore
Europe!
October 21, 2011.
U.S. Treasury Secretary Geithner says the debt crisis in
Europe is Europe’s problem, and Europe has the means to resolve it if its
governments would stop squabbling among themselves and take action. That seems
to be the opinion globally, including among eurozone countries themselves.
But when it comes to getting beyond the generalities and
rhetoric, the individual euro-zone countries cannot seem to overcome their
self-interests and rise to the task. For 18 months now their debt crisis has
been worsening and spreading while officials only apply band-aids that soon peel
off. Each time, assurances are made that new talks are underway and substantial
measures will be announced soon that will provide a long-term solution. Yet
month after month, euro-zone officials do little more than provide still more
assurances that they will announce something big ‘next week.’ And next week
never arrives.
It has provided for extremely unusual week-to-week market
volatility.
Their latest vows were that last weekend would produce the
promised action. That pledge was then kicked down the road to this weekend, and
the latest word from Europe on Friday was not to count on that either - but an
agreement should be reached by next Wednesday.
The difficulty in maintaining confidence under such
conditions can be seen in the action of global stock markets, including that of
the U.S., and the sagging consumer and business confidence in Europe and the
rest of the world.
The sad part is that there are indications that the U.S.
economic slowdown may have bottomed, and a nascent recovery may be underway. But
its potential may be gut-shot by Europe if Europe does not act in a believable
manner to solve its debt problems, and instead brings economic disaster to the
world by failing to do so.
Yes, for the first time this year, the trend of U.S.
economic reports is potentially beginning to turn positive.
Just in the last two weeks we’ve learned that U.S.
industrial production edged up 0.2% in September. There were 103,000 new jobs
created in September, much better than forecasts of only 60,000. Auto sales
picked up in September, coming in at the high end of analysts’ forecasts. Retail
sales were up 1.1% in September, the biggest increase since February. New
housing starts jumped 15% in September to a 17-month high. The Fed’s
Philadelphia Manufacturing Index jumped from minus 17.5 in September to plus 8.7
in October, much better than economists’ forecasts. It was the first positive
reading in three months. The new orders portion of the report rose to plus 7.8
in October from negative 11.3 in September. The Philly index is closely watched
as a frequent bellwether for the national ISM index.
Meanwhile, third quarter earnings reports so far, while not
fantastic, are coming in strong enough to provide optimism, considering the
sharp decline in economic growth this year. Bloomberg reported Thursday that of
126 S&P 500 companies that have reported so far, 73% reported earnings that were
higher than the same period last year.
Concern about the U.S. economy, the world’s largest,
potentially declining further into a recession has been a major drag not only on
the U.S. stock market, but on global markets and confidence.
So the recent indications that the economic slowdown in the
U.S. may have bottomed is a substantial potential positive for global
confidence.
If only investors and analysts could ignore what is going on
in Europe. If only what comes out of the important EU summit over this weekend
does not plow under the seeds of hope that are now sprouting in the U.S.
economy.
After being bearish all summer I like what I see in the
technical charts of many markets.
But Europe has global markets and economies at a critical
juncture, with their decisions next week more important than any they have made
in the last 18 months.
Sy Harding is
president of Asset Management Research Corp, and editor of
www.StreetSmartReport.com,
and the
free market blog,
www.streetsmartpost.com.
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