Opening Position
September 2011
As I write this, I am waiting for the White House and Congress to strike a deal to raise the US debt ceiling. The outcome could worsen the current economic situation not just in the US but globally as well. Think of it: Most of the world’s advanced nations have racked up enormous debt. At least the US still has the highest ratings from credit rating agencies — until now, anyway — as it too risks a downgrade from its Aaa rating. That’s a big deal. Could the world’s economic powerhouse really crash? It’s inconceivable to consider that such a thing might happen. But if it really did, we would see continued weakening of the US dollar, rising interest rates, increasing inflation, and a deep global recession. The clock is ticking, and we are nervously awaiting the outcome. Their decision will affect us all.
We don’t need another financial chaos. If that happens, who is going to jump in and rescue the world? The government isn’t going to be able to pump in any kind of stimulus, they can’t lower interest rates any further, nor will they be in a position to provide bailouts. So let’s keep our fingers crossed and hope they reach an agreement for raising the debt ceiling and improving the long-term fiscal outlook.
Meanwhile, how are the markets reacting to this? The Standard & Poor’s 500 as well as the other broader indexes are close to the highs they reached in May 2011. So in light of what appears to be a fundamentally strong market, it becomes difficult to convince others that the markets look like they will hit a peak and then crash. It looks like we are in another market bubble, and I’m keeping an eye out for the first sign of that bubble bursting. It may not happen till next year, but when it does, it could be a lot worse, even if an agreement is reached for the US to reduce its budget deficit. I’m actually keeping up with the fundamentals, which right now are very negative. There’s Greece’s debt burden, doubts about China’s economic strength, explosions in Oslo...
The remainder of 2011 will present many challenges. The markets are extremely unstable. Expect some big, bold moves.
Jayanthi Gopalakrishnan, Editor