Investors have been acting as if there is a financial bogey-man lurking out there, ready to confirm the sum of all our financial fears. Is it U.S. recession? Is it European debt? Is it the U.S. debt downgrade? Congressional dysfunction?

Of course, the combination of worrisome events is enough to push investor anxiety into overdrive. But at the heart of the fear in the financial markets is European debt.

Again, yesterday we discussed the rumors that were swirling around France’s bank, Societe General. With France now in the mix, we’re looking at Greece, Spain, Portugal, Italy, and Ireland as having debt. In fact, we should probably look at it the other way and simply acknowledge that Germany is the only healthy country (and maybe Switzerland and the Scandinavian countries).

Here’s a quote from a very succinct editorial from Bloomberg:

European leaders have created a fertile ground for panic by failing to dispel the main uncertainty: How they will resolve the financial troubles of strapped euro-area governments, how much banks holding the governments’ bonds stand to lose as a result, and whether the banks can be bailed out.

That pretty much sums it up. Here in Daily Profit, I’ve noted repeatedly how Europe needs to come up with a real solution for debt problems. The constant back-and-forth, floating proposals that fall short of addressing the problem are not helping. There’s no real unity in Europe and investors know it.

For what it’s worth, Bloomberg goes on to note that the market capitalization for 31 of Europe’s biggest banks stands at 70% of tangible equity. That difference works out to $195 billion. In other words, investors are saying that these banks need $195 billion in capital to offset their risk.

Of course, we also know that simply meeting the risk differential is not enough. When it comes to offsetting damaged assets on a balance sheet, the "shock and awe" approach that our own Fed employed during the financial crisis is the only strategy that works.

Can Europe come together on fiscal unity and employ a "shock and awe" backstop for its banks and governments? We’ll see…

In the meantime, we are getting some relief on economic data here in the U.S. Yesterday’s jobless claims number was much better than expected. And today, retail sales beat expectations and rose 0.5%.

I’ve said it before but it bears repeating: The stock market and the economy are not the same thing. And while unemployment remains high, corporations have adjusted their costs and production for current demand. Earnings are strong and we do not yet have cause to expect that to change.

Growth is not strong, but I do not think recession is on the table.

Be careful buying gold. Margin requirements just went up, and we saw what happened to silver when margin requirements were boosted.

For the long-term, it is my firm belief that investors should own gold. And virtually all of my advisory services have gold stocks in their portfolios. But timing is important. Buying a top in gold is no different than buying a top in stocks.

The Fed has said that rates will stay low into 2013. And low rates are consistent, though not synonymous, with a weaker U.S. dollar. That means gold will remain attractive, at the right entry point.

So what do we do right now? Well, there have been opportunities to buy quality stocks during the panic. I suspect there will be again. After yesterday’s nice rally, though, today may not be the day.

As an investor, you either want to buy at extreme lows, or buy into an established rally. Right now we have neither. 1,170 is a pretty good support/resistance point for the S&P 500. If it holds, we could see another uptrend become established.

Given the extreme levels that bonds have moved to, there is a compelling case for money to move out of bonds and into stocks.

Finally, there is one exception to these observations, and that’s dividend stocks. If you want to add strong dividend payers at current levels, that is a fine idea.

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