It’s no surprise to me Europe is experiencing weaker than expected growth. In fact, in Wyatt Investment Research 2010 Economic Predictions and Investment Outlook, I wrote that it was likely that Europe enters recession again. And when we read that Euro-zone GDP growth for the 4th quarter actually declined 2.1%, and sequential growth was just 0.1%, it appears that recession is more than just a possibility for Europe.
The contrast between the 4th quarter in the U.S. and Europe is about as stark as it gets. And it’s clear to me that the main difference is government stimulus. For instance, French car-maker Renault expects car sales in Europe to fall 10%. Car sales in the U.S. have been pretty good, and the cash for clunkers program helped. There should also be no doubt that government support for the housing market has helped.
There is also an interesting parallel between countries like Greece or Ireland and states like California and Nevada. No doubt, if California was a country and not a state, it would be on the list of countries with sovereign debt problems.
Fortunately, California’s problems are somewhat masked by the overall relative strength of the U.S. economy, but that won’t last. Debt issues in certain states have the potential to become a real drag on growth.
Are you listening, Mr. Bernanke?
As if the problems with Europe weren’t enough, China is raising reserve requirements for banks again. The moves are small (this one is a 50 basis point increase), but the desire to slow China’s economy is clearly an issue for investors.
This is a great example of how financial markets sometimes diverge from economic issues. China’s desire to restrain lending and keep asset inflation in check is clearly a good thing for long-term health.
But financial markets want profits and it wants them now. It’s almost as if investors would prefer China to keep the pedal to the metal and foster breakneck growth, regardless of the potential for an economic crash.
In my opinion, China should be applauded for acting now to avoid problems down the road. Hello, Mr. Bernanke, are you listening?
TradeMaster’s Jason Cimpl
Today, I’m going to share a chart with you. This is TradeMaster Jason Cimpl’s analysis of the S&P 500 chart:
This chart of the SPX shows that the bulls are up against a long term trend line. It took about five weeks for the index to clear the orange trend line in this chart, and we expect the same amount of time will be needed should the SPX want to take out the purple line of long term resistance. Conveniently, this trend line hovers near long term price resistance of 1140 and the 1165 pivot point. Based on the long term data I would expect to see a sizable pull back as the SPX approaches these prices, but that pull back will be a buying opportunity before the resumption of the trend.
Right now, Jason is asking his readers to send him their favorite stocks for review. He’ll be highlighting top choices in next Friday’s weekly subscriber video. If you’re interested in more detailed analysis from Jason, as well as his profitable trading picks, you can learn more at TradeMaster Daily Stock Alerts.
Finally, today is the last day of the 20% OFF SALE to celebrate the debut of www.wyattresearch.com. That’s 20% off my specialty advisory services, which includes SmallCapInvestor PRO, Global Commodity Investing, and Energy World Profits. And you can access them all from the new website, www.wyattresearch.com. Make sure you check out the Wyatt Investment Research 2010 Economic Predictions and Investment Outlook Special Report when you sign up.