Brace Yourself…and Your Portfolio

09/30/2011 7:30 am EST


Karen Gibbs

Video Network Hostess,

If you thought last week was bad (and it was), wait until you see what’s going to play out over the next two weeks, says Karen Gibbs of The Gibbs Perspective.

The crisis in Europe is reaching the critical point, with the International Monetary Fund and the G20 nations joining the US and China in urging Europe to act quickly to avert a Greek debt default. Inaction raises the probability of a contagion that would bring down not just the European economies, but economies around the world.

China’s economy is already slowing down, alarming those multinationals that derive more than 50% of their revenues from markets other than the US. Continued unrest in the Middle East and the ongoing wars in Iraq and Afghanistan just add to the global turmoil.

The market seems to have even less confidence in Washington. Faced with political paralysis over every issue, unable to agree even on aid to disaster victims, Congress prepares for recess and the end of the fiscal year by doing nothing.

The market meltdown also took some of the air out of the precious-metals bubble. Faced with margin calls on leveraged stock portfolios, investors were forced to raise cash by selling their winners, which was, for most investors, gold.

Gold lost nearly 10% in just two trading days. Silver experienced its worst one-day decline in 27 years, dropping 18%. Even crude oil took a rare hit, falling $8 to just above $80/bbl.

The only bright spot was the ten-year note, the price rising and the yield falling to as low at 1.7% before closing at 1.8%. For investors that have been long bonds and have seen prices rise, that’s great. For those looking for income, that stinks.

It’s the same old song. Nothing will happen on the political front to jump-start the economy, neither over here nor over there. Look for further losses until aggressive bargain hunters emerge or global politicians act.

In the meantime, US economic data continues to paint a gloomy picture. Monday the Chicago Fed released its activity index. National new home sales figures were also released (down). Tuesday the Case-Shiller home price index came out (up very slightly) along with consumer confidence (unchanged after a steep decline in August).

Wednesday had durable goods orders (down slightly) while Thursday we got weekly jobless claims (down but on a technicality), monthly pending home sales (lower), and quarterly corporate profits (up in Q2).

Next week is dominated by Fed chairman Ben Bernanke’s testimony before Congress on Tuesday and the September unemployment report on Friday. Fireworks may come out of the congressional testimony, but expect nothing but bad news on the employment front. Things are really going from bad to worse.

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