Global stock sell-off could last until October

Posted on 16 June 2011 with 5 comments from readers

The impending default in Greece, whatever it is called, is the immediate cause of six bad weeks for global stock markets. When it happens financial markets will take a big lurch downwards, although the European authorities are the masters of fudge.

But the global stock market correction has a long way to go. Markets have overshot on optimism about a weak, or in many cases non-existent recovery, and share prices have gotten ahead of economic reality and then some.

Future profits

Stocks only look cheap on historic profit measures, the future outlook is rather different as bailouts wind up and interest rates go back up. At the same time the oxygen of QE2 money printing is coming to an end and equity prices have been the biggest beneficiary of this process.

Will the Fed ride to the rescue like the seventh cavalry coming over the hill? Well, the problem is that a cavalry rescue has lost its surprise by the second or third attempt, especially if its effectiveness was dubious anyhow.

Thanks to the QE program the US has higher inflation, low interest rates and a weaker currency, although with the euro in trouble even that last advantage is fading now and the second is threatened. Higher inflation erodes the real debt burden but at a cost to savers.

US equities have gone nowhere for a decade, and have lost money if adjusted for inflation. And there should now be an increasing realization that stocks just are not a good place to invest your money. There is every prospect of a second lost decade.

Alternative assets

Investors have made more in gold and silver over the past year than in 10 years in US stocks. Perhaps commodities ETFs are going to replace equities as the investment class of choice, perhaps this has already happened.

However, it is clear that stock market investors should either dump their equities now or prepare for a grinding fall to a new bottom in October, most likely with a final climatic sell-off then. It does all look a bit like 2008 with the Greek default replacing the failure of Lehman as a catalyst, and a repeat of the same problems with high oil prices.

Under these circumstances sell-offs build momentum and continue for many months. It is not only rallies that can extend over protracted periods and of course after a long rally you might well expect a longer than usual downturn.

Market trends are this fluctuating. It has left the world with many questions unanswered. But personal investments are to be taken serious as they are hard earned money. We have automated trading software systems in the cryptocurrency arena as it is well developed with skilled algorithms. Clicking here reveals more details about them.

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