The Independent Market Observer

Mainly Dark Clouds, Few Silver Linings

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Aug 24, 2012 12:03:07 PM

and tagged Debt Crisis, Europe, Yesterday's News

Leave a comment

Gloom covered the front pages of the papers today. (If it bleeds it leads!) But this time, there were relatively few silver linings to help brighten up the darkness. Perhaps all the problems we saw in the spring aren’t quite solved yet.

Economic weakening was the big meta-story. For Europe, it was reported in the form of increasing disputes about how to resolve the ongoing financial problems of Greece and Spain, among others. The Financial Times (FT) led with “Athens and Berlin in public spat over funds,” which is just what it sounds like, following with “Dutch socialists catch scent of victory” (p. 2). This is important because Holland, which is one of the few remaining AAA credits in Europe, has been a key German ally in demanding fiscal austerity from debtor nations. If Holland changes sides, the European balance of economic power shifts, too. Moreover, the socialists are eurosceptics and have opposed the fiscal rescue pacts and funds; take away the rescue mechanisms, and the euro would most likely have already failed. The Dutch election and the pending ruling by the German Constitutional Court are therefore both potential deal breakers for the euro. It should be an interesting early September. The New York Times (NYT) also weighed in with “Europeans to Debate Further Aid to Greece” (p. A4) and “European Officials Meet as Signs Point to Recession” (p. B3).

China got hit as well. The front page of the NYT had “China Confronts Mounting Piles of Unsold Goods,” and the FT ran “Trillion questions hover over Beijing’s economic stimulus” on page 2. A slowdown in Chinese growth also led an Australian government minister to declare that the boom there was over. He was, of course, made to “clarify” his statement, as reported in “Minister clarifies Australia ‘boom over’ talk” (FT, p. 3). All of this smacked the financial markets, with the Wall Street Journal (WSJ) going with “Markets Shudder on Global Weakening” on the front page.

The other meta-story was the failed SEC vote on money market fund regulation, which we also mentioned yesterday. The situation made the front page of the NYT business section with “In an Effort to Curb Money Market Funds, a Plan B Is Considered” and got not one, not two, but three articles in the WSJ: “Straw That Broke SEC Vote” (p. C1), “Action on Money Funds Could Still Be in the Cards” (p. C2), and “Toothless SEC Caves on Money Market Funds” (p. C10). The FT also weighed in with a global perspective in “Money market funds face threat of global joint action on reforms” (p. 13). Clearly this story is growing; look for more to come.

Other individual gloomy stories worth noting include the front-page story in the FT, “Republicans to push gold standard back into center of public debate,” which discusses a significant reform that would create at least as many problems as it would solve. It’ll be interesting to see if this gets any traction. “Shifts in Asia Fuel Flare-Ups Over Islands” (WSJ, p. A12) has a good primer on that whole issue and is worth a look. Finally, “Creditors of Stockton Fight City Over Pension Funding While in Bankruptcy” (NYT, p. B3) may point to the future. If creditors can reach into pensions, which up until now have been considered off limits, this will be a big change. If the court rules for the creditors, expect to hear a lot more about this.

To close, we do have one silver lining: the pickup in housing. As I have been saying for a while, the housing market looks to have bottomed, and with sales of new homes up—see “Sales of New Homes Climb Sharply” (WSJ, p. A2)—this will be a foundational component of continued growth. Nice to see something going right.

Have a great weekend!

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®