Yesterday the DOW Jumped Up by 259 Points
Two days ago, it fell by 300 points. Feels like a roller coaster ride. Whatever today’s news, the markets react, and react violently. Either they jump up, or cascade down.
It Used to be Greek Default That Was Important
Every day, the EU was going to advance another tranche of its support, or not advance another tranche of money because Greece was this or that.
Or the Greek Prime Minister was announcing a new austerity program, or not.
Or there was to be a referendum, or there wasn’t.
DOW JONES INDUSTRIAL AVERAGE (DJIA)
With all of this turmoil, you would expect some radical changes in the average. Take a look at the average in January 2011. It was about 11,500.
In February 2011, it was about 12,200.
Yesterday the DJIA was about 12,200. In other words, a bit up from the start of the year.
Doesn’t this strike you as odd, especially now that Italian Bonds have become the centerpiece of the latest hysteria?
What the Market is Doing
In case you haven’t realized it yet, the majority of trades in the market, are a combination of program trading, short term trading, momentum traders, and trading on the news.
The cost of trading large volumes today is quite inexpensive and that is what traders do. They gamble every day on being able to judge which way the market is moving and try to beat everyone to the punch. Then they sell their positions (or buy as the case may be). All of this creates tremendous volatility in the market.
Large swings up, and large swings down. But over a length of time, little overall effect. The point is - DON’T BE MISLED.
We are not program traders and most readers of this blog are also value investors. We urge you to avoid being influenced by the daily news. There is a lot of value out there just now and we have discussed previously how you may recognize it. We think it is a good time to invest.
Some Observations on Current Events
The unemployment numbers in the US actually took a small positive turn this month. Housing starts actually increased marginally. The Republican Party is trying to present a reasonable face to the nation in their views as to how to control the US deficit. Consumer confidence in the US was more positive.
Generally, not bad news. The USA is starting on that slow path to recovery.
In Europe, the American media wants the problem of debtor nations to disappear by the stronger nations creating money out of magic, in a sort of similar fashion to what was done in the US, and giving it to the debtor nations.
But there is a problem with this that the US media is too young to realize. The German people remember what happened. The American media does not.
Bricks Made Out of Stacks of Money
I saw a cartoon recently, where cartoon characters were building a house out of bound piles of currency in Germany in the 1920′s, that were so worthless that the paper was more valuable to use as construction material, than as currency.
The US has never seen an inflation as there was in Germany between the World Wars. The creation of Hitler and the Nazi Party was one of the many tragic results of the carnage created by that inflation.
The German people remember that, and will vote out any politician that threatens to bring back those days by printing money, or massive loans to bail out countries that have no fiscal restraint.
There will never be a comprehensive bailout to cover all of the enormous debts of all of the EU countries.
What Will Happen in Europe
There will be much stress in Europe. There will be many headlines. There will be much disagreement.
In the end result, bondholders of EU countries that have large unmanageable deficits will wind up taking haircuts of some of these bonds, and banks and other creditors will lose a ton of money. It will take a long time for all of the abuse to work its way out of the system, but it will work its way out of the system.
There will be volatility, and markets will react. Stocks will go up and stocks will go down, and not gently.
But the economic system in the EU will continue. Germans will continue their mastery of engineering. French will continue their mastery of food and wines. Italians will continue their style consciousness. Spaniards will ….. and so on.
This very large and diverse consuming population will still exist tomorrow and next year and the year after. And after all the disruptions, stability will return.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.