Photo by jenny downing

Photo by jenny downing

…this explains the low volumes as investors try to digest the mixed signals and even double dip concerns

I have been bullish about stocks despite the Euro debt crisis mainly because I felt the Euro problems were mainly confined to the PIGs which were small countries and the largest among them, Spain, had no problems with its recent Government bond auctions.  The recent strength in the Euro probably signals that this view is growing that while we may have austerity cuts, the weaker Euro will promote services and exports which should offset some of the public sector spending cuts.

But economic growth in some of the major economies has started to falter…..as fiscal and monetary packages started to end.  The biggest concern was from the US where a recent comment by Fed Chairman Bernanke in his semi-annual briefing of the Senate Banking activity, signalled a weaker than expected US economy but NO remedial action yet.  There were two Bernanke comments which spooked investors: a) “somewhat weaker outlook for the economy” ; b)  “unusually uncertain” economic outlook.  While he did acknowledge that the FED would take action if the economy started to falter……he added that no action was required now !.   This to me means more moderate growth but not negative growth…….which is why I am bullish because it means that the Fed and other Global Central Banks would need to keep interest rates at near zero levels for at least another year.  This is good for stocks who are all now trading at earnings yields in excess of 8% and on historically low PERs. Read more…