8/21/12 1:43 PM – Still Waiting for News

I have not posted for a few days because frankly, there is not much to say other than that we are still waiting for news, either from Ben Bernanke or the European Central Bank.

There are high hopes for good news from both. My bet is that Bernanke will not do any additional easing and so will disappoint investors.

My other bet is that the ECB will come out with some announcement that will show some effort to hold the Eurozone together and spend a good bit of money trying to keep Spanish and Italian debt costs within reason, i.e. below 7%. I doubt whether the announcement will be a home run.

I don’t think the Germans will allow the ECB to buy bonds in whatever amount it takes to keep yields on Spanish and Italian debt below a certain target. That is much too close to violating the Eurozone prohibition against financing country-specific debt and would essentially be a blank check that might end up being written over and over for very large amounts. The failure to keep yields below such a stated level would be catastrophic.

Given what I outlined above, I expect Spanish and Italian bond yields to levitate once again after their recent optimistic fall. I also expect the US stock rally to fail in the next month and to have another poor September, traditionally the worst month on the stock calendar.

However, it could be that worldwide investors will continue to buy US stocks as the best place in the world and keep pushing our stock prices higher but I doubt that. The world is too connected and when Europeans sell there is always a big ditch in our early trading from which to climb out. I expect a drop in stocks before another sizeable advance.

To that end, I am looking to add to lower volatility investments and doing some in-depth research now.

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