Thursday, Sept. 22, 2011 – 4:44 PM – Retesting the August Lows

Today’s Drop

We could use less excitement from this market. As I predicted yesterday, Asia and Europe fell hard when they opened today, and true to form it was European selling in our markets prior to 11 AM EST that got us off on a bad foot. By the end of the day it didn’t hurt as much but night may bring back the pain.

The S&P 500 was down -4% in the PM, actually 6% if you count from the Fed’s statement yesterday PM. It closed 1% off the bottom.

That bottom was the old low for August 8. The S&P 500 actually went through the old low by a few points and as I said, the market bounced higher with a little last hour rally. That could mean a higher open tomorrow but it will not surprise anyone if that gets sold off. Once we go below 1100 on the S&P there is no solid foothold for another 9%.

The drop today can be counted as a retest of the August low, actually the second retest. If 1120 (plus or minus little) holds then many will point to the spike in volatility today as a capitulation-type extreme. To me, the market will have a much harder time holding 1120 than the last two times.

Europe

Next week, we should hear that the IMF caved in under extreme political pressure and fresh promises from Greece and will give Greece the money it needs for the balance of the year. But, that is just another band-aid on a patient that is getting worse. Those around him are feeling poorly and of course that is the thing everyone worries about. I am talking about Portugal, Italy and Spain, all of whom are seeing higher interest rates on their bonds and other measures of failing confidence.

Fed Announcement – Government and Business

The problem with the Fed announcement yesterday is that people were looking for big fireworks and instead got a single burst. In Congress, the bickering is back. People are looking everywhere for a grownup. If you don’t like the Republican slate, how are you liking the crowd we have now?

The problem is that no incumbent is willing to tell people the truth – the sacred programs have to be cut and DC needs many more layoffs, including shutting down whole departments, reversing the incredible expansion of the last few years and reversing some of this legislation that is raising costs for businesses. Add to that the toxic anti-business atmosphere.

It is having businesses gain confidence that will get our economy moving again. It is not the government, not the Fed, not Congress and not the White House. Growing government is a net drag on the economy. Proposed higher taxes just adds to that burden. Increased regulation and Administration lawsuits is also hurting. I know the election is less than 14 months away but it seems like the only thing going on in Washington is political posturing and bickering.

My wife occasionally warns me not to get too political with my posts. But, when Washington is the problem it is hard not to address it if you want straight talk, which is what I try to provide when I give my perspective on the economy and investing. Right now, politics, the economy and investments are just not separable. Pray for our country.

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