Friday, August 19, 2011 5:45 PM – Stocks Near Low for 2011, Banks & Family Problems

Stocks are back at roughly the lowest closing price of 2011.

S&P 500 -1.5%
Dow -1.57%,
Nasdaq -1.6%
Small Stocks –1.6%
European & Asian Stocks -1%-2%+
Gold +1.25
Corp. Bonds -0.1%

Two main worries:
US economy
It is slowing down significantly which means analyst’s earnings estimates for US companies are too high. As they come down, so do stock prices. Europeans nations slowing their economies is making forecasts worse.

European banks

They are loaded down with questionable sovereign debt bonds from Greece, Ireland, Portugal, Spain and Italy – do the banks have the required capital and the cash they need to stay solvent and liquid? Signs of stress have been appearing in their behavior. Their stock prices are getting slammed hard.

Family Troubles
Rich brother Germany and rich sister France (plus a few considerably less wealthy family members like Belgium and Netherlands) are getting sick of bailing out irresponsible little brothers while their own fortunes are tightening up. Already, little Ireland went totally bonkers. Greece is well on the way. Portugal is beginning to act poorly, too.

The little brothers can’t seem to pay down their debts because their incomes are declining and there are spending commitments they don’t want to give up. Plus, they got into hock in a really big way, sometimes lying to cover it up.

To make things worse, those brothers have creditors besides their more successful siblings. As obligations to these creditors mature the little brothers certainly can’t pay them off. They have to refinance each time and the creditors keep raising the interest rates. The family is spending even more money trying to buy some of those debts, keeping the new rates from rising more.

Sisters Italy and Spain have been much more successful but Spain has big-time problems and Italy has a real boat-load of debt. They had been doing better than the obvious spendthrifts but now they are starting to wobble. The family is buying some of their debts as well.

If things keep getting worse, the more responsible family members do not have remotely enough money to save everyone. Tempers are getting shorter and everything feels like a stop-gap measure.

No one seems to know how to solve this family problem. It could take years to get out from under or it could take drastic measures like cutting the spenders off, kicking them out of the family business, effectively disowning them and letting them go down in flames. Obviously, that would do major harm to the family relationships and hopes for the family business for a very long time, especially if that happened to Italy and Spain. No one wants to do that, but . . .

The other alternative is to put the whole family under one really tough disciplinarian/totally brilliant parent. One would have to be recruited because the patriarchs are long gone. Big daddy would have an equally big say in everyone’s affairs, like the federal government does in the US. The only people that could stay in the family are those that agree to such a thing. It would really take some pain for that to happen but already family members are wondering if they can find a leader strong enough to be the family savior. No obvious candidates are apparent at this point.