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All Fear No Greed

September 26, 2011 – 5:12 pm

Monday morning saw a higher opening followed by some weakness as the market struggles to find a bottom. On a technical basis it has made a triple bottom since the first part of August retesting that bottom last week over a two day period. The volatility is at an extreme as fear grips everyone. Trying to see past this fear takes a herculean effort as we suffer under unemployment at over 9% and housing, a store of wealth for most people, continuing to be weak.

Fear can drive us into another recession but that would be the sole reason for a recession. There is no classical cause for economic contraction. We do not have rising inflation, we do not have a FED raising interest rates, we do not have any financial strain in the banking system, we do not have outsized optimism, we do not have a collapsing housing market, we do not have a weak dollar and we do not have an inverted yield curve. All these are signs of a recession caused by some kind of dislocation in our economy.

What we do have is fear and that fear could push the consumer into a shell refusing to spend. This is the central possible cause of another recession. Frankly, I do not think it is going to happen as the consumer, at least those that have jobs, are spending. They are spending at a less pace than they did before the recession but they are spending. Savings rates have gone from 5.4% to 5%. That is up from zero savings before the recession. Saving is in the long run a very good thing, but in the short run it restrains the economy. The consumer is still in the process of deleveraging and that could take years but as he does he also has begun to spend just a little more.

Fear is pervasive and Europe is doing little to help reduce fear. Therein lies the stock market angst. Will Europe’s issues cause our consumers to recoil? As I said fear is everywhere.

All we as investors can do is look for the bargains. Fear is the best time to buy stocks, but are we in a position of maximum fear or is there more to come? Levels of fear are impossible to gauge. That is why you buy slowly.

Good Trading
Steve Peasley

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