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Where The Problems Are

January 11, 2012 – 6:08 pm

Watching other parts of the world and how they impact our stock market will be just as important for 2012 as watching and analyzing our own economy.

For Europe it will be about the success or failure of bond issuance as the first three months of 2012 will see a massive amount of bonds coming due and needing to be reissued by various countries out of the EU. Italy has the most bonds maturing but the smaller countries around central Europe are going to decide if they want to default or accept IMF and ECB strictures for their help. They have seen how Greece’s economy is still shrinking and may accept bankruptcy rather than years and years of struggle to pay off debt.

China’s December trade date showed exports were slightly less than the previous month but imports fell by half. The numbers were still healthy but investors and traders are looking for stability. China purposely shrank their economy to fight inflation and now are making an effort to stem the fall. Since exports held up well, and as Europe is a large trading partner, maybe they will not be impacted severely as first thought by Europe’s fall into recession. However, it is still too early to know what the ultimate result of Europe’s problems will be on the rest of the world. Germany, the biggest EU country, reported 3% GDP growth in 2011 but showed a sharp slowdown in the fourth quarter. Will that continue? The odds are good that it will.

The coming year will be volatile with the U.S. economy looking set to continue to struggle forward. Our economy is mostly domestic with the consumer representing 65 to 70% with Europe being only a minor trading partner. We may be struggling but we are looking pretty good in comparison to most countries in Europe.

Good Trading
Steve Peasley

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