Editor’s note: This article was first published in November 2012; it is a snapshot of that month, covering the stalled Greek bailout talks, Spain not yet requesting a bailout, the US fiscal cliff, the EU budget summit in Brussels and the IBEX 35 levels, all of which belong to that moment.
Murphy’s Law is being fulfilled to the letter when it comes to the global economy. As this comic law so aptly puts it, “if something can go wrong, it will go wrong”. The experts assured us that the markets had already priced in all the bad news, since few new negative situations could still arise.
If we take stock of 2012, the truth is that, far from solving most of the problems people were trying to fix, all we have achieved is to pile up new uncertainties, on top of which come new problems.
This is a global economic crisis in full metastasis, so the regions that have not yet been affected will be. Nobody said that a globalised world would bring nothing but advantages.
There is still no agreement with Greece, a country waiting for yet another bailout package. Spain’s economic figures are truly terrifying, though not as terrifying as its unemployment level. Even so, it still hasn’t requested a bailout, one that, if it came with conditions attached, would cut off any chance of growth (and perhaps that’s why it hasn’t been requested).
The United States had raised hopes with its possible exit from recession, but in the end everything has started going wrong in Uncle Sam’s circus with the fiscal cliff. Federal Reserve Chairman Ben Bernanke warns that unless it is resolved quickly, there is a real risk of falling back into recession.
The light at the end of the tunnel was supposed to be growth in the emerging economies, which would pull the global economy along, were it not for the fact that they are slowing down too. China is slowing sharply and dragging the other big emerging economies with it.
Of course, the real focus is Europe, a union of countries where each one only looks after itself, and where the strong countries dictate terms to the weak ones and weaken themselves in the process, because Germany and France are starting to slow down.
The Brussels summit, where nobody expected any agreement to be reached (for a change), ended up being a waste of time for the countries’ representatives and a waste of money for taxpayers. In the end Mrs Merkel and Mr Cameron are in favour of more austerity, and while some countries consider the cuts excessive, the queen of the scissors (Angela Merkel) thinks they should go further.
Within this dismal picture, and focusing on Europe, could even more bad news emerge? Unfortunately, some see Germany’s refusal to accept a single European banking supervisor as a sign that German and French banks could turn out to hold the same kind of junk (hopefully in smaller amounts) that was found in Spanish banks.
Market outlook for the final stretch of 2012
Once again we’ll say that there is absolutely no logical or rational reason for stock markets to rise, which doesn’t mean they won’t rise, because the market isn’t rational. Historically, the Christmas period has been a time when markets go up, but be very careful, because this year is different.
According to José Luis Cava, an independent technical analyst, the support levels have worked perfectly and we should get ready to buy, as he told Estrategias de Inversión. On the other hand, for Roberto Moro, an analyst at Apta Negocios, once the rebound in the US markets is over (which, in his view, could happen as early as next week), the US market will enter a new correction, and our IBEX could well head towards 7,200 points, which would mean breaking the 7,500 support level.
Anything can happen and anyone can be wrong. Remember that analysts were advising people to get out of the stock market in July and August because of the huge uncertainty at the time, and in the end the markets staged a very significant bull rally.
Of course, now there are no uncertainties, only the certainty that things are completely screwed. Even so, we may yet see a bull market, but just like with sex: take precautions, use protection (a stop loss) and don’t jump into bed with just any stock.
Featured image: Pete Souza, Public domain, via Wikimedia Commons.
