Euro Talks

It seems like nothing matters away from Europe as investors are fixated on the Eurozone debt problems like they are a celebrity sex scandal.

Even though the US market has had a pretty good rally, it is nowhere near what it should have been given the steady better than expected US economic news. However, if Germany gets its way and splits the EU in two, essentially getting rid of the Euro-Trash, stocks would likely soar. That is a long shot however as the easiest course of action is for them to finally allow the ECB (European Central Bank - their version of the Federal Reserve) to print money like our Fed does and backstop the death spiral many of the over-indebted European nations are in.

Even if the ECB is allowed to print money, the respite will only be short term as the answer to the developed world's debt problems is not more debt. For years, the demographics of the developed world (US included) have been pointing to a slowdown in spending and therefore growth. Basically, the world had a baby boom at the same time. We know that people spend the most in their 30's and 40's, with the peak in spending occurring at about age 48. After that people just save more and spend less.

Therefore all these baby-boomers have been steadily passing their peak spending years for over a decade now. To make up for this loss of demand, we came up with all kinds of fancy tricks to allow people to borrow more. (My favorite was the nothing down 110% home loan). This simply created a second problem on top of the inevitable natural demographic slowdown due to occur anyway: a massively over-leveraged/over-indebted world which borrowed more than it could ever pay back.

Considering that the demographics of the world's population will only get worse over the next decade, before it gets better with the echo-boomers who won't approach their major spending years for about 5-7 years, the addition of more debt only adds fuel to the fire or should I say like more uranium to the atom bomb.

Investors must realize that we are in the middle of a cyclical bear market and big rallies are very common within this trend. Since 1940, there have been forty seven-day huge rallies of 4% or more. Of these, seven occurred immediately after major market bottoms -- May 1970, Aug. 1982, Twice in Oct. 1987, Jan. 1991 and Twice in Mar. 2009. Two others occurred immediately after big one-day declines, in November 1963 and October 1997. The remaining 37, 4% one-day gains all occurred in bear markets with just one exception.

I share these figures not to scare you but to simply keep you aware of the reality of the situation and invest accordingly. You can't sit in cash and earn nothing on your money. There are plenty of places to make money in this market if you know where to look. While some nimble traders might attempt to time the short-term swings in the market, investors should remain alert to the primary trend and focus on investments that get the best returns with the least risk possible.



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