Spain’s Debt Concern Rises
Greece’s bailout that caused an oversold bounce and short squeeze only lasted one day. Today, Spain’s and Italy’s bond yields spiked up with Spain’s 10 year yields going over 6%. That is the danger level that scares investors.
The euro currency hit new lows again and Europe seems to be unraveling with no solid plan to avoid more downside risk at this point.
We really can’t add any more to what we detailed in Monday night’s newsletter. The investor should have been scaling back on their equities since early May based on our recommendations. Each bounce should be looked at as another selling opportunity until proven otherwise.
Traders can continue to try and play the bounces but should also be looking to take advantage of the big down days like today.
Unfortunately, the austerity measures that are being imposed and demanded by Germany of many of the troubled countries will not help lead them out of their debt mess. Austerity potentially stifles any growth as the US and the rest of the world found out in the depression. Generating growth and improving employment seems to be very elusive for Europe and it could be that way for a long time to come.
At this point, investors should be looking for safety in income funds with diversification across bond classes and bond types. High-rated municipal bond funds or top-rated individual municipal bonds with insurance, in your own state if possible, should be part of your strategy. Scale back on risk until more clarification on how Europe can navigate these difficult issues is provided.
Don’t be surprised if a much bigger market drop happens before real solutions are finally pushed forward by the US Fed, other central banks, and the European leaders.
MR believes gold prices below $1550/oz, silver prices below $28/oz, and WTI Crude Oil at less than $90/barrel offer long term investors a good buying opportunity. Scaling in slowly on more weakness is reasonable with hold periods of 12 months or longer.
The caution alert for retirement accounts and investors is still present. Selling some equities to protect gains in case of more heavy selling is prudent at this time, especially if you can take advantage of selling at higher prices during a market bounce. Make sure to be ready to sell even more in case the Euro completely unravels and takes the markets down hard.
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