Europe’s woes will only deepen as politicians continue to drag their feet on making the painfully needed changes.
On top of this, I believe that Europe is about to enter a recession. The United Kingdom is dangerously close to one as well. All of this growth-deceleration will only weigh upon the meager U.S. growth rate.
On top of this, oil remains stubbornly high — even with high unemployment, low consumer spending, low GDP growth and horrible sentiment levels.
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Just think, if oil has remained at an elevated level during these rough times we’re living in, just think how bad it’s going to get if the economy ever begins to grow at a decent level.
This is why I believe that this stubbornly high level of oil will continue to add to the present drag on the economy.
The “cheap oil” has already been drilled, in my opinion. Now we’re going into deeper, harder-to-get-to places where oil costs much more to obtain.
This will be an added weight upon America’s corporations as they continue to ship their products around the country via 18-wheeler and jet and around the world via ship. It’s an era of “high oil” now and corporate America and the American consumer aren't ready for it.
As the additional costs are placed upon corporate America, they’ll have to pass along these costs and it will show up in our food costs, clothing costs, etc., since it will cost these companies to get these goods to the consumer.
It will cause the American cost-of-living to go up in general, which will lead to more restrained spending overall.
None of this will be good for stocks and that will likely keep the stock market in a wide, volatile range for the next five to 10 years.
In early 2012, however, I believe we’ll continue to see the downward part of this wide, volatile range continue.
Now, this is not all bad news for everyone. The currency trader will have plenty of opportunities to protect their stock portfolios by buying defensive currencies and profiting in that side of their overall portfolio as stocks continue to lag for now.
Once the Fed finally launches some sort of quantitative-easing (QE3) program, then stocks will head back toward the top of the volatile range and defensive currencies will take it on the chin while riskier currencies will then benefit.
So stay on the defensive with your currencies until the Fed comes in and tries to support the stock market with quantitative easing of some sort. It may not be purchases of Treasurys like before. It could be that they’ll “meddle” in the mortgage market instead this time.
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Either way, once they get this under way, then it will be time to switch gears from the defensive dollar and yen and back to the “risk on” currencies of the Aussie dollar, New Zealand dollar and Canadian dollar.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.
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