Live Big Digest – May 21, 2010

Live Big Digest – May 21, 2010

As of yesterday, the stock market managed to cross the magic 10% threshold into an official “correction.” Thank God.  Markets never move in a straight line and some kind of correction is always inevitable. Nice to have this out of the way for now.

The proximate cause of this correction would seem to be the ongoing worries over the Greek debt crisis and its wider implications for the Euro-zone. There are two ways of explaining why Euro-zone jitters are giving US markets fits: the classic economic story and market sentiment.  The economic story is straightforward: a falling Euro makes US products pricier, thus depressing exports to the EU.  The fact that US exports to Europe represent barely 5% of GDP suggests that fear of this  scenario may be overblown.  And the clear resolve of the European Central Bank, the IMF, and the US Fed to maintain liquidity makes concerns about another contraction in the lending sector seem unlikely as well.

Beyond the economic explanation, there’s also the fact that sentiment is invariably contagious in the short-run. When investors get nervous about Greece or Spain or Portugal (or Germany, because it will have to bail them out), they tend to get nervous about everything. Long-term realities will eventually trump the short-term nervousness, but on a day-to-day, week-to-week basis, it will often throw a pall over markets everywhere. On this point, it’s interesting to note that most economic indicators still point to continued and strengthening growth in the US (notwithstanding the uptick in jobless claims), something that I don’t think will be derailed by a slower-than-expected recovery in the Euro-zone (and pessimism there may be overdone as well).

And now for your weekend screed.

Writing in today’s Wall Street Journal, Evan Newmark skewers the fearful prognostications of market technician Walter Zimmerman “interpreting the various Fibonacci retracements of his Ouija board technical charts.”  Pointing out the many positives to be found in growing corporate profits and attractive stock market valuations, Newmark says he’d “rather stand with fellow chump Warren Buffet than Walter Zimmerman any day.”


Have a great weekend!

The Yeske Buie Team