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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (249383)	5/21/2010 11:26:14 PM
From: Jim McMannis	Read Replies (1) \| Respond to of 306849

No Escape From Europe's Rubble finance.yahoo.com If the market hates uncertainty, as the saying goes, just about the only good news this week was that "uncertainty" over regulatory reform was removed. But the reforms aren't necessarily positive, and major uncertainty remains about the euro and the outlook for the global economy -- among other small matters. First, the grim tally: Thursday's washout left all major U.S. averages at least 10% below their 2010 highs. That the decline occurred less than a month after most averages hit those highs is at least as disturbing as the fact that the Dow and S&P entered official "correction" territory. (On Friday, the Dow dipped below 10,000 early on before rebounding to close higher.) More from Yahoo! Finance: • Even $1 Trillion Can't Save the Euro • The End of a Global Free Market? • Homeowners, Economists "Overconfident" About Recovery So there's a good reason why a lot of investors are feeling whipsawed --and maybe a little nauseous -- right now. The VIX, a.k.a. "the fear index," has jumped about 175% in the past month, while Treasuries, the dollar and gold have benefited from the "risk aversion" trade. Inevitable Object Meets Irresistible Force "The Euro-zone crisis has reminded the global financial community that despite all of the government liquidity and credit … the process of needed private and public sector deleveraging is going to be painful and -- to no small extent -- has been delayed/stunted by the government stimulus itself," says Daniel Alpert, managing partner at Westwood Capital. "It is, nevertheless, inevitable." While many Americans rightly worry about the day of reckoning for our massive debts, the "inevitable" has already arrived in Europe. As a result, expect the euro to remain the linchpin around which the global financial markets swing in the coming days and weeks. Reports of central bank interventions Thursday and Germany's vote to fund its portion of the $1 trillion rescue package Friday helped give the currency a boost heading into the weekend. But the outlook for the euro remains in doubt. Why the Euro Matters So Much The euro's fall vs. the dollar raises concerns about the profit outlook for U.S. multinationals, which have benefited greatly from a weak dollar in recent years. Suddenly, the optimistic earning forecasts for S&P 500 stocks are being called into question. That's a big reason why mega-caps like GE (NYSE: GE - News), IBM (NYSE: IBM - News), Boeing (NYSE: BA - News) and Caterpillar (NYSE: CAT - News) have been so battered in recent weeks. Beyond the stock market, a weak(er) euro has major ramifications for the global economy because it will make European exports more competitive against rivals from the U.S., Japan and China, most notably. (For more on this dynamic, see: Outlook for Global Economy Is "Bleak," Former IMF Chief Economist Says.) Concern about the economic impact of the currency crisis is a big reason commodity prices have tumbled recently, most notably oil. Historically, currency crises lead to trade barriers and protectionism, which typically bring slower economic growth, if not deflation and depression. The euro will be a major issue when U.S. Treasury Secretary Timothy Geithner and Chinese Vice Premier Wang Qishan meet next week for a strategic and economic dialogue. Ahead of the gathering, Chinese officials said the euro's weakness means they are less likely to let their currency, the renminbi, rise in value, something U.S. policymakers have long agitated for. In sum, Europe's mess is further complicating an already highly sensitive sore spot between the world's largest and world's fastest-growing economies. Meanwhile, in a world "intertwined by $500 trillion of derivatives," as Minyanville's Todd Harrison likes to say, Europe's crisis has also revived fears of "systemic risk" and financial contagion. Fighting the Last War The regulatory reform bill passed by the Senate on Thursday was designed expressly to address such an event, fear of which