Dismal Outlook

Monday the markets virtually suspended action awaiting the results of the U.S. elections. Despite Friday’s big drop in the West, Asian stocks edged just 0.2% lower. In Europe, stocks slid 0.6%, but in the U.S. they marked time on low volume, awaiting Tuesday’s election results. That event overshadowed Asian stocks Tuesday as they meandered about 0.4% higher. As the election time rolled closer, traders seemed more optimistic. In Europe, stocks rose about 0.7% and in the U.S. the rise was 0.9% on low volume.

Wednesday news reports confirmed that President Obama had won a second term. Of course, this was shocking to me as I had projected a Romney win back in May. However, it did look like the elevated stock market valuations helped him win. The balance of power between Democrats and Republicans remains effectively unchanged. Based on that, we can expect more of the same on both the economic and political fronts. This means more deficit spending, more class warfare, more activism from the Federal Reserve, more wealth redistribution, more bureaucracy, more liberal (anti-Constitutional) courts, and less business incentives. Despite the prospect of continued money printing, the stock market sits poised for continuing down the path set by the forces of the current secular bear market.

Stocks in Asia gained about 0.7% while stock markets in Europe and the U.S. declined 1.4% and 2.1% respectively. The 10-Year U.S. Treasury Bond yield plummeted 6.2% to close at 1.63 Similarly, the VXO rose nearly 10% to close at 19.45. The Dow, S&P 500, and NASDAQ indices each breached key levels closing below 13,000, 1400, and 3000 respectively on moderate volume.

Thursday, stocks in Asia followed movement in the West, dropping 1.3%. Stocks in Europe, however, declined only slightly. In the U.S. the slide continued. Stocks dropped about 0.8% on The S&P 500 Index closed below their 200 day moving average for the first time since June. The VXO fear index though moderated however, dropping nearly 5% to close at 18.58. Precious metals added to yesterday’s 1% gain with nearly 2% more.

Friday, stocks in Asia pulled back about 0.3%. In Europe and the U.S. they closed flat. Speaking of Thanksgiving, from the turkey stock department IBM closed below 190 while Facebook sunk well below 20. For the week, precious metals climbed 5% in the face of stocks dropping about 3% and 10-Year U.S. Treasury Bond Yields dropping nearly 10%. The VXO closed at 19.46—flirting with the significant 20 level. It looks like the battle next week will be over the 200-day moving average point.

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