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What can cause stock markets to sell off from these current highs?
We had this talk today in the chat and into 2013 a few key things to watch out for as the stock markets hits into these highs.
1) March 27th , 2013 (Date of Government Shutdown)
Republicans in the House of Representatives turned their attention to avoiding a crisis around the next fiscal deadline: the March 27 expiration of funding for government agencies and programs.
Should Congress fail to pass a new spending measure, the government will have to shut down most agencies and services – from national parks to the Federal Aviation Administration.
That would pile even more uncertainty onto the economy just as Americans start to feel the full effects of the sequester cuts.
update: bill passed to delay till Sept. 30th, 2013 http://stockguy22.com/2013/03/21/senate-passes-bill-h-r-933-government-shut-march-27th-2013/
2) Venezuela ( recent death of Hugo Chavez ) power struggle and oil pricing
With no successor in place, it’s way too early to tell. But a slowdown in Venezuela’s oil exports could put pressure on oil prices – something that could drive prices at the pump up even further, and potentially tighten the screws on already sluggish U.S. economy.
3) North Korea (yesterday ended the 60 year truce with South Korea)
We don’t know if Kim Jong-Un is posturing or if he is actually crazy enough to do something which would probably end in the destruction of North Korea.
The sanctions, North Korea’s ruling Workers’ Party said, are “a declaration of war and an act of war.”
The United States followed the U.N.’s sanctions with its own Monday after North Korea scrapped the armistice agreement.
Maybe Dennis Rodman will save the day since he has said he was going to vacation with Kim Jong-Un in August 2013. This has to be the craziest story of the year or the most sophisticated CIA plot we’ve seen of using Jong-Un’s love of basketball to get close to him. Just don’t send him a video of the last ”
Since Kim Jong-Un has loves US movies like his dad, let’s hope Rodman doesn’t bring him a DVD of the last Red Dawn Movie– awful movie- but the plot was that North Korea invades a small US town after cutting off the power grid. The first Red Dawn movie in 1984 was better – based on a Russian/Cuban invasion of a small US town.
Update March 26th , 2013 North Korea Odds of going to war with South Korea and US: http://stockguy22.com/2013/03/26/north-korea-odds-war/
4) Iran nuclear stuff -still an uncertainty
late last year was predicted that US would be pushed into a war with Iran in 2013
Former Ambassador to Israel, Martin Indyk, offered a dire prediction of a U.S. confrontation with Iran, saying it could escalate into war as early as next year. (2013)
5) Sequester cuts and Effects on Economy but we probably won’t see this till further out in the year.
Economists said the cuts would shave 0.5 percent or more from economic growth, as government employees and contractors around the country would tighten their own spending in the face of slowed government disbursements and furloughs
6) Italy in turmoil and could affect European Union ( EU)
If you remember Greece use to be the problem then Spain , now with the problems in Italy and its effects on the EU could play a role in the US economy. Many US firms are getting as much as 1/2 of their Revenue from outside US, so globalization has made it more important when problems like those EU have happened the past few years.
about 40 percent of profit for firms listed in the S&P 500 stock index now coming from overseas.
Update March 26th 2013: as we saw recently Italy was not a problem in March but Cyprus banking was – which did affect the EURUSD / EU etc. So if other EU (European Union) countries have similar problems this #6 will still be a big issue due to the statemement above. More info on Cyprus here in case you missed it : http://stockguy22.com/2013/03/17/happened-cyprus/
List of European Union Countries here: http://europa.eu/about-eu/countries/index_en.htm
7) China slow down? but on track to hit 7.5%-8% in 2013 vs. 6.2% last year
The validity of China numbers have always been questioned as to if they are right or not ( along with so many failed China Stocks we’ve seen), but if does slow down then we could see it affecting other economies as well.
“I’m more optimistic about this year’s trade,” he said, speaking to reporters at a briefing coinciding with the annual session of parliament.
Mr. Chen gave no estimate for exports or imports for this year. Exports climbed 7.9% in 2012 while imports were up 4.3% in a year marked by economic sluggishness for many of China’s key trade partners.
8) Fed Chairman Ben Bernanke is stepping down in 2014
As this becomes front page news again , investors & the markets may get jittery since Bernanke and QE can be viewed as the key success to the market bounce from 2009 – current 2013 highs and the uncertainty of another Chairman may cause for some corrections.
Bernanke will probably step down when his term as chairman of the Board of Governors expires in early 2014. He could stay, but the main lesson from the cult of former Chairman Alan Greenspan is that more than two terms isn’t healthy for the organization or the country. Future chairmen should be limited to eight years in office
9) Another US Debt Downgrade by S&P or Moody’s or Fitch
Fitch has already warned recently that warned it …
could downgrade the U.S. if lawmakers prioritize debt payments over other government obligations such as Social Security, or fail to tackle the nation’s growing debt burden in the ongoing budget negotiations.
Moody’s, a unit of Moody’s Corp., put its triple-A rating of U.S. government debt on a negative outlook in August 2011 when lawmakers nearly missed a deadline to raise the debt ceiling. And S&P, a unit of McGraw-Hill Cos., MHP dropped the rating on long-term U.S. debt one notch from the top rating of triple-A, to double-A-plus with a negative outlook, also in August 2011
with the recent government lawsuit against MHP and possibly Moody’s it will be interesting to see if they downgrade the US again. I’m sure they are important for borrowing but many traders don’t take as much notice to these downgrades. I still remember when they downgraded the US Banks in late 2011 and that marked the bottom for stocks like BAC , C, JPM , GS etc.
10 ) Commodities and Oil Price Swings could have an impact
If downside risks to global economic
growth materialize, there could be even greater challenges
facing commodity exporters, most of which
are emerging and developing economies (Figure 4.2).
Conversely, if geopolitical risks to the supply of oil
materialize, oil prices could rise temporarily, but the
ensuing slowdown in global growth could lead to
a decline in the prices of other commodities
11 ) if Housing Growth Slows
So far has had a nice recovery in 2012 – 2013 and expected to grow from here so this probably unlikely to slow down this year. Probably won’t see any slowdown unless interest rates begin to increase
* U.S. home prices are projected to grow 3.7 percent between April 2013 and June 2014.
12 ) Unemployment increases again (currently 7.8%)
Its estimated that we need at least 300,000 or more new jobs a month to bring unemployment down to desirable levels.
13) News out of left field like a US terrorist attack
Unlikely to have a 9-11 type attack this coming year but there is a change of attacks if the world becomes less stable.
There’s a 50/50 chance of another catastrophic 9/11-style attack in the next ten years, and an even greater chance if the world become less stable. The startling figure was floated by a pair of researchers who examined more than 13,000 lethal terrorist attacks between 1968 and 2007.
14) Interest rates going up
We know they can’t stay this low forever and as we get closer to the end of the year we may learn more from Bernanke. They are expected to increase in 2014 but we’ll see. I believe that anything that is too good has to have some other problems down the road. We saw that with real estate policy and even if you eat too much candy you will eventually have to pay a price. Raising rates would have consequences across the board unless Bernanke does it gradual but ..
Those of us on Wall Street in 1994 witnessed something very similar. After several years of essentially flat short-term rates, the Fed raised rates by 25 basis points (or 0.25%) on Feb. 4, 1994. The Fed raised short-term rates a total of six times and 2.5% over the next 10 months.
In what became known as a bond-market massacre, the price of long bonds dropped almost 9%. The stock market dropped 9% in three months, killing a then-vibrant market for initial public offerings.
Today we are at the bitter end of a three-decade-long interest rate cycle, culminating in Mr. Bernanke’s near-zero rates. You can’t fall off the floor. And the prospect of higher interest rates is like the Sword of Damocles hanging over the stock market.
Rising rates are inevitable. But be advised that in selloffs, stocks fall into the valley of despair. The 1995-2000 bull run followed the bond-market massacre.
Hope you found this helpful :
If you want me to add anything else to this list feel free to contact us but its a list we came up with from a conversation in the chatroom this morning.
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