As we plan our investment strategy, we must examine current events. The market has been focusing on current events as the number one driver of market direction. As a result, most large investors are now biting their fingernails waiting for the next shoe to drop. The markets may have to deal with news about the various European national debts, the Iranian nuclear crisis or numerous other concerns.
1) The economy in the U.S. unexpectedly shrank in the fourth quarter, restrained by the biggest plunge in defense spending (22.2 percent decline) in four decades. Government outlays dropped at a 6.6 percent annual pace from October through December, subtracting 1.3 percentage points from GDP.
2) Gross domestic product, the volume of all goods and services produced, dropped at a 0.1 percent annual rate, weaker than any economist forecast in a Bloomberg survey and the worst performance since the second quarter of 2009.
3) Big banks, countries, and cities have been downgraded.
4) Iran nuclear program. This crisis will be next for the world to deal with.
5) North Korean missile program becomes more troubling for the U.S.
6) Spain’s debt problems that could escalate.
7) China, Asia Pacific, and Europe economies still troublesome.
8) U.S. budget- fiscal cliff discussion must be resolved by March. Can Congress and the President get it together or will they take the country down to appease their constituents? Will the markets start to factor in an expected national shutdown in February?
9) States receive 22% of their budget from the federal government. A government shutdown could cause ripples all the way down to the local level.
10) U.S. economic slowdown- stagnate jobs growth.
11) Tax increase in 2013.
12) Can business be inspired to remain in the U.S. and create U.S. jobs or will Government policy continue to expatriate jobs.
13) The next blow to business from the White House.
14) The unemployment rate is serious and could easily turn worse if any negative news were to surface which would compound the problem with the economy.
15) Pending home sales are slumping. December by 4.3% according to National Association of Realtors. That was well below views. What is next?
16) Our national debt is getting worse and can cause our country’s debt rating to decline again which will cause interest rates on future borrowing to increase. We also know that interest rates will return to normal sooner or later. When this happens, it has been forecasted that debt payments will soar and bring our nation to its knees.
Today, the market may appear oblivious to these pending problems. In fact, a handful of billionaires are dumping American stocks tied to consumer related stocks. Warren Buffet is leading this trend by dumping stock from companies like Johnson & Johnson, Proctor & Gamble and Kraft Foods. Since 70% of the American economy is dependent on consumer spending, it looks like Berkshire Hathaway is betting on a significant American economic slowdown. When will that be realized? Will this shoe drop in February, March or April? If the experts are right, it will have a significant downward impact on the market.