And why should you care?
A recent Traders Reserve poll of those watching the recent GOP presidential debates (about four in five respondents did so) asked if the US should help Europe out if the current crisis merits our support. Four in five respondents said no.
More than ever we live in a globalized financial system and economy, for good or for bad. This is a fact, and has been for many years, not a temporary event. Today’s GDP numbers showed Europe growing 0.2% — and I bet this number, when revised shows negative growth. Europe is the US largest and most important trading partner – China may by corn and steal our intellectual property, Europe buys higher value added goods far more important to the US economy.
Who cares what many bloggers and columnists and whatever say when interviewed.
Wrong answer again.
And individual investors at seminars I give, when asked variations of these questions, answer “I own US stocks” or “Chinese stocks” they too are providing wrong answers.
Individual investors need to be aware of how to manage through and exploit this crisis while at the same time adjust their portfolios for the coming half decade of European economic stagnation and its impact on markets and stocks.
Short term, do not think European instability is anywhere near over – it is not, it is going to get worse long before it gets better, perhaps as soon as next week. Greece is not only going to default soon, as expected, it is going to default again in a year, perhaps less, and that is not expected. Italy is solvent but bond markets facing Italy are illiquid and there is not enough money in the tank right now to end that illiquidity. Portugal is next; and Spain; and so on.
Longer term – six weeks to five years – look at some names exposed too much, right now, to Europe and the one name I like – it is on the short side, so I am talking about buying puts – is Dell Inc. (NASDAQ: DELL).
Dell has a pretty lousy story to begin with – weak demand, no products for the two growing computing markets, smart phones and tablets, a less than stellar track record for management. Europe is a big market for them and it is now headed in the wrong direction.
Add to that possible product shortages and revenue shortfalls due to the floods in Thailand that knocked out disk drive production capacity and the company is going to have several difficult quarters, starting right now. And the six month chart tells us there is no great love for this outfit at these prices.
Why do I still believe Dell will fall further?
This is a bet on an earnings disappointment—ChangeWave/451 Group survey data shows a big downturn in corporate capital spending, Apple is killing everyone in the consumer market, Asia has slowed – things are adding up for Dell to disappoint. The new position has a very high risk given the stock’s sensitivity to this earnings announcement scheduled for November 17th.
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