There are so many things right now that could set off a land mine on the side of the investing road that investors have chosen to stick to the defensive assets until some of these land mines are removed — because if any one of them blows up, it’s not going to be pretty and it could set off a chain reaction of dire events.
So let’s look at some of these land mines so you’ll know what to keep your eyes on.
Moody’s and Fitch have both had negative comments about France lately and many worry that their AAA rating could be cut in the weeks to months ahead. If so, that would heighten France’s borrowing costs but it would also hurt investor sentiment much more since this would be another major economy to lose their AAA status.
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The next potential land mine is that China could have a “hard landing” in its economy. Many economists are worried about China's slumping manufacturing numbers, which have just hit a 32-month low. You’ll remember that it was China’s strong growth that helped to pull the world out of the global recession last time. But what if China can’t do it again?
China isn't as strong this time around.
Another huge fear is that Greece won’t get its next round of bailout money. If they don’t, then what? Will they be forced to leave the euro? If so, how will the market take this news? That’s a huge worry — and then that brings about the question if Greece leaves, what if Italy can’t cut it either? Will Italy be forced to leave the euro as well?
So all of these unanswered questions are weighing upon European stock markets and the euro.
Also, if things blow out of control in Europe, it will affect us here in the United States. How do I know? It’s because we’re so tied at the hip economically. We have huge trade ties. Therefore, if Europe hurts … we’re going to hurt. It’s only a matter of time.
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This brings us to the next fear.
There’s a huge fear that our large U.S. banks will be hit hard if Germany, France or Italy take it on the chin. You see, our banks don’t hold a ton of Greek debt but they do hold a lot of debt from the larger countries like Germany, France and Italy.
Then there’s the next potential blow up courtesy of MF Global. We already know they are bankrupt and that their company didn’t do right by their account holders. If those account holders don’t get their money back, it’s going to hurt the faith in the commodity market.
Also, investors fear that MF Global’s mishap could take down investment bank Jefferies Group, too.
Then don’t forget that many of our largest banks here in the U.S. had extended lines of credit to MF Global. What type of fallout will happen there? Nobody knows yet, but that’s not likely going to be pretty either.
There may be other issues that crop up…but these are at the top of the “investor worries” list right now. If any one of these landmines blows up, it could set off a chain reaction of events that mushrooms into something much, much larger.
That’s what investors fear right now. And what are the chances of at least one of these landmines going off? Pretty good I’d say.
Therefore this has kept some investors sidelined lately and it has kept many of the rest of investors majoring on the defensive assets like gold, large-cap dividend stocks and the dollar.
I believe this theme will continue on overall for several more months minimally and it could last much longer of course depending upon how many land mines are set off.
This is why I believe that these defensive assets will be “the place to be” for a good while longer.
There will come an end to all of this, no doubt. It won’t be “gloom and doom” forever.
When it all finally passes, there will be some great foreign currency gems to be had. But until then, the dollar will continue to hold up as money continues to run to the defensive.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.
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