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Jim Trippon is a certified genius, a member of MENSA, and the epitome of the “Overachieving Entrepreneur.” He’s an internationally renowned and globally experienced investment expert, dedicated to finding undervalued, “under the radar” investments for his worldwide clients and subscribers. He... More
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  • Debt Crisis or Opportunity? Investors Need Help 0 comments
    Jul 18, 2011 9:45 AM | about stocks: ING, POT, DE, JOY
    Whistling past the graveyard? President Obama sounded confident as he took to the airwaves Monday, calling for a resolution in America's debt deadlock. Obama set a deadline of July 22nd for a deal to avoid "spooking" financial markets.

    Sorry. Too late.

    As the president spoke, U.S. markets deepened their slide. So, will this slump become a chronic downturn as July 22nd approaches? And what if that July date passes and the U.S. approaches the official default date of August 2nd?

    The current dilemma facing investors is further complicated by the fact that the European debt crisis is even worse than America's. Italy and Spain are the current PIIGS in deep crisis (PIIGS=Portugal, Italy, Ireland, Greece and Spain).

    Italy's sovereign debt is an appalling 120 percent of GDP. Even worse, the country's GDP per capita is flat. Italian debt has been this severe for more than a decade, and bond markets have now become panicky. The yield on 10-year Italian bonds has soared to 5.68 percent from 4.91percent a week ago.

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    Meanwhile, the Spanish 10-year bond yield jumped by a similar margin to 6.03 percent. Suddenly there is a worry that these two nations will need a Greek-style bailout.

    The problem is that Europe can't afford it this time. Spain and Italy are many times larger Greece in economic terms. A default by either could threaten the entire Eurozone.

    This contagion is a real global threat. European banks were hammered on Monday as the crisis escalated. Shares of ING Groep N.V. (NYSE:ING) of the Netherlands plunged more than 9 percent in European and American markets. Banco Santander of Spain was off almost 5 percent. All major European banks suffered similar losses as the continent's debt crisis spread.

    Investor losses weren't limited to the banks. Italian stocks plunged more than 11 percent over the past week. Portuguese stocks lost more than 4 percent in a single day. By contrast, the S&P's Monday decline of 24.31 points or 1.81 percent seemed mild. But that's no reason for false confidence.

    Will the U.S. Follow Europe?

    European declines led American markets down on Monday. But last week, U.S. stock markets were strong while Europe plunged.

    Clearly House Speaker John Boehner's weekend declaration that debt talks had hit an impasse did spook the markets on Monday. So where do we go from here? Well, we're in for a wild ride.

    Washington will almost certainly exhaust every available deadline as a debt default crisis approaches. Both sides are deeply ideologically entrenched. They will be very, very unwilling to give ground unless crisis conditions force their hands.

    As debt deadlines loom, U.S. markets will become very volatile. Monday's market action shows that even blue chips are not immune. Despite hugely encouraging news about agricultural demand from China, industry leaders in that field plunged.

    Fertilizer giant Mosaic was off 5.09 percent for the day while its counterpart, Potash Corporation (NYSE:POT) was off 2.37 percent.

    John Deere (NYSE:DE) lost 3.04 percent and Joy Global (JOYG) lost 2.86 percent.

    The point? None of these companies has any direct connection to debt problems in Europe or the United States. Their sales and profits are excellent and their valuations are comparatively cheap. Their future is bright because of booming Chinese demand. But none are protected from the sovereign debt disease.

    The Outlook

    I expect Europe to continue lurching from crisis to resolution and then on to the next crisis. Eurozone problems are deep and chronic. Europe's banks cannot be allowed to fail because of sovereign debt. But rescuing debt-ridden nations on the continent will be a problem requiring years, not weeks or months to achieve.

    Gridlock in the U.S. will, meanwhile, cast a spreading shadow over the best companies on American stock markets. Investors will become increasingly nervous as deadlines approach.

    Let's hope we don't face a situation like the Lehman Brothers market crisis. When Lehman failed, congress unexpectedly rejected a bid to bail out the rest of the collapsing banking system. The market responded with a 700 point nosedive. That finally motivated congress to act, to prevent systemic financial disaster.

    I can only hope that the government will get its act together this time without a market crisis to act as a motivator. But there is no guarantee.

    The irony is that many great companies, like those I named above, have terrific earnings and cheap valuations already. The attractiveness of such stocks is supporting the market against headwinds from both Europe and Washington. That's why investors will face very choppy seas in coming weeks. The two forces are working against each other.

    The good news about this volatile outlook is that some great companies will soon be on sale at bargain prices. It may not be buying time now, but that day is coming.

    There is essentially zero chance that Washington will commit financial suicide by permitting a debt default. Politicians are too self-interested to allow that to happen. But they could push us close to the brink.

    I believe when a bargain is stuck in Washington, there will be some great bargains on the market in New York.

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    Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

    Would you like to republish this article? Global Profits Alert issues can be republished, as long as the republished issues contain the name of the author(s) and the following short paragraph:

    This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit http://www.globalprofitsalert.com.

    Stocks: ING, POT, DE, JOY
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