It had to happen. The market was overpriced and just waiting for a “trigger” to start the correction.  President Obama provided the trigger with the announcement on Banking reforms, starting a slide in financial stocks.  Then to add momentum to the slide China announced that it was tightening credit.  Suddenly importers to china could not get letters of credit, commodity prices fell and the Australian dollar fell.  All this started a flight to safety and the US$ gained strength, (though for the life of me I find this hard to understand – why would anyone think the US$ was either safe or strong?)

Last year 140 US banks failed, an average of 11.6 per month.  So far this year 15 have failed, if this rate were to continue we are looking at 180 to fail for the year! At the moment everybody hates bankers. They brought a lot of it on themselves by paying out big bonuses after being bailed out, and not to mention that it was the financial industry that has coause the mess in the first place.

 

Looking at the FTSE chart it has been a sudden drop off the high reach on January 11th. It burst through the 5200 support, now the question now is how low will it go? The next significant support level is 5,000.  There are many who are saying the ultimate bottom will be below the lows reached in March last year. 

Certainly reading of the problems of Greece and many other EU countries that are not as bad as Greece, but on the other hnd are not healthy either, it does not bode well for the euro.  The US is not much better with the budget deficits current and forecast.  There is a quote from Charles Dickens David Copperfield, which put in dollar terms goes like this, Income $10, expenditure $9.50 result happiness, Income $10, expenditure $10.50 result misery. This applies to Governments, Companies and individuals. 

As it applies to Governments, you cannot borrow your way out of a recession, and this is just what they have attempted. Sooner or later the unpleasant choices have to be taken.  Already 40% of americans receive food stamps. The poverty level has reached 37.9%.  If 40% are on benefits that leaves 60% earning, of that 60% a large proportion work for the government or military and are therefore a cost to the country, leaving just a small proportion of earners to pay for all this expenditure.  And this number of workers has been shrinking month over month for two years.   This Friday’s non farm payrolls will be revealing.