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Why are markets so depressed?

The truth is that earnings have been very good (both in the US and in Canada), sales in the 3rd quarter (reported) have been softer than their profits (which exceeded expectation -- they always do) but the real kicker has been guidance -- where North American companies look at the future and don't see anything good. On the retail front one has to wonder, with Black Friday sales already in full swing --- a few days earlier than usual.  What is strange is that for America at least, the consumer has been pulling the economy, with savings falling to fund consumption.  But there is a bad feeling in the air!

The gloom is based on a perception maybe that there are some big events out there -- but on the North American front there is nothing really threatening until after the election (Nov 2012) in fact any automatic budget cuts in the US federal budget will not take place before 2013 -- almost two years from now.  Europe has only limited impact on North America -- since few of our good go there anyway (Europe is a big, closed economy -- as for as North America is concerned). Still unease rules!

Now don't get me wrong I am not personally bullish on stocks, I've actually been out of the market for several weeks now. As a Canadian things are looking good, oil prices are around the $93-97/bbl range, although zinc and copper prices are off their high, they are still in a "good place" for Canada's exporters.  Gold prices are not moving much, but its still around $1,700/oz -- hardly a depressed level.

What is threatening is a "end of empire" feel to the the global economy.  A few weeks ago a graph (here) showed the level of OECD countries overall debt burden, Canada was the lowest but hardly a star performer.  Kyle Bass was on British TV last week, explaining that the reality that is Europe is unsustainable. In the past the outcome as ALWAYS been the same -- sovereign default, why would this time be different?  Maybe that's the problem; everyone who is informed knows that this problem has only one outcome -- default, and the worry now is that with the excessive bank leverage the risk of contagion across the globe is massive.

I've said it before, when one banks has $5 trillion of derivative gross exposure, it doesn't take much, in a crisis situation, to cause terminal damage!  A few weeks ago MF Global went bust, where now $1.2 billion in client segregated cash has disappeared without a trace!  Rumors are that the EU authorities are working with Switzerland to force repatriate Eur 60 billion in cash that Greeks have "stashed away".  Safe harbors are difficult to find in these situations.  As one commentator mentioned earlier this week:  The sale of mattresses is bound to rise as a way of storing cash!
  
After a 1.7% correction yesterday in North America (around 4% in Europe) one would expect a pull back! Not really, markets are flat this morning.

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