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Sources of Possible Volatility In 2011

1 January 2011 One Comment

If you look at the stock market since early 2009, you would probably think things are pretty good.  If you start to look under the covers a bit, you might start being concerned.  If you start reading the data and seeing the numbers, you might start getting freaked out.

The reality is that despite a higher stock market, there’s still been some serious uncertainty – i.e. the May “Flash Crash” where the Dow tumbled nearly a thousand points in minutes – and there is reason to wonder what lies ahead.

There are definite risks and possible sources of volatility in the year ahead, and it might warrant taking some action to make sure your money and your investments are able to withstand such volatility.

Sovereign Debt

The sovereign debt situation continues to deteriorate, and while major defaults might not come in 2011, they will come eventually.  Europe seems to be an epicenter of possible defaults.  Greece and Ireland have been the focus, but Portugal, Spain and Italy also face massive debts and some serious risks down the road.

Essentially, there’s too much debt everywhere in the world – this debt needs to be restructured – instead, the world papers over it with more debt or devalued currencies.

State  & Local Governments In The US

States like California, Illinois and New York face massive fiscal issues.  They’re in the hole so badly, there’s essentially no way out.  Federal assistance is almost a guarantee in the world we live in today where nobody is forced to pay for their fiscal sins.  Just wait until you hear the outrage from citizens when tax dollars from someone in Georgia goes to pay the $200,000 pension for a California state teacher.  Woohoo, that should be fun.

The fiscal situations across governments around the world and around the US are a mess.  These situations aren’t improving, but instead continue to worsen.  We can put off the day of reckoning for a while, but boy will it be messy when it comes.

These situations may hit the fan in 2011 or it might be 2012 or later.  The reality is that our leaders are actually good at kicking the can down the road, and they can usually kick it further than we think.

Regardless, don’t try to time it.  Take the necessary steps to prepare for major financial chaos should major defaults start to happen.  What steps might these be?  Well, the “uncertainty” assets like cash & metals is a good place to start.  Making sure you’re diversified (not across stocks, but across assets).

Good luck.

One Comment »

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