Precarious Situation

The US economy is slowing and there is little that can be done. The Federal Reserve's hands are tied as rates are already at zero and there is too much political fallout to launching QE III. From a fiscal standpoint stimulus is out of the question as the budget deficit is all the rage. The economy must stand on its own two feet and it is wobbling.

In Europe, 10 year Italian borrowing rates have gone above 6%. Without intervention Italy is heading for insolvency. The EFSF fund was given authority to purchase securities on the open market, but this is pending parliamentary approval in the Fall. For now, nothing can be done.

There has been a change of tone on conference calls this quarter as many companies are talking about a weaker economy. A year ago the market was worried but companies were seeing strength. The silver lining is that corporate profits are still holding up thus far.

While I am not aggressively positioned and my longs are defensive in nature, I want to get more defensive. However, I am loathe to do so as we are headed for an eighth straight down day. In these situations I have found that the best course of action is to suck it up, take the pain and wait for the next bounce. Even if we first go lower there should be a chance to exit at better levels once we bounce.

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