A U.S. strike on Syria is off the table, at least for now, but Wall Street still faces some BIG RISKS this month — and potentially a very dark October if it doesn’t face them head-on now.
This weekend’s prospective Syria agreement helped the stock market wrap up a great week last Friday. Can we bet on another one? Maybe, but three other storms are still out there.
They’re all major risks on their own — but if two or three hit us at once, the consequences could be staggering!
Let’s add them up …
Risk No. 1: Surprise at the Fed
This morning the Federal Open Market Committee starts a two-day policy meeting. Fed-watchers expect Ben Bernanke to announce some kind of "taper" action tomorrow, to start winding down our $85-billion-a-month quantitative easing program.
The risk isn’t so much the taper itself, but rather the potential for a surprise. Bernanke shocked markets back in June with a rather stumbling description of the plan’s timing. I hope he is better-prepared this time around.
If the Fed statement matches expectations, tomorrow’s news conference could be Bernanke’s final curtain call. Attention will turn to his successor — who apparently will not be Larry Summers.
If something new comes out tomorrow, in either the FOMC statement or Bernanke’s news conference, then all bets are off. We could see major reversals in every global stock, bond and commodity market.
Even though the market is waiting for Sept. 18, it will immediately start preparing for the next potential shockwave. That’s because, just four days later, we have …
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Risk No. 2: The German Election
By this time next week, after Germany’s Sept. 22 election, European politics could be in total disarray.
Could Peer Steinbruck win the German chancellor title from Angela Merkel on Sept. 22?
Germany dominates Europe, and it is not at all clear Angela Merkel will be chancellor much longer. Social Democrat challenger Peer Steinbruck could defeat Merkel’s Christian Democrat party.
A defeat for Merkel could potentially throw a monkey wrench in all the compromises worked out to prevent a European economic collapse.
All the plans will fall apart if Germany stops cooperating — and that’s what the Social Democrats will do if they win. They are as intense on this issue as the U.S. Tea Party groups are about repealing ObamaCare.
This past week brought another twist. Steinbruck allies released a controversial picture of their leader, which appeared on a magazine cover. It could backfire on them and save the day for Merkel. (You can view the photo online here.)
In many ways, Germany’s argument resembles the "47%" remarks that may have kept Mitt Romney out of the White House. A picture is worth a thousand words, and this one speaks just as loudly as Romney’s recorded comments.
I expect market turmoil If Merkel loses — but because of Germany’s complicated political structure, we may not know how the votes line up for several days or even weeks.
The uncertainty could make traders assume the worst … and trade accordingly.
Risk No. 3: Congress Lurching Toward Disaster AGAIN
I won’t pull any punches: The ongoing war between GOP moderates, pragmatic conservatives and the House Tea Party block is out of control. If Speaker John Boehner can’t resolve serious divisions in the Republican caucus, we could well have a government shutdown at the end of the month.
Boehner needs to negotiate an agreement that keeps the government running, cuts spending, reduces the deficit and persuades recalcitrant conservatives to raise the government’s borrowing limit — all in the next two weeks!
Without new spending bills, much of the federal government will go offline at the end of September … and by mid-October, the Treasury Department will lose its legal authority to issue bonds and pay the government’s debts.
Obama used 22 different pens to sign the landmark $938B healthcare bill that’s still up for debate today.
The Obama administration says very clearly that it will NOT negotiate the debt ceiling. The president is adamant on this. So are Congressional Democrats.
Tea Party members of Congress insist they will not raise the debt ceiling unless they can completely defund or delay ObamaCare.
The best-case scenario is for a few VERY caustic weeks ahead in Washington. The political theater could push stocks down as investors try to understand the possibly very serious consequences.
- A short-lived government shutdown likely triggers a 5% pullback on Wall Street …
- An extended shutdown would damage the U.S. economy and push the country into a double-dip recession …
- And another downgrade in our nation’s credit rating could well result in as much as a 10% to 15% slide for blue chips on Wall Street!
Boehner has no good choices. As I said last week, his political career is probably over no matter how all this ends.
If we’re lucky enough to get past the FOMC announcement and the German elections, Tea Party members of the House may still commit our country to financial suicide. The hedged gold position I sent to my Junior Resource Millionaire subscribers last week is working well and I see more opportunities ahead.
I think gold is VERY oversold right now and could rocket higher at any time. The budget impasse could be the spark that does it.
With all the risk factors at play, now is a time to be VERY careful in EVERY market! Stay on guard — because anything can happen!
Good luck and best wishes,
P.S. Between the developments in the Fed over the weekend and the extreme negative sentiment in the markets … I think we could see a nice pop in the gold markets that could hand us some lightning-fast gains.
My last recommendation ran up more than 24% in just one day. And I think my newest gold recommendation, which I just released yesterday, could be an even-bigger performer!
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