Weekend Edition: To Panic or Not To Panic

June is turning out to be one heck of a ride in this market, a ride down that is. It’s been hard to watch my profits for the year melt faster than a cone of ice cream in the sun. Obviously, the juniors are the first to get beaten down just like they are the most rewarding in a normal market.

Oh yes, in case you haven’t noticed, this is not a normal market. This is way more than the summer doldrums we went through last year thanks to the ongoing Greek drama. At this point, I can still sell everything and sit on my 80% return from last year but that would be giving in to panic. Let’s see here, is there a reason to panic?

If Greece with a debt load it clearly won’t be able to pay back decides to default, it will destroy its own banking system (Greek banks hold part of the debt), bring down European banks and freeze credit markets a la 2008 which means the onset of a second recession when we’re not even completely out of the first. That’s clearly a reason to panic!

On the other hand, do you really believe European politicians will choose short term pain over kicking the can further with another bailout? I doubt it since Germany confirmed it will be working with the ECB on another aid package to Greece.

With the latest revised IMF forecast of slower economic growth in the world because of elevated risks my thoughts shift back to North America with the deficit issues of the US. If Greece caused a painful drop in world stock markets, what will happen if the US debt comes under the spotlight? Will markets collapse because there’s a risk of default?

I doubt it and that is because the US has a magical printing press, press a button and billions of dollars in electronic money are summoned ready to be spent. Do you really believe the US will default? I don’t and I also believe some form of QE will have to continue in order to keep the low interest rate environment.

It’s not the time to panic in my opinion. I will sit and watch how the market evolves through July and if by August we still have a sale on many of these stocks it might be the time to pick up some more. After all, I stick to my scenario of falling oil prices reflected in positive Q3 economic data which will fuel another leg up in the market. I am staying the course’

What do you think? Are we in a temporary soft patch? is this the beginning of another recession? should I sell it all and stock up on guns and ammo because we’re doomed?

Economic roundup:

Gold to Reach $5,000 Due to Supply Shortage: Report

IMF: U.S. Playing with Fire

‘Tidal Wave’ of Gold Demand Coming From China, India

Chinese Agency Accuses U.S. of ‘Already Defaulting’

Shiller: History Suggests S&P 500 is 40% Overvalued

Weekly blog roundup:

Going for quality is the frugal way @Super Frugalette

Covered Call ETF High Income, Low Risk? @Dividend Guy Blog

Residential Property Investing For Beginners @Canadian Finance Blog

How Would You Do in the Financial Hot Seat? @DIY Investor

Dividend Income ‘ June 2011 @ The Passive Income Earner.