A Different Kind of Swine Flu

photo by David Blaine

Written by Nathan White, CFA

The market advance off the March 2009 lows has finally faced its first real "test" in the form of a quick correction over the past two weeks.

It all started with more uncertainty caused by Washington who demonized and made threats against banks. Then it spread into a swine flu replacement called PIGS.

It's funny how quickly new acronyms take hold in our instant media world! PIGS stands for Portugal, Italy, Greece and Spain who are experiencing economic and fiscal difficulties that come from huge budget deficits. These countries stocked up on debt during the economic boom and are now facing the reality that bloated government budgets do not fare so well when your private sector is in the dumps -- sound familiar?

Investors have been fleeing the Euro to get away from the disease.

The big question is, what type of contagion effect could this have on everyone else? On one hand many other, more "stable" countries, have been following the same policies as the PIGS and are connected to them. In contrast, a country such as the USA is vastly more productive and diversified and in recovery mode, which is not to be underestimated.

Sometimes these situations just fade away as quickly as they started (e.g., Asian currency crisis, Russian debt default, Y2K, etc.) and sometimes they turn into something uglier (e.g. sub-prime).

The U.S. economic and earnings news over the last few weeks has been very good, which signals better times ahead conflicting with the news from the underbelly of Europe.

We will continue to monitor what the effects could and will be on the market. 

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.