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5 Reasons for Investors to Be Worried

Five examples of damning data and nagging negatives that have staying power

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Let me take you back to those thrilling days of yesteryear — OK, January 2011, to be precise — when confidence on Wall Street was so pervasive that investors expected traders to start belting out the Annie show tune “Tomorrow” at a moment’s notice. None of the 32 experts surveyed by CNNMoney at the start of the year thought the S&P 500 would decline in 2011. What a difference nine months make.

These days, the mood of the investing public ranges from gloomy to despondent. As the Occupy Back Wall Street protests gain momentum, talk of better times ahead is replaced by discussions about how President Barack Obama’s poor standing in the polls could affect his re-election chances. A whopping 74% of Americans told Gallup they believe economic conditions in the U.S. are getting worse. Bad news is so common that terms like “the new normal” have cropped up in an effort to explain to the bewildered masses that the tough times likely won’t improve anytime soon. Indeed, the Congressional Budget Office expects the unemployment rate to remain above 8% through 2014 and predicts real GDP will expand by 2.3% this year and by 2.7% next year.

The mood among Wall Street sages also has grown more pessimistic since those giddy January days. Goldman Sachs chief U.S. economist, Jan Hatzius, recently put the odds of the U.S. hitting a recession in 2012 at 40%. He forecasted that unemployment will rise to 9.5%.

If that data doesn’t depress you, here are five more topics and bits of economic data that could make even the most cockeyed optimists run for cover. They are, in no particular order:

The Supercommittee

The 12-member, bipartisan Joint Select Committee on Deficit Reduction has the unenviable job of finding $2 trillion in deficit reduction measures that can be applied over 10 years. The panel’s deadline is Nov. 23. If its members fail to reach an agreement by then, $1.2 trillion in across-the-board cuts will be triggered, a scenario neither party wants.

To the surprise of no one, the supercommittee, as it is known, is — in the words of headline writers all over the Internet — super-deadlocked. Established under last summer’s budget and debt deal, the panel “appears no closer to a breakthrough than when talks started,” according to the Associated Press. “The reason? A familiar deadlock over taxes and cuts to major programs like Medicare and the Medicaid.”


Signs abound that the China’s economy is overheating. The International Monetary Fund estimates that the world’s second-largest economy will grow 9.5% in 2011, down from 10.3% in 2010. Unfortunately, that will miss the government’s target of 7%.

Prices for Chinese goods are rising as workers increasingly demand higher wages. The Chinese government is worried that economic instability will lead to political instability. The thought of that probably sends shivers up the spines of China’s trading partners.

Article printed from InvestorPlace Media,

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