Cautious Investors!

Someone help me understand what this article from Reuters is really saying: http://finance.yahoo.com/news/stock-futures-gain-hopes-euro-124607096.html

Here is a section from the article, “U.S. stocks were little changed in choppy trading on Tuesday, with cautious investors hoping S&P's downgrade warning for euro zone nations would lead to tighter budget rules at a summit this week.”

I’m not sure who these “investors” are, but I sure hope they have no impact on my well being.  By the way, one of my favorite sayings, “hope is not a strategy”.

I’m a simple guy, so with that being said, here’s where I need help.  If European governments tighten their budgets, doesn’t that mean they will be spending less on buying stuff (this is a technical term) and potentially spending less on programs for their citizens?  If so, that means the citizens will be buying less stuff because they have to save more due to the reduction in any benefits (a person’s pie is only so big, you have to cut from one place to spend in another, unless you have access to borrow even more money…), and so that means businesses are selling less stuff because the citizens and government are buying less stuff.

If I recall from one of my Finance classes, this means earnings for these businesses will most likely drop and not be as rosy as currently projected (S&P is projecting record earnings for S&P500 companies for 2012, times are that good!), and I believe this is what is called a recession (or even worse the dreaded “D” word) if they are not as rosy as previous reports.

Now if I put two and two together, this means “investors” are hoping the S&P warning puts the euro zone into a recession because that will be a good thing?  Maybe it is only the “cautious” investors hoping for this, the rest don’t care.  I may need to go back to school because I must have missed something the first time around… 

I have more opinions on this stuff yearning to come out, but enough for now.

Joel Fink
joel.fink@yahoo.com