While much of the current chatter is focused on the nonsense
going on in Washington (and it
nonsense), Europe has quietly begun to rally. I began to look at
Europe last summer when it was in the depths of its bear market and
First of all, I think that investors are way too quick to dismiss
Europe and the attempts Europeans will make to keep the euro
working. The euro currency was 50 years in the making after World
War II; it was seen as a way to create a unified, peaceful,
prosperous continent. You think that after one crisis, European
policymakers are going to let the currency fall by the wayside?
In addition, if you look inside the economic numbers, you will see
that things are not as bad as they seem. Italy, for example, has a
much smaller structural deficit than the United States -- and the
country has a huge underground economy to boot! Therefore, its
economy is probably much stronger than the official numbers
suggest. Most of the PIIGS countries now have trade surpluses
because they cut back on imports during the eurozone crisis.
Due to the strength of the northern countries as a whole, Europe
has a current account surplus. In addition, its markets are much
cheaper than America's markets. Because of the increase in the
(INDEXSP:.INX), the trailing 10-year P/E is now north of 23 in the
United States. But the trailing 10-year P/E is in the single digits
in places like Italy (P/E = 7.78), Spain (P/E = 9.52), Austria (P/E
= 8.92), and Greece (P/E = 3.48).
iShares MSCI Italy Index ETF
(NYSEARCA:EWI) has just broken out of a two-year $10 and $14 per
share base. In addition,
(OTCMKTS:FIATY) has been making a long-term base; it recently
announced that its Alfa Romeo division will be putting a sports car
out in the US market. We all know how North Americans love cheap
sports cars, so the new Fiats should sell well. Additionally,
), which is the largest telecom company in Italy, just broke out of
a major downtrend.
I think investors tend to forget how beaten up these markets were
-- and still are, in some cases. At its low, Italy's stock market
was 70% down from its all-time high. Greece's had fallen 95%, and
Spain's had fallen over 60%. These are fire sales on companies,
regardless of whether or not the economies are stagnant.
By all accounts, most European economies are stabilizing and
showing signs of growth. I think there is going to be a key asset
shift out of the US and into Europe in the coming months -- if it
hasn't already begun.