Funny thing about markets: It's best to buy when no one else is.
Last summer you could barely find a soul who was bullish on Europe
beyond maybe Jim Rickards and a few other contrarian commentators,
I have always taken a contrary view toward the so-called European
The problems with the so-called PIIGS -- Portugal, Ireland, Italy,
Greece, and Spain -- has been blown out of proportion. Out of these
countries, Italy is the only real player (Spain is large, but not
gigantic) on a global scale. Few realize that if you actually take
the eurozone as a whole, its deficit is half of that of the United
States (about 3% of GDP as opposed to 6%) because of the strength
of the northern nations.
In addition, Germany is forcing its model of austerity and
productivity on the rest of Europe -- that is, a production model
rather than one of consumption. Furthermore, as most of the PIIGS
have seen domestic consumption decline, it has actually put many of
their trade budgets into surplus.
Very quietly the euro broke its high for the year and hit a near
two-year high of 1.37 against the US dollar. The funny thing is
that no one is talking about this. In addition,
Global X Funds
iShares MSCI Italy Index
(NYSEARCH:EWP), and the
iShares MSCI Austria Investable Mkt ETF
(NYSEARCA:EWO) have all had huge rallies since the summer, way
S&P 500 Index
So why is no one talking about these rallies? I think since the
debt crises picked up steam in 2011, it was easy for the media to
point fingers at Europe as some sort of dysfunctional socialist
mess with an unfixable political situation. However, through
austerity and some cleaning of its government structures, Europe is
now about to recover. Don't get me wrong -- there are still many
problems, such as negative demographic trends and an overleveraged
banking system. However, in the short term, Europe should
I think painting Europe as a mess politically, when the US is just
as big as a mess politically, was an easy way to divert attention
from the 18-trillion-pound gorilla in the room that is the US
national debt (which at some point has to be dealt with).
Most of all, what the European situation of the past decade has
taught us is that if something becomes cheap enough, you should buy
it. In June 2012, Greek stocks had a 10-year trailing P/E of two.
That is not a typo --
. The stocks were down over 95% from their lows, which is more than
(INDEXDJX:.DJI) fell during the 1929 to 1932 crash (89%).
At their lows last year, markets in Spain and Italy were about 70%
off their highs. At its bottom,
) had a larger market cap than the Italian market. Italy is a rich
country which has car makers like
(OTCMKTS:FIATY), retailers such as
(OTCMKTS:GUCG) and Dolce & Gabbana, plus many more industries.
So yes, European stocks will continue their rallies and the euro
will continue to hit new multiyear highs -- and virtually everyone
will continue to not notice.