ECB President Mario Draghi fired his "big bazooka" on Thursday, or at least that is how the market interpreted his press conference comments.
The ECB would engage in potentially unlimited "outright monetary transactions," meaning that the ECB would buy as many short-term bonds as it takes to keep yields manageable. To drive home his point that he means business, Draghi added with rhetorical flourish that "the euro is irreversible."
NOT SO FAST BUDDY
We shall see. We've been made promises before only to be disappointed later by failure to execute. "Irreversible" may or may not include an eventual Greek exit. And far more critically, Spain and the bailout institutions remain in a sort of standoff; Spain will not be given a bailout (including the ECB bond buying) until it submits to strict conditions, but Spanish Prime Minister Mariano Rajoy will not request a bailout until he knows in advance what the conditions will be. Presumably, negotiations have been going on behind closed doors between Spain and the bailout institutions.
BIG BOUNCE IN SPANISH ETF
In any event, the markets are taking the meeting as an unambiguous positive. My recommendation last week--the iShares MSCI Spain ETF (EWP)--has enjoyed a phenomenal bounce, as have most risky assets.
Barring an unexpected twist from the German Constitutional Court on September 12, I think we could be looking at a monster rally to finish the year in most risky assets.
REACH FOR RISK
I recommend investors add a little risk to their portfolios on any pullbacks. And I'd start with an allocation to emerging markets. The iShares MSCI Emerging Markets ETF (EEM) should benefit handsomely from a revival in investors' animal spirits.
DON'T MISS OUT
Be on the lookout for unexpected ripples coming out of Europe. But don't let fear keep you from participating in what could be the best rally of the past several years.
Learn more on what the September German court ruling could mean.
Build up your Watch List from new TraderPlanet stories here.
About the Author
Charles Lewis Sizemore, CFA is the founder and editor of The Sizemore Investment Letter, a monthly newsletter dedicated to finding superior investments backed by powerful macro trends. He also serves as the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor.
Sizemore has been a repeat guest on Fox Business News, has been quoted in Barron’s Magazine, The Wall Street Journal and The Washington Post, is a contributor to Forbes Moneybuilder.
He is also the co-author, along with Douglas C. Robinson, of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008).
Sizemore holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom.
Prior to founding The Sizemore Investment Letter, Mr. Sizemore worked alongside best-selling financial author and economic strategist Harry S. Dent, Jr. in creating original research on the effects of changing global demographics on asset returns and economic growth and was a regular contributor to the HS Dent Forecast monthly newsletter and the HS Dent Blog—one of the most widely read financial blogs in the world.
CharlesSizemore
1 Comments
Join In on this conversation, post a comment below.