Just think about 2008-2009 in the US market. Back then, things looked bleak for investors. The breathless media had the hilltop screamers on every news channel, on all the radio stations that thrive on sensationalism, on the blogs that say anything, and in in serious print. Clearly, the world was coming to an end, and if you were so inclined to consider the market as an investment, well, you were crazy.
Yet, there were also those who suggested back that the low was in, that the time to get in was now, that things would get better. Those much fewer in number folks were right and had you listened, you would be sitting on gains upwards of 100% in four years.
Last November, even though the breathless media was promoting the hilltop screamers again, this time about Europe, I suggested moving money into Europe. On November 16, 2012, the DAX (German market), hit an intra-month low of 6950. Today, it is at 8400 and counting. True, the eight-month gain is only 17%, but that is a good starting point, if you want to make your money work hard.
- Europe’s woes may be off the front page but the problems remain. Unrest in Spain, the questionable future of the Euro currency and rampant unemployment still plague the region. Regardless, European stock markets are starting to move higher and valuations are still cheap.
The reason European stock markets are moving higher is investors see all that bad news mentioned above beginning to temper, or, at the least, they see a bottom for the debilitating European recession. If I am right, then I expect we will see several years of above average gains in Europe, just as we did here in the US from 2009 until today. My suggestion today is, as it was last November, follow the money into Europe.
Now, I argue that the economic revival in Europe will come about because of improving economic fundamentals, but there will be those who will tell you that if Europe improves, it will be illusionary; any improvement will come about because of accommodative European Central Bank policies.
- The European Central Bank left interest rates at a record low 0.5 percent on Thursday and affirmed that they will remain there for some while to come and could yet fall further.
Putting the argument aside, does it really matter why the European markets will go up? The way I see it, central bank policies help stimulate economic growth, which is the fundamental reason European markets will continue to go up.
Europe, the US, or Asia, it does not matter anymore. The economic future is brightening in all directions. Get your money in now so you can look back on those double-digit average annual gains. As I said some time ago about the US market, the train is leaving the station. Make sure you are aboard …
I have suggested for years, that the market is not as complex as the financial analysis industry makes it out to be. In fact, it is pretty simple. So, when I come across an analysis that requires so much work to understand, such as the one below, I wonder am I missing something, or do some folks turn making applesauce into a full-blown science project?
- A consistent deflationary trend is that stocks become more correlated to commodities than bonds, as they did in the deflationary 1930s. Deflation did briefly emerge in 2008/2009 and the high correlation between stocks and commodities was experienced. Since 2012, however, the correlation broke and equities have outperformed while commodities underperformed, a sign of deflationary threats subsiding. The recent outperformance of equities over commodities is typical of periods of low or disinflation. A return to higher levels of inflation however would likely see the two reverse courses. Until such an increase in inflation takes place, the current outperformance of equities over commodities could persist.
Putting aside the muddiness, think about the market today. The DIJA crossed above 15,600 and the S&P 500 crossed over 1700. It is simple folks; the market wants to go up because all signs are pointing to an improved economic future around the world.
- U.S. stocks opened higher on Thursday data as from around the world pointed to improving economic conditions and Procter & Gamble reported strong results.
- The all-important ISM index, which is a proxy for the state of the manufacturing sector, was reported at 55.4 in July. The reading was above the consensus estimate for a reading of 52.1 and last month’s 50.9.
- Long Island car dealer Gary Brown is enjoying the summer heat brought on by consumers’ increasing demand for new cars and trucks, and like the rest of the industry, expects sales in July will continue the trend. “We’re still on fire,” the owner of Brown’s Jeep Chrysler in Patchogue, New York, said.
Get to work putting your money to work.
Trade in the day; Invest in your life …
