Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How Sidestep Europe's Debt Crisis and Profit from the EU's Economic Muscle

Stock-Markets / Investing 2011 Dec 03, 2010 - 06:51 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleMartin Hutchinson writes : The $100 billion-plus bailout of Ireland, which followed the $100 billion-plus bailout of Greece, seems at first to validate the standard U.S. view of Europe - that it's a bunch of backward, socialist countries that will be washed away by the tide of history.

According to this view, one European country after another will succumb to the "Greek disease," until the continent ultimately runs out of bailout money.


The conventional wisdom is that U.S. investors should just avoid the European Union (EU) in its entirety.

But U.S. investors who embrace this view - and ignore the economic muscle that exists in key European market economies - will end up leaving an awful lot of money on the table.

Ireland and Greece: A Tale of Two Divergent Economies
The average public-sector deficit in the 15 countries that use the European euro currency will be 6.5% of gross domestic product (GDP) this year, The Economist magazine's team of forecasters concluded recently.

That's lower than the 9% ratio for the United States, the 10.1% ratio for Great Britain, or even the 7.5% ratio for Japan.

So why would an investor who was worried about public-sector finances run away from the EU?

The reality is that as you go through the 27 countries of the EU - from worst to first - the concerns about public-sector finances are concentrated in less than a third of the European continent.

Greece is a basket case - no question about it.

Ireland, on the other hand, has merely been foolish about its banking and housing policies - and can actually boast an overall national economic policy that was put together in a highly intelligent manner.

Ireland's low corporate tax rate of 12.5% has generated strong inbound investments. That has developed Ireland's economy and its national skill set - while admittedly also fostering the formation of a sector of dodgy aircraft-leasing companies.

It will be very unjust if Ireland is forced to jettison that excellent national economic policy to get a bailout from the EU - but tough choices must sometimes be made.

The bottom line: Greece and Ireland are on divergent paths. In the long run, I expect Ireland to recover nicely; Greece - not so much. The difficulty now is that with the markets having generated $100 billion rescue packages for each country, they'll next be hunting for new victims.

The Next Phase of the EU Contagion
In this hunt for potential EU victims, it certainly appears to be a "target-rich" environment. In my opinion, there are six economies to watch. They are:

•Portugal: It has a sensible banking system and had only a moderate housing-price bubble (for some reason the Algarve stayed more selective than Benidorm or Marbella). Unfortunately, it has a dozy Socialist government that engineered a "stimulus" in 2009 and that resorted to such ill-advised, onetime deficit-reduction strategies as stealing the telecom company's pension fund - instead of employing such proper strategies as spending cutbacks. Portugal's deficit for the first 10 months of 2010 was higher than in 2009. Spending was up 2.8%, in spite of a modest economic recovery and very low inflation. So Portugal is almost certain to get a bailout, and is fairly unlikely to recover.
•Spain: This country had a real-estate the size of Ireland or England, has a Socialist government as dozy as Portugal's, and a huge 2010 fiscal deficit of 9.7% of GDP. While the top end of its banking system (Banco Santander SA (NYSE ADR: STD), for example) is admirable, there's a lot of dreck lower down. So at some point, I'd expect Spain to demand a bailout, too. The problem is, Spain is bigger than Portugal, Ireland and Greece put together. A bailout of around 50% of GDP, roughly the size handed out to Ireland and Greece, would total $730 billion - and drain the bailout fund of the remainder of its cash.
•Spain's plight is unfortunate, because we should also worry about Italy: Bigger than Spain, and with a government that is tottering on the brink (at which point it will be replaced by yet another dozy Socialist operation), Italy is a country whose banks are so sleepy that they've been able to avoid trouble. It's real estate market stayed within bounds and its fiscal deficit is only half of Spain's. But its public debt is far in excess of 100% of GDP. If the speculators succeed in knocking off Portugal and Spain, they will think they are on a roll and have a go at Italy - which is probably too big to bail out.
•There are two countries that pundits talk little about - Hungary (not an EU member) and Slovakia (got lucky and elected a competent government last summer). And there's a final one nobody talks about - Belgium: A mirror image of Italy, with about the same budget deficit and even more public debt, Belgium has the worst debt/GDP ratio outside Japan. What's more, it has great difficulty forming governments and may someday split in two. Its big advantage is that it happens to be where all the Eurocrats live and work, so like the District of Columbia, it will get bailed out somehow.

Actions to Take: If Spain goes, the EU can't survive in its current form. That's a pity, as it's very convenient if you're traveling in Europe and has been quite well run by the European Central Bank (ECB), whose policy in the last decade has been distinctly better than that of the U.S. Federal Reserve.

However, if the European Union splits, that doesn't mean that European investments become super-dangerous - far from it. Instead, those countries in Europe that are genuinely well run - think Germany, Sweden and the Netherlands, for example - become even better investments, because they will lose the responsibility for bailing out their weak siblings.

Eastern Europe, too, is mostly benefiting from having lower labor costs than its Western European brothers and sisters, fewer welfare-state problems and an education system that is just as good. The EU as a whole is recovering nicely, and these countries are currently doing best. So, oddly enough, if you want to hide from the Irish contagion, some of the best places to do so are in Europe. In particular, take a look at the:
•iShares MSCI Germany Index (NYSE: EWG), which covers Germany, currently Europe's strongest economy, an export dynamo recovering rapidly on the basis of some of the world's soundest economic policies. At $1.6 billion, with a 0.55% expense ratio, a Price/Earnings ratio of 11 and a yield of 1.4%, it should be a core holding of any portfolio, even if other investments are mostly domestic.
•iShares MSCI Sweden Index (NYSE: EWD), which invests in an EU success story. Americans tend to think of Sweden as a dozy Socialist economy, but it has actually revived itself considerably recently, after a horrid crisis in the early 1990s. The World Economic Forum has recently rated Sweden the world's second-most-competitive economy, ahead of the fourth-place U.S. economy. EWD is a $250 million fund, with a low 0.55% expense ratio; the P/E is a bit higher at 15, and the yield 2.1%.
•iShares Netherlands Investible Market Index (NYSE: EWN), which has a yield of 1.9% and a modest P/E ratio of 11. It's a smaller fund, with assets of only $171 million. But its expense ratio is only 0.55%.
•iShares MSCI Eastern Europe Index (NYSE: ESR), which is a small fund, at only $14 million, but one that still gives you access to the growth areas of Eastern Europe, where it is very difficult for U.S. investors to find direct investment plays. The fund's expense ratio is a little higher, at 0.7%, but its P/E ratio is only 10 - and the lower P/E and higher growth rates certainly looks attractive to me.
[Editor's Note: If you have any doubts at all about Martin Hutchinson's market calls, take a moment to consider this story.

Three years ago - late October 2007, to be exact - Hutchinson told Money Morning readers to buy gold. At the time, it was trading at less than $770 an ounce. Gold zoomed up to $1,000 an ounce - creating a nice little profit for readers who heeded the columnist's advice.

But Hutchinson wasn't done.

Just a few months later - we're now talking about April 2008 - with gold having dropped back to the $900 level, he reiterated his call. Those who already owned gold should hold on, or buy more, he said. And those who failed to listen to him the first time around should take this opportunity to remedy their oversight, he urged.

Well, we all know where gold is trading at today - at about $1,390 an ounce.

For investors who heeded Hutchinson's advice, that's a pretty nice neighborhood.

Investors who bought in after his first market call are sitting on a profit of as much as 81%. Even those who waited, and bought in at the $900 level, have a gain of about 54%.

But perhaps you don't want just "one" recommendation. Indeed, smart investors will want an ongoing access to Hutchinson's expertise. If that's the case, then The Merchant Banker Alert, Hutchinson's private advisory service, is worth your consideration.

For more information on The Merchant Banker Alert, please click here. For information about Hutchinson's new book, "Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System," including how to purchase the book at a 34% discount, please click here.]

Source : http://moneymorning.com/2010/12/03/...

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in