About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, June 29, 2012

Eurozone Status Check

The EZ continues to operate with too little monetary / financial liquidity to support economic
recovery. There had been a moderate bounceback in output from the deep recession of 2008 -
09, but the Euro area is down again this year, with declining production reflecting how even
a modest acceleration of inflation absorbed the very low rate of liquidity growth. Euro Produc

Euro stocks initially reached bear market levels at summer's end 2011, and have rallied a few
times since as the key EZ political players have tried to fashion programs to stabilize the market
for weaker sovereign credits as well as shore up a seriously overleveraged banking system.
Even though output has declined, the broad stock market has been able to hold support at or
around the 2011 lows as investors have looked forward to a period of renewed economic
recovery over the second half of this year. IEV / EURO 350

Modest fiscal stimulus is on tap ahead, and it appears the ECB will be better enabled to
re-capitalize area banks as needed on a more timely basis. This new development should
reduce a reasonable portion of the stress on the area's financial markets as it will allow more
direct intervention on behalf of banks experiencing well above normal withdrawals. The
EZ economy is subject to being lifted, if only temporarily, by confidence building measures
from the authorities. With "fiscal union" still on the drawing boards, The ECB and local
central banks must pressure the Bundesbank to allow the central banking facilities to
provide more money to the now credit starved system. With area unemployment at 11% and
inflation decelerating on a cyclical basis, success here -- still doubtful -- may be critical
to providing a stronger framework for recovery.

As a US guy, I have had no need to play in Europe's markets since the early 1970s. But
as the bottom panel on the chart shows, Euro stocks have been seriously underpreforming the
US market and some value may be developing. But, first, the ECB needs to collect more
power, even if on the fly, to help the zone get back on its feet.

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