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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 !!!

Thursday, August 08, 2013

Eurozone Status Check

Here in the US, there is stronger interest in the Eurozone stock market than that seen
for a good several years. The view gaining in popularity is that the EZ will very soon
be coming out of recession and that EZ stocks may offer more appeal than US stocks
in view of a possible strong leg up in EZ stocks as an early-in-the-recovery play. Since
EZ policies have many critics here, this perspective is far from unanimous.

I have followed a very simplistic approach with the EZ over the past couple of years
with my focus on Euro monetary liquidity. The growth of such liquidity has been
strong enough over the past year to have entered an area of sufficient magnitude to support
a mild economic recovery. I would like to see Euro M-1 up 10% or more yr/yr, but that
is well within reach this year. Euro M-3 is growing very slowly as EZ credit is still
shrinking, but it is monetary liquidity that usually leads the way in re-inflation start ups.

The EZ PMI has been in a base mode of a downturn-indicated  level of just above 45 for
most of the past 18 mos. and has just risen above the 50 level into expansion mode.
This sharp turnaround may well signal an end to recession conditions for the EZ in the
aggregate. Yes. it could be a fluke, but it is a hopeful sign after such an extended basing
period. 8/5 EZ PMI

Euro land  stocks have been trending higher over the past two years as players have mostly
blown off attention to the recession for the EZ as a whole. Plenty of investors here in the
US have ignored the market because it has seriously underperformed  the SP 500 and have
taken little notice of the strong recovery of the Euro currency. Europe 600 Stocks

The charm for US players despite already rising Euro share prices is the economic recovery
may finally just be starting with Euro stock composites 25 - 30% below the prior 2008 all
time high. The "600" index chart above shows its relative strength against the SP 500 ETF.
Traders are eyeing the recent basing of this RS measure against a longer term downtrend
and may well like the idea of a stronger Euro which is coming out of an extended down-
trend against the dollar.

There is risk in the trade since a scale down of US Fed QE could bother some foreign
markets even more than it may jostle US equities.

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