Tuesday, November 15, 2011

What I learned in Europe

Last week I spend time in my native Holland - a family visit. But when you turn on the tv, you hear the battle noises of Europe's debt crisis. So is Europe coming to an end? Is the EU dead? Is the Euro gone forever? Not likely. Since World War II have European politicians dreamed and worked towards a united Europe and the Euro is not the only achievement, so are open borders, absence of tariffs and much more. When you see Germans and Dutch buy residences nearly ignoring their national border you realize how far the European dream has been realized. At Dutch Realtor brokerages you see houses listed at either side of the Dutch-German border. Try have a Calgary Realtor sell Saskatchewan real estate!

If you compare Greece to the Maritimes; Ontario and Alberta to France and Germany you get the picture. A lot of the European debt crises lies in the hysterical imaginations of the financial press. I am confident that Europe will handle this nasty crisis withou falling apart. Just like Quebec is too integrated with he rest of Canada so is it difficult to imagine Italy and Spain, or even Greece separating from the European Union. Yes, Greece is troubled by large government debt and thus a temporary burden to Germany, France and its other siblings states. He, lets compare the debt of European countries with that of U.S. states such as California and top that off with the U.S. national debt.  Who is now deepest in hock?

There is always bickering in a family that needs change. But this European family had enough 'in-fighting' over the last century or two that it does appreciate the advantages of being one.  The real issue in Europe is how far the integration of the various member states should go. Are these countries and nationalities willing to forego a bit of their sovereignty for the benefit of a fiscally and monetary better integrated Europe?

Also playing a role are the hysterics and double standards of the socalled investment community. But who is setting the tone here? Individual investors such as you and me or overleveraged hedge funds and other financial institutions? Speculators on the bond markets of problematic countries to get that extra bit of high risk ROI.

A BBC article wondered why the UK with a debt/GDP ratio of 90% and a larger deficit than Italy or even Spain has less trouble in today's financial markets than Greece or France. Remember the Royal Bank of Scotland and others?. It is not that the British banking system is so much better than that of France! Remember our politically paralyzed southern neighbors who cut off their Keystone AND their debt ceiling nose rather than giving their political opponents a hairwidth?

The only difference between the 'bonds' of the UK and those of Italy, according to the earlier quoted BBC article seems to be the amount of debt up for refinancing next year. Italy needs a bit over 300 billion Euros while the UK needs 'only' 200 billion. WOW.

We're dealing once again with sentiment and perception. I don't suggest that Italy, Greece and Spain don't need a bit of austerity but these countries are also the focus of a lot of speculation. The speculators made their profits in Greece and now they try it in Italy and possibly France.

Europe will survive the greed of this speculating vulture crowd, which make out only a small portion of the world's investors. But their overleveraged speculations (MF Global comes to mind) create so much fear and uncertainty that they scare the rest of the investors into paralysis. Thus amplifying speculator moves even further. European governments are now trying to regulate some of the big debt rating agencies that have contributed so much to the European debt crisis panics. What though about those speculators that with leveraged money, i.e. borrowed money or other people's money, contributed so much to the damage?

Anyone amongst you who dared buying European government bonds lately? But cowering in 'secure' U.S. Treasuries is the rage these days! Thank G that we are now getting out of what, despite all media hysteria, turns out to be nothing more than a nasty correction in a slowly climbing bull market. The Dow and S&P seem to be back on track and even the underperforming TSX is showing signs of live.

Keep your heads cool and have an open eye for some well priced, quality investment opportunities. For the rest enjoy the ride; well enjoy...  In a recent interview, investor extraordinaire Jim Rogers was quoted as saying that in this market it could prove quite profitable to do nothing.

1 comment:

  1. Well written !

    I disagree with the word "bit of austerity" .. I think a LOT of austerity is required across Europe in terms of hours worked per week, per year, retirement benefits as a % of last wage, and the very generous public pensions that cripple the young workers even more than they do in Canada ! Kinds between 20 and 35 are getting screwed out of the job market .. as the baby boomers and 55 to 75 cohorts vote themselves even more benefits in healthcare and pensions !