Europe: What Wall Street Is Missing
“We are better. We are not great. But we are better. And being better feels like great after what we had.”
— Barcelona cabbie, April 30, 2016
I am, quite unfortunately, in the final days of a three-week research trip to Europe. I’ve been north to south (Denmark to Spain) and east to west (the U.K. to Romania). I’ve talked to several executives, a few friends, a couple of airline people on a couple of Europe’s low-cost carriers and a gaggle of cabbies. And Europe is all right.
If nothing else, it’s healthier than America, where our debt-addled GDP expresses all the life force of a septuagenarian sucking on an oxygen tank.
Spain demonstrates that most effectively.
This is the place upon which much ire, consternation, hand-wringing and vitriol was heaped, generally by the proletariat who were rightly up in arms about Spain’s excessive debts and its epic building binge that aimed to sate the desires of plump, alabaster Europeans seeking a sunny holiday along the country’s various costas, as well the Keynesian thinkers (i.e., the Dark Side) who lambasted the country’s austerity and its wage decline, and who foretold of what was surely Spain’s imminent demise as the second-largest member of the infamous PIIGS pack.
So much for Keynesian prognostications and their anti-austerity bloviations.
Spain might not be back to precrisis levels (though, arguably, those were unsustainable bubble levels, anyway), but Spain is, nevertheless, back in its own way — a fact that’s apparent at my port of call on this particular day: the Port of Barcelona.
Whenever I alight in a country that isn’t America, I invariably head to nearby supermarkets and shopping malls. There are no better places to see a country’s consumer economy in action. Ports are the industrial equivalent. There’s no better way to gauge an economy’s relative vibrancy than to look at what’s happening with imports and exports.
In the States, exports are crumbling, the knock-on effect of a dollar that, as I’ve been repeating ad nauseum, is simply too strong. Imports aren’t doing so well either, an indication the American consumer isn’t the model of financial health that some want to believe.
Spain is moving in a different direction.
An Unexpected Shift
Imports are still lower than precrisis levels, but they’re moving up again — a sign that the average Spaniard is feeling better about life. Gasoline imports, in particular, are up huge, and that can only be an encouraging sign since it implies a few likelihoods: Spaniards are out running around more in their cars, there’s more trade-related truck traffic on the roads (and Jordi Torrent, the port’s head of strategy, tells me there are 10,000 trucks a day now crossing both of Spain’s road borders with France) and there are more Spaniards who have cars now.
Exports, meanwhile, are well ahead of precrisis levels. Exports to China, by far the most important destination for goods leaving from and arriving at the port, were up more than 18% last year. Each month this year, total China-related traffic has risen between 4% and 19% relative to the same month a year ago.
The head-scratcher, to me, is that my former employer, The Wall Street Journal, reported just days before I met with Jordi here in Barcelona that seaborne trade between China and key ports in Rotterdam and Hamburg has declined and is, therefore, sour news on the European economy. And, yet, here’s Barcelona — the largest and most modern container port on the Mediterranean — recording substantial growth on the China route.
Might it be that, just as Los Angeles and Long Beach replaced New York as America’s trade gateway, we’re now seeing a structural shift in European trade that has Barcelona emerging as a primary gateway into Europe since it’s a week’s sailing time closer to European customers than are the northern European ports?
Healing Old Wounds
I’m not saying Spain is the poster child of economic perfection. The country still has its woes.
Away from the coasts, Spain suffers with a lack of economic opportunity.
Unemployment there rages, which warps national statistics. (Unemployment in Barcelona, for instance, is less than 11%, while nationally it’s 21% — though even those stats are overstated in that many Spaniards work in the informal economy that’s not easily tracked.)
Moreover, debt remains a bugbear there, with too many towns that are overextended. But, again, this is different from America how, exactly? If bankruptcy forced cities to vanish just as it does to small businesses, then names such as Detroit, San Bernardino, Harrisburg and others would no longer exist on American maps. Illinois would just be a hole in the map.
On the whole, though, Spain is improving, as I predicted it would when I began putting readers into Spanish stocks such as the county’s liquefied natural gas leader, Enagás, a few years ago. We’re up more than 30% in those shares.
But you’ve not missed the boat.
An Overlooked Opportunity
Based on my preferred measure of valuation of national stock markets (the so-called Shiller P/E that takes a decade-long inflation-adjusted view of a country’s price-earnings ratio), Spain is the cheapest major market in Europe today — yet it’s one of the best-performing European economies.
It’s why I will be looking to add Spanish exposure soon to both my monthly investment letter, Total Wealth Insider, and my weekly global-investing service, Frontline Investor.
As the cabbie told me — and as my port visit confirmed — Spain is better. It’s not as great as it once was. But the economy doesn’t have to be great to be an investment opportunity. In fact, the best opportunity is when people still have the wrong impression, as many still do about Spain today.
Until next time, good trading…
Jeff D. Opdyke
Editor, Total Wealth Insider