If a picture tells a thousand words, then can numbers dispel a thousand lies?
For months I have been saying that the global economy — in particular, Europe — is far, far healthier than the media has been reporting. And now a slew of numbers are starting to arrive that prove my point.
And the upshot tells you that European stock markets are the place to be as an investor in 2015.
I had this view confirmed on European stock markets from an email I receive every morning from my European brokerage firm . This email simply catalogs various numerical data from various economies and stock markets around key parts of the world.
As I scanned the numbers, I quickly realized that, one after the other, they were proving the point I’ve been making all these months. They undermined all the Sturm und Drang that the media and the economists have been feeding us in what I can only assume is a quest to makes us think America is surging while the rest of the world is sinking.
But it’s all been a whitewash.
Consider some plot points in this story:
- Commodity prices as tracked by Australia New Zealand Bank rose 1.9% for February, nearly double their pace from a year ago … a sign of inflation rather than the overhyped deflation we continually hear about in the U.S. and Europe.
- Building permits in Australia rose 7.9% in January, far in excess of the 2.8% decline from a year ago and well ahead of economists’ expectations of a 1.8% decline for the month.
- European retail sales rose 5.3% for January, making fools of the economists who predicted tepid growth of just 2.7%.
The data points keep going, though I won’t bore you with a bunch of numbers. I’ll just tell you that Swiss economic growth came in faster than expected; that unemployment in the euro zone was far better than expected, while euro zone growth has accelerated; that Canadian GDP was stronger than forecast; that Spain’s unemployment rate is falling and its economy is expanding faster than predicted; that the risk of deflation is now falling in Europe; that German labor unions are winning big pay raises, an indication of wage pressures, which only arise when economies are improving at a fundamental level; that the economy of Portugal, one of the much-maligned PIIGS nations during the European debt crisis, has returned to positive growth.
These are decidedly not the data points of fundamentally troubled nations.
Yes, Europe and the global economy still have some pockets of turbulence here and there (America is one of those pockets; our economy actually is structurally worse than the numbers portend). And Europe, in particular, has a long road to hoe as it builds the financial integration necessary to create what is essentially a United States of Europe that will prevent the kind of debt crisis it has suffered through in recent years.
All of this explains why European stock markets are doing so well this year (up more than 15% so far), even as U.S. markets barely tread water (the S&P 500 is about 2% so far). It’s precisely why back in January I told readers of my monthly Sovereign Investor newsletter that inexpensive European markets are moving into a phase in which they will outperform the shockingly expensive U.S. market over the next decade.
It’s Not Too Late
If nothing else, the data points tell you that Europe is the place to invest today. And though European stocks are up already this year, you haven’t missed the party yet. You can still play along — and profit — by owning broad exposure to Continental markets through the Vanguard FTSE Europe ETF (VGK).
The fund is exposed to 16 European markets, including big exposure to United Kingdom (one of the cheapest markets in Europe), Switzerland, France and Germany. Its key holdings are substantial European bellwethers such as food giants Nestle and Unilever, drug behemoths Novartis, Bayer and Roche, and energy juggernauts Royal Dutch Shell and BP. And its annual cost is a negligible 0.12% a year.
This fund is unhedged in terms of currency, meaning the returns will be impacted by strength or weakness in the dollar vs. the euro, the Swiss franc and the British pound. At the moment, that is a headwind for the fund. But it is a temporary headwind that will change to a tailwind in the not too distant future, and when that happens, the fund’s price gains and its currency gains will act as a double-barreled benefit to you.
Until next time, stay Sovereign …
Jeff D. Opdyke
Editor, Profit Seeker