Saturday, April 25, 2015 10:47pm
North Adams, MA now: 45 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
@theMarket: Europe Is a Good Bet
By Bill Schmick On: 12:34AM / Sunday June 08, 2014
Important
1
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0

When the allies invaded the coast of Normandy on June 6, 1944, no one knew how much was at stake. It was a risky move that not only put an end to years of bloodshed within Europe but also ushered in a new world order that continues today. European leaders are hoping that their central bank's actions this week will provide an economic D-Day of their own.

The greatest risk to the economies of Europe is deflation. The European Central Bank (ECB) maintains a 2 percent inflation target for the EU, but the inflation rate as of May was a mere 0.05 percent.  While unemployment remains above 12 percent and economic growth continues at a sub-par rate, the EU could face an era of stagnation similar to that which had plagued Japan for twenty years.

Over the past three years, the ECB has shoveled over one trillion Euros in loans without conditions to the banking sector. Little of that money found its way to the private sector. Instead, the banks simply re-deposited those funds with the ECB and banked the interest or used it to trade for their own account in the stock and bond markets. In the meantime, lending to the private sector keeps shrinking and the economy stalling.

The ECB has now cut a key interest rate to below zero. It essentially means that European banks in a complete reversal will now be paying the ECB to park their funds there. This negative rate of interest in intended to spur financial institutions to begin lending that money to companies and other credit-hungry entities. The ECB also suspended their sterilization operations (taking money out of the market) which should inject a further 165 billion Euros into the mix.

The bank also promised over $500 billion in discounted loans to banks, providing they lend that money to companies and not other financial institutions. I'd give the bank an "A" for effort, but more needs to be done.

Investors were taken by surprise by the boldness of these latest moves. You see, the markets have long been inured to the actions of the ECB as too little, too late. Unlike the U.S., where our Fed answers to no one, the ECB has to juggle the conflicting views of many member nations of the European Union. While the Fed can take decisive and far-reaching steps to jump-start our economy, the ECB needs to build consensus among its members. This takes time.

This week's actions are, in my opinion, only the first of several steps to grow the European economy. A quantitative easing program that emulates the asset purchasing that both the U.S. and Japanese central banks have implemented might be the next step. So far, Germany, with its deep-rooted fear of hyperinflation (pre-WWII) has been against this action.

But Mario Draghi, the bank's president, went on record promising more, if these efforts failed to accomplish his goals. "Are we finished?" he asked. "The answer is no."

I believe him.

So let's bring this down to you and your portfolio. Readers may recall that well over a year ago, I suggested some exposure to Europe either through a mutual or exchange traded fund. That has worked out well since European averages, although still selling at a 15 percent discount to their American counterparts, are all at record highs. I think more exposure to Europe would be a wise move.

Right now, most readers have 25-30 percent in cash based on my advice. Over the next few weeks, I suggest you move some of that cash to Europe. Exactly how you do that is up to you. Take notice, however, that if the ECB's strategy works, one can expect the Euro to weaken against the U.S. dollar while their stock markets rise. It would make sense to look for a fund that combines those two elements. If one decided to simply ignore the currency aspect, remember that Germany is probably the strongest country economically, while Italy offers the most value. Invest according to your own preferences or call or e-mail me for more advice.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



0 Comments
     
News Headlines
Clark Exhibit Celebrates Underappreciated Medium
Cheshire Gets Gas Pipeline Answers From Kinder Morgan
Pittsfield Celebrates Arbor Day, Honors Berkshire Conservation District
Retired North Adams Police Officer Turns 100
Bashevkin Receives Commissioners Leadership Award
Taconic Golf Club Building Membership, Opportunities to Play
Cultural Pittsfield This Week: April 24-30
Lanesborough Election: Nomination Papers Available
Maple Grove Civic Club Holds Candidate Forum
Williamstown Housing Trust Reviews Proposals for Land Purchase

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (167)
Independent Investor (223)
Archives:
April 2015 (5)
April 2014 (1)
March 2015 (6)
February 2015 (7)
January 2015 (9)
December 2014 (7)
November 2014 (4)
October 2014 (9)
September 2014 (5)
August 2014 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
Tags:
Jobs Taxes Greece Stimulus Interest Rates Europe Deficit Europe Euro Banks Congress Oil Economy Pullback Selloff Stock Market Fiscal Cliff Stocks Recession Federal Reserve Energy Debt Ceiling Election Metals Commodities Housing Crisis Debt Bailout Retirement Rally Markets Fed Japan Currency
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
@theMarket: Right Back Into the Range
The Independent Investor: Brazil Not For the Faint of Heart
@theMarket: Earnings on Deck
@theMarket: Will the Second Quarter Be Like the First?
The Independent Investor: How to Teach Your Kid to Become the Next Warren Buffet
@theMarket: The Fed Does It Again
The Independent Investor: Financial Challenges Facing Single Parents
@theMarket: Pay Attention to Diverging Markets
The Independent Investor: Kids & Money
@theMarket: Home on the Range


View All
Baseball: Westfield Voc @...
The McCann Tech baseball team hit their way to a 8-0 win...
SB: Mt Everett @ Lenox
The final score was Mount Everett 15 and Lenox 3
Berkshire County Invitational...
The boys 4-by-800 meter relay, a 3200-meter battle that...
SB: Mt Greylock @ Drury
The Drury softball team earned its first win of the season...
Touch A Truck 2015
Little kids got to play with big trucks - and school buses,...
Baseball: PHS @ Taconic
Fick finished with two strikeouts while allowing six hits...
Lacrosse: Monument @...
Sean Baruch scored four goals to lead the Pittsfield boys...
SB: Pittsfield @ Hoosac
The Pittsfield High softball team made the most of all its...
STEM, Industry Forum
U.S. Rep. Richard Neal and the Berkshire Chamber of...
BFAIR Annual Meeting 2015
BFAIR holds its annual breakfast meeting at the Williams...
3rd Thursday Events 2015
Director of Cultural Development Jen Glockner and Mayor...
Berkshire Chamber Nite @...
The Berkshire Chamber of Commerce held a networking event...
Tennis: MM Girls @ PHS
Monument Mountain girls tennis team won 5-0 over Pittsfield...
Tennis: MM Boys @ PHS
Monument Mountain boys tennis team won 4-1 over Pittsfield...
IS183 Versace Tchotchke Gala
IS183 Art School of the Berkshires' annual over-the-top...
Tennis: MG @ Lenox
Cami Sachetti and Emily Czelusnick battled to a 7-5, 6-4...
Baseball: Westfield Voc @...
The McCann Tech baseball team hit their way to a 8-0 win...
SB: Mt Everett @ Lenox
The final score was Mount Everett 15 and Lenox 3
Berkshire County Invitational...
The boys 4-by-800 meter relay, a 3200-meter battle that...
SB: Mt Greylock @ Drury
The Drury softball team earned its first win of the season...
Touch A Truck 2015
Little kids got to play with big trucks - and school buses,...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved