| MRP
|
McAlinden
Research Partners
| THEME TRACKER
|
|
Europe Stocks
Launched: February 24, 2015
After
blinking last week, Greece has all but secured an extension of its
bailout for the next 4 months. The parliaments of eurozone countries
still need to give their blessing, but the odds are now effectively 0%
that Greece defaults, gets ejected out of the euro, and creates a
lengthy political crisis in the EU. A week ago we put those odds at 10%.
While we think the odds are still material at 20% that Greece is unable
to negotiate a longer-term arrangements with its creditors and the
crisis starts all over again in 4 months, for now the deal provides the
entry point to go long Europe's stocks that MRP has been awaiting. The
broad Euro Stoxx 50 is already up 13% for the year in euro terms, but it
is just beginning to gain on the S&P 500 when both indexes are
priced in dollars, a trend we expect to persist at least for the next
few quarters ... and possibly much longer if our baseline scenario
unfolds and Greece's current loan paves the way for a lasting deal.
We'll revisit those odds in the months ahead.
EUROPE'S STOCKS ARE STARTING TO GAIN
RELATIVE STRENGTH AGAINST THE S&P 500 IN DOLLAR TERMS
Source: Bloomberg, McAlinden Research
European politics is becoming more democratic, as fringe parties from both
ends of the spectrum bring previously heretical policies to the mainstream
debate on integration, immigration, as well as fiscal spending. Whether
these are good ideas is another matter, but at least they can be debated in
legislative chambers rather than fester on the sidelines. As for the euro,
the odds that some current member countries might choose to leave – or
be asked to leave – are higher now than before Greece's election. But
over the past five decades, the EU has faced many crises and, so far,
survived every one of them. More to the point: Greece isn't the only country
that wants to reverse austerity.
While the merits and long-term implications of renewed fiscal stimulus are
hotly debated, the bottom line is that policymakers have a small window of
opportunity to replace austerity in Greece with something else and re-affirm
the currency union. If they are able to do so and political uncertainty
begins to subside, all that stimulus can be unleashed, boost economic
growth, and provide a nice lift to Europe's beleaguered stocks.
Moreover, while MRP retains high conviction that the US will deliver strong
economic growth this year, at the margin Europe is beginning to look better:
in addition to Greece's Sword of Damocles being lifted, at least for the
next 4 months, the EU has a trifecta stimulus of quantitative easing by the
ECB, a weaker euro, and much lower energy prices. The impact is showing up
in Citigroup's "Economic Surprise Index." Whereas the economic data in the
US has been a bit softer, the data flow in the EU has turned up briskly.
Source: Bloomberg, Citigroup,
McAlinden Research
Last
updated February 24, 2015
MRP's roster of Active
Themes
MRP's latest monitors: Macro, Sector and Country
Joe McAlinden's current Market
Viewpoint
Warren Hatch, PhD, CFA
Portfolio Management and Global Investment Strategy
McAlinden Research Partners
Follow me on Twitter
Follow MRP on Twitter
The information provided in this presentation (the "Report") is not to be
reproduced or distributed to any other persons. This Report has been
prepared solely for informational purposes and is not an offer to
buy/sell/endorse or a solicitation of an offer to buy/sell/endorse
Interests or any other security or instrument or to participate in any
trading or investment strategy. No representation or warranty (express or
implied) is made or can be given with respect to the sequence, accuracy,
completeness, or timeliness of the information in this Report. Unless
otherwise noted, sources for public data include Bloomberg, Trading
Economics, and FRED (Federal Reserve Bank of St. Louis Economic Data).
McAlinden Research publishes daily, weekly, and other periodic reports on
the economy and the markets. Catalpa Capital Advisors, LLC (CCA) is a
Registered Investment Advisor which manages client accounts. References to
specific securities, asset classes and financial markets discussed herein
by McAlinden Research are for illustrative purposes only and are not
intended and should not be interpreted as recommendations to purchase or
sell such securities. Securities discussed in the Report may or may not be
held in accounts managed by CCA and/or its associated persons, and changes
in those accounts may be made at any time without notice to its
subscribers. Neither McAlinden Research nor CCA is under an obligation to
inform research recipients if any accounts managed by CCA subsequently
purchase or sell securities discussed by McAlinden Research and they do
not anticipate providing such information.
230 Park Avenue | New York, NY 10169 | (212) 231-8701 | Inquiries: nelly@mcalindenresearch.com
