Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Bill Wexler who wrote (28164)	9/23/2007 6:38:02 PM
From: RockyBalboa	Respond to of 78523

I know from one U.K based macro fund that it tried shorting the EUR and shorting European stock indices a long time ago. While the trade was a disaster (as the indices rose even when the EUR corrected as desired) as it was about 3 years too early, the underlying thought may have some merit. Why it could work out: Demographics: European baby boomers are at the zenith of their personal earnings power. At the same time they hiked their savings but the higher life expectancy takes its toll. There is a decline in births to be felt in a lack of young employees now. The latest indication is the huge shortfall in public social security finances of France. Someone has to pay this kind of tax, too. The "convergence" trade comes slowly to an end. The conversion of western and central Europe fuelled growth where western Europe alone didnt. With the integration nearly completed and after 10 years of heavy investments we approach a maintenance period. Last and most important the effect of a EUR ahead of $1.40 combined with high commodities and factor costs (not deflating in Euro terms) will take its toll on the economies, remarkably cooling them down in terms of exports. This was so far inhibited by an "accomodative" ECB policy which boosted the monetary base by not less than 20% in two years. The Euro zone was always 2 or 3 quarters behind the US cycle. The currency will itself correct to a lower level if and when the ECB makes clear that it wont hike but rather cut rates thanks to the perceived weakness. (The UK is done hiking rates and the next event is a cut). The devils advocate would say: A debtor nation like the US isnt calling the shots. The EUR is a result of market forces and partly underlying economics with positive capital and trade balances. There is no harm done as Europe remains competitive for a prolonged period because there is, I repeat, NO factor cost inflation. The integration goes further (Ukraine, Turkey, ...) and the wealth effects are for years to come. CEE is a bit of mini China, with cheap labor, better demographics and immense demand. The old Europe is a consumer nation, right, but since when is private consumption something evil? European individuals have the means to boost their consumption because they are not indebted, on average. They can and will bear the creeping inflation more easily.