{"id":42265,"date":"2013-09-23T09:56:23","date_gmt":"2013-09-23T13:56:23","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=42265"},"modified":"2013-09-23T09:56:23","modified_gmt":"2013-09-23T13:56:23","slug":"after-the-taper-tantrum-time-to-buy-europe","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/09\/23\/after-the-taper-tantrum-time-to-buy-europe\/","title":{"rendered":"After the Taper Tantrum: Time to Buy Europe?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/p>\n

So much for the wisdom of markets.\u00a0 It\u2019s hard to recall a time that so many smart people on Wall Street misjudged the Fed\u2019s intentions this badly.\u00a0 Not only will tapering not be starting in September, it may not starting under Bernanke\u2019s chairmanship.\u00a0 We will have \u201cQE Infinity\u201d until Bernanke or his eventual successor sees material improvement in employment.<\/p>\n

So, the markets get to benefit from $85 billion a month in quantitative easing for at least another several months.\u00a0 That\u2019s good news for bondholders and investors in dividend-paying stocks and REITs for the short-to-medium term.\u00a0 But it doesn\u2019t really change the longer-term picture.\u00a0\u00a0 I expect the 10-year yield to bounce around in a fairly tight band of about 2.3% to 2.7%, and I expect U.S. stocks to drift choppily higher.\u00a0 Can you make money is a market like that?\u00a0 Of course, but I see better opportunities overseas.<\/p>\n

Let\u2019s take a look at Europe.\u00a0 As I wrote recently<\/a>, Greece\u2014the country most associated with the Eurozone crisis\u2014looks to have finally turned a corner.\u00a0 As hard as this is to believe, the government is actually running a primary budget surplus, and the economy\u2014while still shrinking\u2014is shrinking at the slowest rate in two years.<\/p>\n

\"IEV\"<\/a><\/p>\n

iShares MSCI Europe vs. SPDR S&P 500 ETF<\/p>\n<\/div>\n

Greece is too little to matter, of course.\u00a0 But the improvements there point to a general easing of crisis conditions across the continent.\u00a0 Not surprisingly, European equities have been outperforming their American counterparts.\u00a0 The return on the iShares Europe ETF (<\/span>IEV<\/a>)<\/span> has been roughly double that of the S&P 500 since July 1.<\/p>\n

I expect Europe\u2019s outperformance to last for at least the remainder of this year for several reasons:<\/p>\n

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  1. Continent wide, European shares are significantly cheaper than their American counterparts, particularly when you consider that European earnings have been depressed by years of crisis.\u00a0 By Societe Generale estimates, European stocks trade at a 36% discount<\/a> to their American counterparts.<\/li>\n
  2. While still bad, investor sentiment towards Europe is improving.\u00a0 Investors haven\u2019t embraced European stocks yet, but they are not as repulsed by them as they were.<\/li>\n
  3. The bond markets in Europe have stopped reacting to bad news.\u00a0 Silvio Berlusconi is under house arrest\u2026and it barely makes the news.<\/li>\n<\/ol>\n

     <\/p>\n

    Action to take: Overweight Europe<\/strong>.\u00a0 You can use a broad ETF like IEV, or you can choose the individual country ETFs you expect to outperform.\u00a0 I am still very bullish on Spanish and French stocks and recommend the iShares MSCI Spain (<\/span>EWP<\/a>)<\/span> and iShares MSCI France (<\/span>EWQ<\/a>)<\/span> ETFs.\u00a0 Plan to maintain this overweighting through early January and perhaps later.\u00a0 Use a stop loss appropriate for your trading style.\u00a0 I recommend something along the lines of a 10%-15% trailing stop.<\/p>\n

    Disclosures: Sizemore Capital is long EWP and EWQ. This article first appeared on TraderPlanet<\/a>.<\/p>\n

    Charles Lewis Sizemore, CFA, is the editor of the\u00a0Sizemore Investment Letter<\/a>\u00a0and the chief investment officer of investments firm Sizemore Capital Management. Click here<\/a>\u00a0to learn about his top 5 global investing trends and get your copy of \u201cThe Top 5 Million Dollar Trends of 2013.\u201d<\/em><\/p>\n

    This article first appeared on Sizemore Insights as After the Taper Tantrum: Time to Buy Europe?<\/a><\/p>\n

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