The Eurozone & Mr Hollande

srcandas

Been lots of posts over recent times referencing the next downturn and in particular the disaster that is the Euro zone. But oddly as the Euro zone has driven up the suicide rate, unemployment, child poverty, middle class begging, depression and crime the companies within it seem to go from strength to strength.

Even a bankrupt country like Spain has seen the IBEX recover a little. And the CAC and DAX seem to be immune. But can this continue?

Yesterday I believe a very big crack opened up in the Euro zone. Mr Hollande seemed to be throwing in the towel and asking Brussels (and thus Germany) to take over.

"If Europe does not advance it will fall or even be wiped out from the world map" Mr Hollande said.

"My duty is to bring Europe out of its lethargy."

Well I’m sure the growing French unemployed would change ‘Europe’ to ‘France’ in the previous phrase but it seems Mr Hollande has no alternative plan.

And despite his comment “the financial crisis was now under control “has he forgotten that the Spainish rescue looms and that the other smaller rescues have largely only papered over the cracks?

Would be interested before changing my investment strategy to know if others think this is significant – a previous major player appearing to be in trouble with no plan to get out of it.

And also if the Euro zone private sector can remain divorced from public sector woes.

talexuser

In a similar vein my funds go up and up every week and I just have to wonder if this really reflects economic fundamentals with little real deficit reduction or so called company cash piles, or if the low interest rate policies are driving money into stocks for an "irrational exuberance" bubble in the law of unintended consequences.

JohnRo

Hope for the best and try to plan, as much as possible, for the worst. I'm planning to start using my current investments to build a stronger cash position over the next two years.

It'll most probably backfire but I want to have the ability to make a substantial buy into a significant correction. Can but try.

jimjames

Companies can remain divorced from public sector to the extend that they trade overseas and are not dependent on internal sales within the country. The likes of BMW and luxury good manufacturers with rising sales in China etc can rise even if their home market is stagnant.

Glen_Clark

talexuser wrote: »

the low interest rate policies are driving money into stocks for an "irrational exuberance" bubble in the law of unintended consequences.

I think its partly that, and partly the low interest rates that increase profitability by lowering interest costs.
But how much longer can borrowers be effectively paid to borrow money?
Where will the real money come from to pay them?
At the moment its borrowed - despite all the talk of austerity Britains national debt continues apace.
Osborne is obviously trying to keep the bubble inflated till after the election, but what when his interest free loans on his £600k sub prime mortgages need to be repaid?

JohnRo

Glen_Clark wrote: »

I think its partly that, and partly the low interest rates that increase profitability by lowering interest costs.
But how much longer can borrowers be effectively paid to borrow money?

For as long as savers and pensioners can be robbed to fund them.

doughnutmachine

Glen_Clark wrote: »

But how much longer can borrowers be effectively paid to borrow money?

At the moment its borrowed - despite all the talk of austerity Britains national debt continues apace.

imo banks just aren't lending money to companies, once the banks start lending the economy will improve.

but perhaps the national debt isn't as bad as it sounds? after all the £350b of QE was used to buy gilts, so indirectly the taxpayer owns these gilts i read that the value of these gilts has increased

Thrugelmir

srcandas wrote: »

the companies within it seem to go from strength to strength.

Even a bankrupt country like Spain has seen the IBEX recover a little. And the CAC and DAX seem to be immune. But can this continue?

Investors are chasing yield. The indices bear little relation to actual Company performance. That's where amateur investors trip up.

srcandas

Thanks guys, very interesting.

I guess no one takes Mr Hollande as a serious player (by the lack of comment) but the other mentioned fear factors are in line with my thoughts.

In the last half hour I've gone 33% cash from 25% (sold UK shares) and I think I'm going to put my SIPP in drawdown and use the 25% to pay off the mortgage and stash a cash reserve. Yes low interest but at least it cannot get totally destroyed.

Against that what remains in S&S is in high risk in EM, Africa and Asia so still plenty of fun but a much better cash reserve

So now you can all relax and watch the FTSE go through 7000 :rotfl: