Stimulus

Bad News For Europe, Good News For Investors

Bad news out of Europe, Germany in particular, makes two potentially profitable outcomes significantly more likely. Firstly, the European Central Bank will be more flexible in its efforts to keep Greece in the Eurozone. Secondly, there are fewer roadblocks in the ECB’s way for announcing further QE. Policy is diverging. While the US contemplates tightening, Europe is exploring the opposite. Resulting currency moves could provide a welcomed boost to European exporters.

merkel

Bad news for Europe, good news for investors

Investor hopes for ‘government bond-buying’ QE were raised today as Germany came under renewed pressure.

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Why Europe Is Doing The ‘Ice Bucket Challenge’ With A Glass Of Water

‘Grand’ gestures with minimal effects, Europe is doing the ‘Ice Bucket Challenge’ with a glass of water. Measures won’t measure up to much. Little movement in interest rates, not enough assets to buy and ultimately – you can put out as many cream cakes as you’d like, but if people aren’t hungry, they aren’t going to eat. The pressure is rising and more is needed. Europe has become a ‘binary trade’, and it is important to invest in those set to benefit regardless.

(Click on the image below for a quick video clip summary)

cnbc FMHR Sept 2014

2 Measures That Won’t Measure Up To Much… (more…)

Demand for Debt limited, Outlook for Supply no better…. “How can I profit from this scenario?”

INVESTMENT INSIGHT: Invest in HIGH QUALITY companies – strong balance sheets – cash flow rich

“Despite various forms of support from the Bank of England and from Government, it is clear that the lending capacity of the banking system, in the UK and elsewhere, is impaired and will take some years yet to recover. Some banks need to continue de-risking and de-leveraging.” (Paul Fisher – Executive Director Markets and member of the Monetary Policy Committee – Bank of England)

 

As discussed, the outlook for the demand for debt is not looking rosy. Consumers, companies and governments are all focused on reducing the amount of borrowing on their “books”.  (See \”Isn\’t the consumer dead?..\”). On the other side of the equation, the supply of debt is also limited. Despite record stimulus packages, the amount of money that has reached the end user has remained muted.

In the US, commercial and industrial loans have fallen at an unprecedented rate.

 

Commercial and Industrial Loans at All Commercial Banks. Source: Board of Governors of the Federal Reserve System. Shaded areas indicate US recessions. 2010 research. stlouisfed.org

 

And in the UK, earlier this year, less banks stated they plan to increase supply of credit in June than March (BoE). Between Apr ‘11 and Jan ‘12 lenders are due to repay £185bn[1] raised under BoE special liquidity scheme. Furthermore, any banks that are able and willing to lend are being deterred with the threat of stricter global capital requirements looms as well as a tightening of credit scoring criteria.

INVESTMENT INSIGHT: Invest in high quality names, those with strong balance sheets, cash flow rich and therefore less likely to struggle needing to raise finance and instead more likely to have the capital to make value-adding acquisitions / increase market share