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The discussion seems to be steering towards real-estate rather than equities. Returning to equities, I have this question: What's the matter with Europe?
Looking at equity performance over the past 5 years - which is to say, since the nadir of the 2007-2009 crash - Europe stands out as an underperformer. The past year's underperformance is particularly acute, given the tenacious rise in American stocks, and the recent upswell in the Japanese market, and many other markets. But Europe doggedly remains a laggard.
Why?
Please, let's not turn this into a bashing of "European Socialism" etc. For purposes of this discussion, my sole concern is: why is the S&P500 up such-and-such percentage since its low of March 2009, while the FTSE, DAX, and so forth are doing so much worse? To attach some numbers to this: as of this writing (08 November 2014), the Vanguard S&P500 Admiral index fund has a 5-year annualized rate of return of 16.66%, and corresponding small-cap index fund is at 18.91% annualized. But the European index fund is at 7.05% annualized, over the past 5 years. So $1000 invested in November 2009 in the S&P 500 would today be worth $2161, but in the European equivalent, it would only be worth $1406.
The economic situation in Europe is still not doing well. Their labor markets haven't recovered. Italy, Spain, Greece etc it's still a mess
Yes, that's all true. And presumably stock markets (barring weird pathologies) reflect the underlying economies. But why is "the economic situation in Europe still not doing well"? They didn't have such a rampant housing bubble as did the US. They don't have such dire international trade imbalances. Their health care costs and higher-education costs are under better control. From my vantage point, the various travails affecting the US economy in the 21st century should be less acute in Europe; and yet, the actual situation is precisely the reverse. Despite severely polarized politics in America, incessant cries over inequality (from one end) and exorbitant corporate tax rates (from the other end), and a federal government that for the better part of a decade can't pass a budget, our markets hum along more or less unperturbed. Yet the European markets - in ostensibly stable and prosperous nations like England and Germany (Greece and Portugal don't much affect the aggregate European index), keep lurching from one crisis to another.
Again, I don't mean this as a geopolitical diatribe. My concern is soothing my wounds as an investor, comparing what happened over the proverbial long-term of the part of my portfolio in US equities, vs. that in European equities. It's disheartening that the drive toward diversification has, ironically, been a substantial drag on overall portfolio performance - not over some brief but painful episode, but essentially over the entire 21st century thus far.
They are hitting their 3rd reccesion since ours started. They can't get on the same page of what the EU wants to do. Here is a bit of a read about the EU memebers, tension etc
The discussion seems to be steering towards real-estate rather than equities. Returning to equities, I have this question: What's the matter with Europe?
Looking at equity performance over the past 5 years - which is to say, since the nadir of the 2007-2009 crash - Europe stands out as an underperformer. The past year's underperformance is particularly acute, given the tenacious rise in American stocks, and the recent upswell in the Japanese market, and many other markets. But Europe doggedly remains a laggard.
You always see your own misery first and only. But compared to he US post 2008 Europe is much worse on average. Real gdp is still below 2007 peak and the recovery is worse than post 1929. The misery in Europe is much much worse than in the US, can you imagine? The initial recover 2009-10 was actually not much worse than here but then things got much worse over there while our recovery continued. The ECB raised rates in 2011 twice and gave a completely deluded picture of the European economy... they must have lived in outer space at the time, incredible!!! After that things imploded fast in 2011 and if Draghi had not mentioned "we will do all it takes to save the Euro" in 2012 we would be looking at WW3 in Europe now.
There are two more (intertwined) issues remaining in Europe and unless they are resolved there can be no recovery:
a) the Euro
b) German-mandated austerity
The Euro right now leaves less competitive countries only internal devaluation to improve their competitiveness (lower wages, benefits etc.) which explodes debt (nominal debt has to be serviced and cannot be devalued alongside and interest rates > nominal gdp diminishes debt serviceability day by day for many years going now). Basically many countries are imprisoned by the Euro as some were by the gold standard post 1929. The earlier they left the gold standard the faster they recovered. Ironically, Germany was one of the fast movers away from gold then. Now it entraps the other countries in a similar situation.
Let's keep in mind there are very good value companies in Europe right now. If the political arena shifts these companies will profit greatly. I have bought a lot of European stocks this year. So I put my money where my mouth is that the situation will improve in Europe.
Unfortunately it is not easy to discuss European economics without crossing over into what could become bashing of the culture, politics and taxation which is part of the socialism.
Compared with the US, the work ethic in Europe sucks. Of course they do not see it that way and instead prefer to think about la dolce vita, the sweet life. The cultural differences show up in the length of the work week and in the number of days/year of work. In the US, we have no Federal laws requiring vacation time off. All of the European countries have mandatory vacation requirements of at least 4 weeks/year for all full time workers. In the US, the work week is typically 40 hours, in Europe typically 35 hours. In addition in the US, we have lots of "exempt" employees who often work much more than 40 hrs/week. There are all sorts of statistics available, but basically the average European is going to be off work (sick/holiday/vacation) about 3x as often as in the US and they work much less per week and are also much less productive when they are working. Let's not even mention siesta or long mid day breaks.
Is it any wonder they can't seem to get past the 08 economic stress?
Yes, that's all true. And presumably stock markets (barring weird pathologies) reflect the underlying economies. But why is "the economic situation in Europe still not doing well"? They didn't have such a rampant housing bubble as did the US. They don't have such dire international trade imbalances. Their health care costs and higher-education costs are under better control. From my vantage point, the various travails affecting the US economy in the 21st century should be less acute in Europe; and yet, the actual situation is precisely the reverse. Despite severely polarized politics in America, incessant cries over inequality (from one end) and exorbitant corporate tax rates (from the other end), and a federal government that for the better part of a decade can't pass a budget, our markets hum along more or less unperturbed. Yet the European markets - in ostensibly stable and prosperous nations like England and Germany (Greece and Portugal don't much affect the aggregate European index), keep lurching from one crisis to another.
Again, I don't mean this as a geopolitical diatribe. My concern is soothing my wounds as an investor, comparing what happened over the proverbial long-term of the part of my portfolio in US equities, vs. that in European equities. It's disheartening that the drive toward diversification has, ironically, been a substantial drag on overall portfolio performance - not over some brief but painful episode, but essentially over the entire 21st century thus far.
Believe my I feel your pain as my international funds are a bigggg drag. There is just not a lot of money chasing europeN equities. Take MAthJack for instance he is strongly in the invest in US large caps as a lot of their profit is international camp.
Unfortunately it is not easy to discuss European economics without crossing over into what could become bashing of the culture, politics and taxation which is part of the socialism.
Compared with the US, the work ethic in Europe sucks. Of course they do not see it that way and instead prefer to think about la dolce vita, the sweet life. The cultural differences show up in the length of the work week and in the number of days/year of work. In the US, we have no Federal laws requiring vacation time off. All of the European countries have mandatory vacation requirements of at least 4 weeks/year for all full time workers. In the US, the work week is typically 40 hours, in Europe typically 35 hours. In addition in the US, we have lots of "exempt" employees who often work much more than 40 hrs/week. There are all sorts of statistics available, but basically the average European is going to be off work (sick/holiday/vacation) about 3x as often as in the US and they work much less per week and are also much less productive when they are working. Let's not even mention siesta or long mid day breaks.
Is it any wonder they can't seem to get past the 08 economic stress?
Right. That's why Germany does not export any cars to the US but all US companies and transplants do so all the time. Same for machinery, petrochemicals, medical equipment, heavy engineering stuff, you name it. And all those workers work 35-37.5 hours per week and have 6 weeks of paid vacation annually. So what's your problem? Reality vs. ideology?
Believe my I feel your pain as my international funds are a bigggg drag. There is just not a lot of money chasing europeN equities. Take MAthJack for instance he is strongly in the invest in US large caps as a lot of their profit is international camp.
On the other hand the same type of company goes in Europe for cheaper PE, for example Siemens 15.5 vs. ge 17.5 or Volkswagen 7.5 vs Ford 9.3, Allianz 9.8 vs. Metlife 11.2. So if mean reversion is still alive we should at some point see the value advance.
Yes, that's all true. And presumably stock markets (barring weird pathologies) reflect the underlying economies. But why is "the economic situation in Europe still not doing well"? They didn't have such a rampant housing bubble as did the US. They don't have such dire international trade imbalances. Their health care costs and higher-education costs are under better control. From my vantage point, the various travails affecting the US economy in the 21st century should be less acute in Europe; and yet, the actual situation is precisely the reverse. Despite severely polarized politics in America, incessant cries over inequality (from one end) and exorbitant corporate tax rates (from the other end), and a federal government that for the better part of a decade can't pass a budget, our markets hum along more or less unperturbed. Yet the European markets - in ostensibly stable and prosperous nations like England and Germany (Greece and Portugal don't much affect the aggregate European index), keep lurching from one crisis to another.
Again, I don't mean this as a geopolitical diatribe. My concern is soothing my wounds as an investor, comparing what happened over the proverbial long-term of the part of my portfolio in US equities, vs. that in European equities. It's disheartening that the drive toward diversification has, ironically, been a substantial drag on overall portfolio performance - not over some brief but painful episode, but essentially over the entire 21st century thus far.
They're bearing the brunt of the economic sanctions imposed against Russia by the U.S. Northern European nations were holding up well until the fight over Ukraine by the US affected their trade with Russia.
Their economies don't have the advange of having separate currencies that fluctuate to reflect the differences and act as counter-cyclical shock absorbers. When their economies are weak relative to Germany, their respective exchange rates can't decline to boost their exports. It all works to Germany's advantage. The Germans get cheap interest rates and fixed exchange-rates within common market to subsidize their exports to the rest of the EU.
Spain had a severe housing bubble and bust.
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The initial recover 2009-10 was actually not much worse than here but then things got much worse over there while our recovery continued. The ECB raised rates in 2011 twice and gave a completely deluded picture of the European economy... they must have lived in outer space at the time, incredible!!! After that things imploded fast in 2011 and if Draghi had not mentioned "we will do all it takes to save the Euro" in 2012 we would be looking at WW3 in Europe now.
see the value advance.
