Review & Outlook

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Time to Get out of Europe — and the Stock Market?

21 June, 2012 by Ben O'Brien in Commentary

When the chance acquaintance, i.e., the person ahead of me in line at Starbucks,  happens to  hear I manage money for a living,  he tends to ask me, sympathetically,  how’s it going? He will say, with a nod, that he expects I am retreating out of the market in anticipation of big trouble from Europe, indeed, that he just heard President Obama say that Europe is our largest trading partner; and just how bad is that – – that our largest trading partner is in some sort of long, slow death spiral?   I guess, says my new-found friend, we’ll all be working at Starbucks pretty soon.

No, I respond, we are not getting out of the market. Yes, Europe is important, but it is not that important.  At least it is not as important as it used to be.   And President Obama was wrong about Europe being our largest trading partner.  And then,  with all the confidence of a Princeton degree, I point out that Europe is not a country.  Our largest trading partners are the nations of Canada, Mexico, japan and China.  Europe is a zone and as such it is not even the most important zone.  More important are North America and Asia.

And as Europe’s population shrinks, and as Spain’s and Italy’s  shrinks even more, losing as much as a quarter of their populations every generation (their birth rate is below the replacement rate), India, china, Indonesia, South America are more than making up for it, to the result that the global economy is growing 60% faster than it was 30 years ago. This rising economic  tide means a prolonged bull market for the United States farming sector and is in part behind the revival of the domestic manufacturing sector.  No, I say,  the deck is being reshuffled.  That’s all.  Political theorists call this “creative destruction” and it happens to countries as well as companies and industries.  No, I say, I would stay invested, stay in the game, in good American companies that pay a dividend.

At this point in the discussion, I really shock my interlocutor, when, in the interest of balance, I suggest that there may  be some value in the European experience as a sort of cautionary tale for us Americans; that is to say,  that  this is  what happens when a country  tries to legislate prosperity, as if laws, and clever tax schemes, and transfer payments, and pump priming and quantitative easing are somehow substitutes for hard work.  At this point it is my turn at the counter whereupon my new-found friend looks at me as if to say that, yes, this advice and $1.75 will get you a small cup of French Roast.

Mark O’Brien