Party like it’s 1999
Pfäffikon SZ, Switzerland – The Greeks added fuel to the European fire late 2014. Since the large bail outs of 2010 and 2012 the country has been suffering under an enormous debt burden. Europe continues to do its best to keep Greece on board, but they still have a long way to go. Where countries such as Germany and England have picked themselves up since the Lehman debacle in 2008, Greece has fallen off the cliff. It is therefore not surprising that the Greeks no longer have faith in the European fairy tale which is based on a single monetary unit.
IMF
The IMF decided this week to suspend all aid payments to Greece. If the traumatised Greeks, later this month, decide that it’s all over and done with Europe, they will be playing into the hands of the radical parties. This year there will be elections in Italy, Europe’s third largest economy. It is clear that anti-European voices are increasingly gaining in popularity in Italy. But also Portugal and Spain will be going to the polls this year. It is the same picture, where euro-haters continue to gain ground. In The Netherlands the PVV of Geert Wilders proudly leads the polls, a party which would like to eat Brussels alive. If we look a bit further we see the Brits having newfound doubts about the EU now that they’ve received a pricey additional tax. The island-dwellers are floating the idea of holding a referendum in 2017 on their continued membership to the European Union.
A Real Headache
The EU continues to flirt with the collapse of the monetary system and it doesn’t seem this will come to an end this year. Puny little Greece can even cause a real headache if the European monetary unit is brought to discussion again. 2015 then, promises to be an exciting investment year whereby a mix of financial unrest and geopolitical tensions will cause more volatility.
In the US the tremors in Europe are viewed with resignation. The US has emerged as the uncontested winner from the Lehman debacle. I have elaborated on this issue before as it wasn’t in the slightest coincidental. The US economy continues to pick up steam, whereby a declining oil price increasingly plays into the hand of an energy gorging nation such as the US. Foreign investors will likely find themselves increasingly drawn to the US. It is a form of first level thinking, but it could lift the S&P 500 to unprecedented heights. On the other hand, the relatively strong dollar can soon start to trip up American businesses.
1999
It is not without reason that certain fund managers are drawing the comparison to 1999. After all in 1998 we had the rouble crisis, which is again affecting the region. The situation is not entirely comparable, but still. At the time stock valuations weren’t cheap, nor were they extremely expensive. Moreover, central banks played an important role in this financial era. Today one can paint the same picture, whereby ordinary saving has been outlawed by – in some cases – charging negative interest rates. The flight to stocks which pay a reasonable dividend is quickly made. Switzerland, in this regard, is a reasonable example. In any case, we are remaining loyal to Russia in terms of our investments, despite the enormous underperformance in 2014. I will revisit this point at a later stage. In my view we are seeing the mother of all buying opportunities in the region and a lot is not understood.
2015
It cannot be ruled out that 2015 will turn out to be an amazing investment year, whereby your nerves will be put to the test, more so than in 2014. In my view we’re still in the middle of the US bull market and that makes for relatively easy investing. I do notice, however, that we are slowly but surely maneuvering towards an end-scenario. The more the central bankers start to shuffle, the more dangerous the situation becomes. Additionally, due to the combination of various trends, we are seeing an obvious overvaluation of American stocks. A situation like this can persist for years to come. Last week I was pointed to a chart which explained that the next crash in the S&P 500 will take place on the 7th of October 2016. If history were to repeat itself, then one can indeed view 2016 as the year 2000. Everyone knows what happened back then. As the current bull market slowly starts sprouting grey hairs, reservedness becomes appropriate, and the same goes for 2015.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
