European Recovery Meme Spread by Sell-Side Firms

South Korea's Debt from the onset of the Asian Flu through four years.

South Korea’s Debt from the onset of the Asian Flu through four years.

Ireland's government debt starting with the onset of the Eurocrisis through the present.

Ireland’s government debt starting with the onset of the Eurocrisis through the present.

Why Europe will bounce back in 2013 – FT.com.

Investment banks’ raison d’être is to buy low and sell high. The ongoing eurocrisis has given firms an excellent opportunity to buy low, so this article lays the groundwork for selling high to their clientele.

This profit opportunity creates a bias, which may have caused the author to miss two significant differences between Asia of 1998 and Europe of 2013— debt and demographics.

In 1998, the average debt to GDP ratio among Indonesia, Malaysia, Singapore, Taiwan, Thailand and South Korea was only 40.7%. Currently, the PIIGS struggle with an average ratio of almost 120%. These figures are important because the PIIGS must cut spending and raise taxes at a time when they can least afford it. These measures are squelching growth despite what the authors of the recovering eurozone meme tell us. Even in cherry-picked example Ireland, growth will be only 0.2% for 2012, hardly a rip-roaring recovery. The rest of the PIIGS remain in recession or outright depression.

Demographically, the victims of the so-called Asian Flu had a huge advantage over today’s Europe. For example, at the onset of the Asian flu, Indonesia had a ratio of 15 workers to 1 retiree, but the ratio today in Italy is less than 3 to 1. Young people are better for economic growth than the old. In addition to more workers paying taxes, household formation and child rearing both create lots of consumer spending.

It may very well be that European stock markets will run with the bulls in 2013. If anything leads to higher equity prices, it will be central bank money printing rather than the fundamentals.

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