Why I Avoid the Euro Zone

I think the ECB and in particular, Jean Claude Trichet, does not get it. The ECB raised its base interest rate by 25 basis point citing inflationary pressures. Guess what, the ECB is causing inflation. No sooner than they raise interest rates do commodity prices rise and voila (that is a word with French etymology), we get more inflation.

Of course, the ECB has a bigger nut to crack – the unions. The ECB faces labor cost push inflation which was to a great extent ameliorated in the US thanks to Ronald Reagan’s firing of the air traffic controllers and the erosion of the US car manufacturing industry. At this point in time the UAW is nothing more than a retirement management organization. What is the UAW going to do – strike? Sure, then we make less Tahoes and Expeditions. Big deal. Then the public buys more Corollas and Maximas.

However, no European nation will dare touch their own third rail of politics – the unions. According to the AP, “Ground staff at German airline Lufthansa AG have gone on strike seeking a 9.8 percent pay increase, while British public sector workers voted to strike for a 6 percent wage hike to keep pace with soaring inflation.”  So why can’t the ECB just admit that they are increasing interest rates to help justify higher union pay raises and that they don’t give a damn about global inflation?  It is easier to blame it on the hated Americans and Chinese.

You can knock Ben Bernanke and the FOMC all you want, but the ECB makes the Fed look real smart sometimes. My hats off to the British, who told the ECB “No thanks” many years ago, kept their currency the pound sterling and maintained the Bank of England’s autonomy and authority.

As for my investing themes, the Euro zone has been rated an “avoid” for many years and remains so today.

Comments

[Sophisse]

"As for my investing themes, the Euro zone has been rated an “avoid” for many years and remains so today."

5 year Europe returns: 14.01% annually. 5 year US returns: 5.95%. Source: www.mscibarra.com/prod...

I'm not really sure what to say to you.

[punk_ash]

excellent article for a change on seeking alpha

[phdinsuntanning]

you avoided the eurozone, so you have 63% the money you had in US/EURO parity times. The pro unions interes rate hike looks interesting, but you miss the point: with a strong euro, energy and commodity inflation is not so painful, if mediterranean euro countries resist the recession and trade deficit. Good for expanding Germany.

[bbzz24]

I was really looking for arguments to suport the thesis in the title but found nothing. Really no substance. On the contrary, besides the crumbling dollar, where is the stock market, where is the housing market, where are the jobs, where are the the savings of the 'people' in the U.S. compared to those in Europe for the 10 years period that the euro has existed?
Or could it be that you avoid the euro zone simply becuase you were priced out by your own government???

[dieuwer]

Eurobashing again...

[Melancholy Korean]

Germany bringing down Europe once again. Where have I seen this movie before.

[daniela]

This socialist side of Europe is out of control. However to put together "hated American and Chinese"--I object! I would blame on China many things and Europeans have right to do so. We are not on the same boat as China. While Europe has problems, they are nothing in comparison with communist China. I hate when people forget nature of China. If China achieves European freedom with their unions, democratic world would cheer. Author should remind himself to stay away from China zone too.