European Crisis Hitting Home: 10 Recent Events That Impact U.S. Investors

Includes: GE, KO, MCD, WMT
by: Bret Jensen

The market has a great run to start the year. However, given what is happening in Europe I don't think this rally is sustainable. Here are ten recent events/impacts from the deepening crisis in Europe that investors should be cognizant of before deploying new money in U.S. equities.

  1. General Electric (NYSE:GE) reported revenues $2B shy of analysts' estimates in their recent earnings report. The main culprit for the miss was the slowdown in GE's Healthcare and Industrial sales in Europe.
  2. The talks with Greece's private creditors are contentious and probably will be not be resolved before the latest upcoming European summit. This has the potential to rattle the markets and needs to be kept an eye on in the coming week.
  3. It appears that trade in Europe is getting radically ratcheted down based on the falling off the cliff of the Baltic Dry Index. This is not a good sign for U.S. commodity producers that have a good portion of their exports to Europe.
  4. Gary Shilling, the man who predicted the housing crisis here, recently came out with an article saying a new deep recession has begun in Europe and the U.S. will not be able to escape its impacts. This does not bode well for our economy or stock market.
  5. The four month chart of euro/USD is plain ugly and likely to get worse as given the crisis in Europe, it is not hard to see the currencies reach parity sometime in the next 1-2 years. This will not be good for earnings for American multi-nationals like McDonalds (NYSE:MCD) or Coca Cola (NYSE:KO) that get a good chunk of their revenues from the continent (click to enlarge image).

  6. Big lenders including Commerzbank (CBK.DE) are scrambling to raise capital to meet new European regulations. Given the experience of Unicredit's shareholders in their rights offering, this process is likely to be ugly for bank equity holders.
  7. The IMF is in the process of raising $500B in new funding primarily to deal with the deepening crisis in Europe. Not exactly a vote of confidence in current measures that have been already undertaken.
  8. Carrefour and Walmart's (NYSE:WMT) are dropping at an accelerating pace in France, which is Europe's second largest market.
  9. Social unrest is worriedly increasingly outside the non-PIIGS countries including Romania and Hungary.
  10. The rallies inspired by improving short term debt auctions in Europe are overstated and the improving sentiment driven by these events are likely to be temporary.

Disclosure: I am long GE.