Covestor model: M2 Global
Sledding in the Summer! A strange analogy but an apt one given Finland's threat to take their sled home via an exit of the Euro currency zone. Maybe an idle threat, but maybe not. We haven't done a full analysis of Finland's current balance of payments. However, leaving the zone may help them with large imports from Russia and clearly selling Nokia (NOK) phones in the US and Japan is now less important.
Anyone watching the U.S. Federal Reserve's clear defense of the 200 day moving averages in broad US markets intuitively understands that all roads lead to the Fed in domestic markets, given the political/fiscal gridlock and an economy growing at a real rate of -.5% to +.5% on an annualized basis.
The Fed and primary dealer CIO's are fighting the self fulfilling prophecy of corporate executives who fear this slow down and thereby reign in spending and hiring as a reflex. The drop in energy prices, low interest rates, and small rebound in home building and real estate refinance is helping to keep household consumption in the game and is thereby a counterbalance.
We have marked Hovnanian Enterprises (HOV) for years, and unfortunately did not buy at the recent low, as the stock is up more than 300% in the past year. A good example of sentiment for refocused home builders.
The hope is that the presidential election clears the air for solving problems in the US, but we agree with the following analysis: All roads in Europe will go through the European Central Bank. The real risk is not that of a weak country leaving. The real risk is that of a relatively strong county, such as Finland, leaving as a result of the ECB taking on the full role of the Fed in the United States.
We think the reality is that the structure that needs to be developed for the Euro Zone to survive intact will take years and possibly decades. This is a very dangerous environment to ask investors to remain passively fully invested.
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