The European Central Bank has changed its tone on growth and inflation, and global investors need to get ready to ride the European market surge upwards.
On Wall Street, every teeny-weeny rally is seen as a selling opportunity these days. There’s no confidence in the system, and no amount of loosening by Ben Bernanke & Co. seems able to change that.
But my research shows that non-U.S. markets tend to achieve higher rebound gains than New York averages after global stocks hit bottom.
And yes, folks, the bottom may be near.
I say that because Jean-Claude Trichet, the head of the European Central Bank and the world’s most prominent inflation-slayer, is finally turning his attention to the problem of growth instead of the value of each euro.
Where the Fed is mainly concerned with preventing a major economic slowdown, most of the world’s central bankers have stayed focused on keeping prices in check. The Japanese benchmark rate is only .5%, so there’s not much room to lower there. The Bank of England has lowered twice recently after a long pause, and the U.K. still has one of the highest rates in the developed world.
Europe, for its part, has seen growth as remaining strong, so it’s trying to resist dilution in the value of the euro at every turn. This includes very strict guidelines on inflation for new EU members like Lithuania, which tried to gain entry to the euro club in 2006, but missed the ECB inflation target of 2.7%.
In former Soviet bloc countries like Lithuania, and in other countries like Israel, 6-7% yearly economic growth means that more wealth is being created all the time. Compare this to the U.S., where the central bank is dumping money on the economy in hopes that we will all feel richer.
Inflation is a clear factor in the balance of world wealth these days, and even though Fed head Bernanke hails from the halls of Princeton, this stuff is far from academic.
Bank on European Growth
From my home base in Baltimore and my investment-finding voyages all over Europe and the world, I see how money really works on all levels of the economy.
Today, I foresee major market consequences from a new European policy approach.
Over in Frankfurt late last week, Mr. Trichet told us what we already know – that risks in the global economy are "on the downside," during this ongoing shuffling of risk in the sub-prime meltdown.
So the ECB and its 21 members are holding still, with no inflation-fighting hikes planned from the current benchmark rate at 4% and a rate cut coming in the next year if threats to U.S. growth persist.
The International Monetary Fund revised its euro-area (the group of EU countries trading in the common currency) growth estimate for 2008 down from 2.1% to 1.6%.
Africa’s economic growth outlook, on the other hand, is expected to rocket to 7.0% in 2008, up from 6.0% last year. Europe, being much closer to Africa than it is to the United States, is in a better position than we are to benefit from African expansion.
That means a big kick for companies like Switzerland’s ABB (NYSE:ABB), my favorite international infrastructure play and a stock that has already delivered triple-digit gains to Orbus Investor subscribers.
ABB has real value in any economy, because it’s a company that makes the nuts and bolts of everything we do. ABB builds power stations in developing countries (they just scored a $450 million order in the Persian Gulf state of Qatar) while upgrading existing systems in rich countries from the U.S. to Japan.
This is the kind of sustained growth we need today, and you should turn to all-weather global stocks like ABB to balance against any slowdown with built-in momentum.
Also check out the BLDRS Europe 100 ADR Index Fund ETF (NASDAQ:ADRU), which has a five-year average annual return of nearly 18%, and a whopping 21.33% yield according to www.etfconnect.com!
As you decide where the real risk lies (mainly in the house of cards that is the lending industry), it’s time to put some elbow grease in your portfolio with European industrial stocks, and watch the European Central Bank supercharge your gains.