Monday, July 23, 2012

A Tale of Two Europes

I'm traveling today so my note will be brief.

Europe is obviously facing a number of issues. Safety - not return - is paramount to many investors.

And so last week Germany (presumably the strongest of the euro block nations) was able to sell 4.2 billion euro of bonds with a two year maturity at a negative -0.06% yield.

This is the first time in Germany's long history that its government has been able to sell bonds offering negative yields.

In other words, there was enough demand for safety and liquidity that investors were willing to lock in a loss for two years.

And yet.

The Financial Times reported the following on Saturday (I have added the emphasis):

The FTSE Eurofirst 300 index of European stocks recorded a seventh weekly advance,of its longest run of gains since mid-2005.  The strength came in spite of nagging worries about the eurozone debt crisis - as Spanish government bond yields held near unsustainable levels - and about the outlook for global economic growth.

I still believe that Europe will eventually work through its issues, and side with the equity camp of seeing European markets as offering more opportunity than risk.

But I am still mindful that there is a huge class of investors that sees more peril than I do.