Wednesday, December 19, 2012

European Stocks Continue to Soar

Writing in yesterday's Financial Times, columnist Gideon Rachman said that European Central Bank Mario Draghi provided one of the biggest events in 2012:

During 2012, "old Europe" seemed to hold the fate of the world economy in its unsteady hands. The fear that the euro-crisis could go critical was a constant theme.  By the summer, some leading politicians and financiers were in a state of near panic.  The man who took the steam out of the crisis was Mario Draghi, the head of the European Central Bank.  If the euro crisis spirals out of control again, then Mr. Draghi's promise to do "whatever it takes" to save the euro, coupled with a later pledge of potentially "unlimited" bond purchases, may yet turn out to be footnotes in history.  But, for the moment, the Draghi intervention definitely qualifies as one of the five most important events of the year.

And now Draghi has doubled down on his bet on the euro, telling a group at the European Parliament on Monday that Europe, in his opinion, had the best fundamentals of any area in the western world.

"The eurozone has in a sense the best fundamentals that we can find right now, " Mr. Draghi told the European Parliament's economic affairs committee in Brussels yesterday. "If you look at the budget deficits, debt, current account, prices, inflation - no matter what you look at you find a less unbalanced situation than in most other parts of the world."

Random Glenings has been bullish on the outlook for European stocks for most of 2012, and I see no reason to change at this juncture.

But still, as the chorus of Euro-bulls grows louder, I am getting a little uneasy that markets may be charging ahead of fundamentals.