Could you play different tightening cycles?

One more article I just read on SeekingAlpha: How to Play the Current European Tightening Cycle.

There is some "food for thought" with taking a view on the demand and supply balance for goods. It seems to me to "economical", but ... well ...

The point of the author Dr Enzio von Pfeil is that European tightening cycle is lagging behind of the US (right!) and should go considerably further that widely anticipated (maybe!). Currently there is excessive demand for goods in Europe, which is providing a stable basis for business. In the USA he sees this phase of monetary environment (almost) over. So his bet is stay in Europe as long as the conditions are like this, and avoid America (have I understood right?).

I have to think it over a little.

Of course, as I have said many times, we go now through a sensible phase on the bourse. The tightening cycle of the Fed went so far, that the markets had to response. My guess from the beginning of the year was so far right, that the US stocks will provide a more safe investment in the months ahead. For a final assessment of this call, we have to wait a little more...

This was all said with the believe (still unchanged) that one should stay in that bull market (which I think is far from being over). But - and this is a special "but" - the monetary policy (in combination with other factors as oil prices etc.) became much less favorable for stocks. This was my main concern to say: one should stay, but please ensure to stay in possibly safe market.

The thoughts of different tightening cycles do of course make some sense. But simple experience shows, that the stock markets go up and down quite in a synchrony. I would not bet on Europe thinking Wall Street will perform poorly. If one believes some fundamental and monetary conditions now favor European stocks, it will just make them this "more safe" investment place to stay until we go through this flat phase (or may be phase of some correction).

After the recent declines in stock prices (Europe more than US) I see the chances now almost equal.


stocks bourse supply demand

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The cross-sector P/E ratios of S&P500

As we have talked recently about Graham's Margin of Safety and hence the valuation of stocks (by at least the one parameter P/E ratios), here is a nice colorful graphic of the current development across sectors:

S&P 500 P/E Ratios by Sector

For I have always stated that P/Es do not provide a sufficient basis for valuating the stock market, but merely a - say - starting point, one should be careful of talking only about that figures. Though the overall conditions are at least a good "starting point".



stocks bourse valuation price earnings

Disclaimer - I do not make recommendations to buy or sell securities - I just post my thoughts, trades and opinions. Please read the disclaimer text at the bottom of the site

Look Back on Market Forcasts for 2006

Is it good when analysts expectations do meet the market performance? This is rather soldomly the case, but in this year so far the half-time consensus is prety close to reality.

I think this could add some confidence in the market. The last time analyst were pretty good was 2004. The strategies will not change a lot - they were from the beginning conservative and now as the correction has let some hot air, they will further position carefully for slight gains. It's sound.

The forcasts for the rest of the year:
Business Week Market Survey