A Bourse Diary

Thoughts on stocks, speculation and ... life

Wednesday, July 26, 2006

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.

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Disclaimer: All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and are in no way intended to serve as personal investing advice and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Readers should not make any investment decision without first conducting their own thorough due diligence. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed.