Some Thoughts On Europe

As a reply to Jimbot’s comment to my article Think Of Your Portfolio As A Business I wrote these thoughts on a possible Euro break up:

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Hi @Jimbot,

Thanks my 4th kid is really lovely :), another man, I’m amazed !

Regarding your question I really do not know, politicians could decide to do whatever. I read a lot of info on the subject but I cannot formulate strong opinions, or better said not strong enough to bet on them. What I do think and observe is that most of the Europeans I know are doing quite well, they are willing to stay together and politicians say the same, but I personally do not trust any politician. I do recognize though from my European background that it’s much less of a media issue there than how it looks like when you read the US media. In Europe they have had European issues since 1950′s when the EU was born. But actually many countries like France, Germany, Austria, Netherlands are doing pretty well, specially Germany. It’s quite a focused problem. The largest percentage of the 27 European Nations are very wealthy and have strong government balance sheets. Overall quite stronger than the USA it could be argued.

Then again I guess that if the Euro breaks up, Germany and the northern countries will go back to some strong currencies and Spain and Italy to weak ones, at least in the short to medium term. So if you have your Euros in places like Germany, Belgium or Netherlands it should not be a problem, you could end up even making money. Note though that it could very well be that some strong countries leave the euro first voluntary, not kicked out due to their bad behavior, but because they get fed up of helping Italy; Spain; Greece; Ireland; Portugal etc… That could explain why the German sovereign bonds are yielding very negatively in real terms, because the market might expect that, in case of a break up, their currency will be transformed into something much stronger. Some rich Spaniards are moving their money away from Spain, probably due to that fear too.

I don’t think you would have a disaster, probably in the affected countries yes but not everywhere because the peripheral countries have had a lot of time to prepare themselves. If Greece collapses even more I’ll probably buy some Coke Hellenic shares, the company seems to be doing quite well and if the stock drops further I’ll take advantage. I lived in Europe recently in Belgium, near Brussels, from the year 2000 to the end of the decade. People were talking of a Euro collapse, even before the Euro was born in 2002 (if I remember well). But the reality is that the Euro was worth 0.8 dollars when it was issued and it is now 50% stronger (1.23 as of last time I looked). Even as flawed as it is it has performed stronger than the US dollar. Probably because the ones that control Europe, the Germans, do not like to print money, which I actually do not like either, so I applaud their attitude, at least in that sense.

What worries me more is the USA, the stock market has gone up completely correlated to the government debt balance sheet expansion. The problem I see there is a way too strong usage of quantitative easing and reliance on “help” from the government (when is actually the tax payer who takes the burden at the end). In the media you see as if printing money is the way to solve all problems. As I see it the problems lie deeper, in an addiction to spend, and should be solved by structural fiscal reforms and not with more debt. Money dilution can have bad long term consequences. I worry about what will happen about that immense amount of US debt (almost 16 trillions now !). Debt just shifted from housing into the government, but it’s still there, and getting worse, with no signs of stopping. It keeps me alert since I have several investments in the US of A.

It’s therefore a good idea to have a big percentage in cash to deploy it in case of trouble. As of now I don’t think stocks in general are expensive but also not particularly cheap and I do not find too many opportunities beyond what I already have invested. But in the last months and recent years, I have a pendant to be quite interested in “foreign” places, like for example Germany or Switzerland, to invest. Anyways there are and will still be for a long time great international North American companies too.

I’d like your opinion too if I may. I see you have SAN! If you wish you can always contact me here or more privately if you prefer via this contact page. Like that we can start emailing and sharing ideas. I’m also interested in your view on BP. I personally prefer one on one contact and via this blog I have had the chance to meet some very interesting minds and even use some of their ideas. So you’re welcome to keep contact.

Cheers!
jrv

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About jrv

I was born in Spain and lived in Belgium, Chile, France, USA, Argentina among other places. Currently I am trying to settle down in a wild place. I am "retired", even though now I dedicate more hours "working" for my investments than I ever worked in the real labor market where I used to work in IT and Banking. I am a family man, I have a lovely wife, several sons and one step daughter. I have humble tastes, I like to stay home and read about companies and investments. I started investing at 25 before the internet bubble exploded. I did not know much about investing and liked technical analysis so my results were pretty bad. Fortunately I did not have much to lose. Some years later in 2006 bored of doing only real state investments and with quite a lot of money saved I opened an account in a cheap and excellent online broker and started again. This time I did not want to commit the same mistake, so I decided to follow a model. I heard that Warren Buffett was the best at making money via stocks so I started by reading a lot about him, all of his shareholders letters and several of the books that he recommended. I learned a lot, started applying his investing principles and reading a lot of 10K's. Digested news from lots of different sources. Basically I started buying very good and cheap companies and holding them for ever if possible and if nothing changed fundamentally. When the housing crisis started I was more than 75% cash. At that time I identified good companies at incredibly cheap prices so I invested most of my savings in stocks. In less than I year I doubled. By the second semester of 2009 I turned my software company into an investment vehicle and dedicated myself full time to it. My wife and I decided to change our lifestyle and moved from Belgium to the beach in a wild country. The goal was to keep fixed costs low in order to be able to live with a minimum 6-8% yearly return but specially to move away from the inhuman life of civilization and to have finally some peace and sunny weather to concentrate better on investing. Now I can think and study about companies 60 hours a week and I am doing great. I can finally do what I want full time and can proudly say that I have never been so happy, specially also with my just born 4th son, my other great kids and my sweet wife who supports me fully while I study most of the day and patiently wait for the opportunity to make a swing ! You can learn a bit more about my portfolio by viewing it at www.kuchita.com/view/sumo.php or you may learn more about me and my family by following the link "Author's site" from the menu above.
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