This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Stock Returns Strong Despite Eurozone Weakness

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- In our view, stock returns are strongly positive in 2012 and the world overall grows, even though the eurozone is likely a weak spot and may even go into recession in aggregate.

And we needn't look back that far to see a similar scenario historically. The early 1990s featured a global recession before the rest of the world recovered while Europe re-entered a recession tied to a pan-European monetary disarray. (Sound a bit familiar?)

Our history lesson begins in 1979, when the EU's Exchange Rate Mechanism (ERM) -- the precursor to today's euro -- began. Through the ERM, each participating nation's currency (eight nations in all at the start, including West Germany, France, Italy and Denmark; the UK joined in 1990) was pegged to the European Currency Unit, a quasi-European currency.

Based on a basket of currencies, the ECU existed largely as an accounting unit, though it was eventually noted on travelers' checks, certificates of deposit, etc. The idea was to slowly converge national currency valuations in anticipation of adopting the euro, so the common currency wouldn't require huge economic adjustments (the blueprint for the Maastricht Treaty's Conditions for Convergence).

But because of the deutsche mark's relative strength and the German Bundesbank's hawkish monetary policy, the mark (and West German policy) became the center and driving force of the ECU. This eventually caused rather painful currency dislocations (more on this in a bit).

Fast forward to 1990, when the US Savings & Loan (S&L) crisis kicked off a global recession (a US-led recession based on banking weakness -- rather like 2007-2009). The impact in continental Europe was somewhat muted, but the UK felt it acutely since British Building Societies operated similarly to S&Ls.

Italy, Spain and Portugal's GDPs shrank in 1990-1991. The Nordic states were weak, too --particularly Sweden, which had a real estate crash. Yet Germany grew robustly in 1990, prompting inflation concerns in West Germany during the early stages of reunification. Similar to now, growth was divergent, as was competitiveness from a unit labor cost standpoint.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs