Ms. Merkel and the Markets
Europe will benefit from a strong export sector, capital inflows from China and lower unit labor costs in the periphery of Greece and Spain. The idea that a strong currency hurts exports is incorrect. Exports are driven by efficiency in manufacturing and technological innovation as shown by Japan in the 1980s and Germany in the 1970s when both countries had strong currencies and strong exports. Under German direction, the European periphery is set to become Singapore-on-the-Med as a base for investment, manufacturing and exports.
Implications for investors are: a stronger euro, perhaps as high as $1.50 over the next year; a weaker dollar (this is just the inverse of a strong euro, it cannot be otherwise) and excellent investment opportunities in Europe for U.S. dollar-based investors because they will have the double benefit of higher growth and a stronger currency.
Some of the too-big-to-fail European banks such as Unicredit (UNCFF), Santander (SAN) and Deutsche Bank (DB) should benefit. The weaker dollar will mean higher inflation in the U.S., which should support the price of gold.
A blended portfolio of European bank stocks, European manufacturers such as Volkswagen (VLKAY), Siemens (SI) , SAP (SAP) and Daimler (DDAIF) as well as gold should outperform U.S. stocks over the next year.Follow Steve Cordasco (@CFNPlan) Follow @JamesGRickards This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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