NEW YORK (ETF Expert) -- Jobless claims have been rising. Earnings growth has been decelerating. Revenue growth has been stalling. Mortgage applications dipped to the lowest level in two decades.
Is it possible that we have been placing a little too much faith in the ability of central banks to support asset prices?
Granted, there is no reason for gloom or doom in the intermediate term. Corporate balance sheets are strong. Trailing 12-month P/Es are fairly valued or perhaps slightly overvalued. Most notably, the majority of developed world stock ETFs offer convincing technical uptrends.
Nevertheless, one should at least question the reasons behind the super-sized confidence in certain assets. In some instances, the boldness may very well be warranted. In other cases, it appears that momentum itself has superseded common sense.
You decide. Here are three exchange-traded funds and my take on the sensibility of the price movement.
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1. iShares MSCI Italy (EWI). Nearly every eurozone economy has grown since the year 2000, including Spain. The one exception? Italy. Employment data show that labor force participation for Italy is at a dismal 55.6%, well below the eurozone average of 63.8%.
Granted, I have been willing to invest in regional growth via iShares MSCI Small Cap EAFE (SCZ). This is a nod to the high probability of additional European Central Bank stimulus as well as modest regional economic growth. However, peripheral countries like Spain and Italy could be the hardest hit should the ECB balk at cutting rates on March 6.
2. Vanguard Extended Duration Treasury (EDV). In 2013, few asset classes suffered as greatly as long-dated Treasury bonds. Since the Federal Reserve began tapering in December, though, funds like EDV and Pimco 25 Year+ Zero Coupon (ZROZ) have been extremely successful in the exchange-traded universe. I explained in December and early January that the deceleration of interest rate manipulation by the central bank of the U.S. would actually increase financial market uncertainty, likely sending many investors back toward traditional safe havens.