Dr. David Kelly, Chief Global Strategist of J.P. Morgan funds, gave a teleconference yesterday with a market update. His comments on Europe were most interesting and I wanted to comment on them here. With the announcement of the ECB stimulus program (finally), the region has adopted a similar course of action that the Fed took in 2008-9 in an effort to lift the U.S. economy. The unorthodox size and methods of the U.S. program helped buoy markets and have led to a solid market recovery. The real economy has followed with unemployment dropping below 6% last year and other economic metrics trending higher.
Dr. Kelly relayed the charts below describing various indicators for the Euro area economy. The charts are strangely similar to readings of U.S. indicators back in 2009. Auto sales, housing, and lending were all significantly below average when the Federal Reserve implemented stimulus plans. With the ECB stepping up their efforts, it is possible Europe could follow a similar path in the coming years like the U.S. has travelled over the last five years.
One word of caution though is that Europe is much more fragmented than the U.S. and such political heterogeneity has made it difficult for governments to come together to find a common solution. Also, from a U.S. investing perspective, it is important to consider the currency effects on European investments. Stimulus plans are likely to cause a further decline in the Euro and erode gains if not hedged out.