Steer Clear of Europe

 | May 09, 2012 | 10:46 AM EDT  | Comments
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Europe is imploding. Those who deny this are fools. But many of our companies are not all about Europe, and that is why we have to stay vigilant and look for buying opportunities from companies such as AT&T (T) and Verizon (VZ), which are proudly not about Europe.

In fact, yesterday I told the telco executives I met offstage that if they want to tell their stories better, they should start by saying, "We are not European companies. We are purely American companies."

Which brings me to the European stock markets. Right now they are absurdly high compared with where they are going as the recession takes hold. The fact that Germany is still up 9% when it most certainly will be hurt by the macro elements on the Continent seems nuts to me. That market has no discernable opportunity that I can see.

But that's nothing compared with the other markets, which are out-and-out shorts. How can France be down only a couple of percent when the new government can't possibly be as friendly to business as the old one? Remember, when Sarkozy won, he dined with the top CEOs of the country at Fouquet's, admittedly one of my favorite restaurants in Paris. The new government probably would close Fouquet's if it could, never mind dine with CEOs.

I would sell all things France.

But the really ridiculous ones are Italy and Spain, down 10% and 20% respectively. Remember, our stock market was cut in half by our Great Recession. But we had strong banks, and many companies with terrific balance sheets and a Federal Reserve that really understood how terrible things were getting after an initial misread of the situation. We broke out the highly successful TARP program. We opted for growth policies, as ineffective as many turned out to be, not austerity. We had control of our own currency and bond markets. Italy and Spain have none of those factors.

Why can't the Spanish stock market, while interest rates are obviously soaring, be cut in half from here? Can't the Italian market easily decline by at least a third?

It's lunacy that they are still holding up as well as they are.

That's a huge reason why we are not done with Europe's pain. The only hope at this point is a European Marshall Plan with a giant decline in the euro coupled with huge borrowings by the European Central Bank to buy every bad bond in sight.

Otherwise, mark my words. That's where we are going.

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