I poke fun at a lot of analysts who don't bother to think past a quarter or a quarter of an hour when it comes to stocks and bonds -- and economic calls. I find most of them too fleeting to be used by all but the quickest hedge fund managers who are able to get a short off, or grab stock after hours, and make a few bucks in the process.
But when I see a piece of research that is terrific, that can really help you make money, I want to shout that from the rooftops, too.
Which brings me to an "Eye on The Market" segment by Michael Cembalest from JP Morgan Asset Management that I saved from Apr. 1 of 2015, where he said that it was time to turn bullish on Europe. The piece, entitled "A brief note on the European mini-renaissance," talked about how there were signs that Europe was about to take off, and yet no one was paying attention -- in part because everyone was sick of hearing about a turn and in part because the soap opera of Greece hadn't yet been resolved.
I had been reading Cembalest for years, and he had been the biggest bear on Europe since 2010, when he wrote a legendary "Six Men of Europe" piece that proclaimed that every attempt at reviving Europe was doomed to fail. But at that precise moment, when pretty much everyone had given up on the idea that anything could save the continent, he drilled down on the actions that Mario Draghi, the European central banker, was taking, and said they were going to take root and turn around European business.
He cited the fact that corporate interest rates to non-financial corporations and mortgage rates had plummeted, which would turn around industrial manufacturing and home building and buying. He took a hard look at how the European-area business surveys, like the PMI composite, had turned up. He scrutinized charts that showed more aggressive lending to households, and measured European consumer confidence. And he checked retail sales and car registrations.
His conclusion? Every one of these indicators was flashing green. But it's clear from reading other publications that came out at the same time that the short-termers and their acolytes in the media weren't seeing it -- because a very small country, Greece, was grabbing all of the headlines, and it would soon be resolved. "This is the first three-month period I can recall since 2010 when the stars aligned for a mini-renaissance in European economic data -- and for financial markets, changes versus expectations can have powerful consequences," he wrote one year ago.
Well, there sure have been powerful consequences. One year ago, the euro hit its low versus the dollar. I like to measure the euro by looking at the CurrencyShares Euro ETF (FXE), which reflects the price of the euro, and it was at about $104, a price that almost everyone -- except Cembalest -- felt was where the real breakdown would occur, the real plunge that would take the euro to well below dollar parity.
They were dead wrong, and he was dead right.
As of right now, we are going to have what we call easy comparisons starting next week, because the impossible has occurred. Europe's come back; it is strong and its currency is therefore strong. The U.S. is weaker and therefore our currency is weaker. It is the beginning of the end of dollar tyranny and when we hear the earnings reports a fortnight from now, we will get estimates bumped just when analysts were predicting severe declines because of a continually plummeting euro.
Those of you who are astonished at this turn of good fortune, let me just say there's nothing astonishing about this. The unemotional detective work was there, yet only one Sherlock Holmes was there to see it -- Michael Cembalest from JP Morgan. And his prediction of a European recovery and, therefore a concomitant bottom in the euro, is what's driving this run to all-time highs that many U.S. industrials are now experiencing.