I hate anecdotal observations. I despise thumb-sucking. I can't stand the "it seems like it is getting better" crowd and I am revolted by the "rising rates say things are strong" analysis.
I like the empirical.
I like when I can feel it and read about it and devour it at the same time.
I don't want to see the action in the bonds. I want to know what drives the rates themselves.
I want the original research, not the derivative.
Which is why I am so excited about the turn in Europe. It is empirical, and it is about the changes in the banking sector that are making things work after years of subpar-to-no-growth economics.
The health of an economy depends on its banks' ability to loan. If they can't loan, if they don't have the capital, or if they aren't allowed to loan, you have a stagnant economy. Guaranteed.
That's been the case with Europe. But that case is coming to an end, and how fitting is it that it ends with the stabilizing -- some would say seizing -- of the bank of Monte dei Paschi di Siena, the oldest bank in the world, by the Italian government replete with a $6 billion bailout to put the bank back on its feet.
I can't tell you how important this recapitalization is, because I believe it brings to an end the ignominious chapter in European history in which the regulators simply refused to do the right thing for the country, crunching the existing shareholders and bondholders, and instead allowed the banks to languish with the "hope" that good things will occur.
But when it comes to bad loans, I mean really bad loans that have almost no worth, no amount of patience will matter. That's something that at last dawned on Italian officials and they took action on this and two other ne'er-do-well banks at the same time, and I bet Italy is now on a growth path that it hasn't seen in ages.
These bailouts, coupled with the February 13 billion euro ($14.7 billion) rights offering for the only really gigantic bank in Italy, Unicredit (UNCFF) , closes the door on the lassitude -- albeit with lots of pain -- and opens it to commerce.
As someone who uses Monte dei Paschi, which is as professional as any bank I have ever dealt with, I think that people do not understand how important this bailout is to the future of this country.
Right now, Italy is basically a cash economy, both because of a fear of the loss of money deposited in insolvent banks and the inability of banks to lend, even to the most solvent of creditors.
I believe that's going to be in the past, which is why I think that Italy can now turn.
It will join Spain, where Banco Santander (SAN) is completing a brilliant 8.0 billion euros recapitalization to take over Banco Popular and cement itself as one of the world's largest and strongest lenders, and Switzerland's Credit Suisse (CS) , with a rights offering back in June for 4.0 billion euros that has helped that bank get back in the game.
All of these are on top of the successful 8.0 billion euros rights offering for Deutsche Bank (DB) back in March of this year.
This plethora of deals breaks the logjam that has plagued all of Europe, and it is why we should begin to expect some rather dramatic growth increases even as the numbers have been pretty darned good for Europe for about a year now.
So, here's my bottom line: these rights offerings and the concomitant writedowns are going to spur growth and keep the euro rising. It's why I hate European bonds and why I like the stock market and the euro, which can be captured best by buying the (EZU) , the MSCI Eurozone ETF that we own for the charitable trust Action Alerts PLUS.
So, when you see European interest rates rise and the euro go up with them, don't say "I bet things are better, rates are going higher." Just remember that they will be rising because the banks are at last open for business, with lots of money to lend, and have cleared their balance sheets of the bad loans that should have been written down and off years ago.
