This posting uses a similar chart to the one in this posting:
So you ought to read it first to get comfortable with the graph and the descriptions.
Some of what I say here will be of the form “Like I said there”…
Here’s a graph of EZU the European Monetary Union oriented ETF Exchange Traded Fund. As this sells in $US and those stocks in it are in Euro terms, it embodies the relative exchange rate changes of the two currencies as well.
The FXE line shows the movement of Euros vs $US. You can see that it generally moves with the stock markets and exaggerates the trends. Minus the currency effects, the EMU area stocks would look more like that S&P line, but with overall a 10% loss from one end to the other. (FXE ends 10% high, so take that zero intercept for EZU and move it down to -10%).
It is also clear that Germany runs up a lot more in “good times” than the rest of the EMUs but comes down hard in bad times (partly from the currency wobble. As this instrument trades in the USA, it likely has some ‘slippage’ vs the actual European markets. (Someday I’ll find a place that lets me make charts like these for other countries in native currencies…)
Overall, conclusions are much like in the prior posting on SPY.
RSI at 80 and it rolls over some months later. At 20 its a bottom / crash buy point. Presently ‘wobbling in the middle’ as ‘dead money’ or fast chart trades. MACD working about the same. Presently barely above zero in a sideways weave. Not much of interest in EMU one stocks. Germany looking like more risk of a ‘big dipper’ than further high peak.
The ADX line down at about 10 is equally saying ‘dead money’. It looks to me like the EU is largely just marking time waiting for something to get better, and it’s not getting better.
To me, that says you can trade Germany and perhaps a couple of others, but mostly the EU is just “dead money stay away”. (I plotted the UK market (EWU) and it was very similar to EZU, so didn’t leave it cluttering up the chart). Exactly ‘which countries’ to trade might be interesting to search out, but I’m not seeing a whole lot of potential, really.
This would likely explain some of the difference in the more ‘negative’ outlook Dirk H. was getting with his models, as they are EMU-centric. (As I understand it). Also, given recent $US strength, his “Gold in Euro terms” will look better than my “Gold in $US terms”. (Flat gold in $US is rising in Euro terms when the $US is rising.) The FXE drops, net, 10% in the last 2 years.
As Japan is in the news for “bugger the Yen” driving stocks up, here’s a similar chart with Japan on it. I’ve included FXB the British Pound and FXY the yen, even though the start at zero in the middle of the time span (so only in the right half of the graph). The EWU UK ticker is on here so you can see it looks a lot like the EZU. The graph is a bit messy, but I think you can pick out the wiggles.
So first off, the gold FXY Yen line rises a lot (as the $US drops relative to it…) and then rolls over at the end. So their ‘cheapen the yen’ is really just joining the Euro and $US in the dropping game. The blue line is the British Pound, so you can see it took a drop all in one go. At the same time that the red UK ETF was in freefall.
Looking at the main ticker, EWJ or Japanese ETF, we’ve had “dead money” for 4 years (even with a rising Yen…) so that ‘lift’ recently is nice, but not exactly a big deal in context. DMI is ‘blue on top’ as is MACD, so “good to be in” EWJ, but strength is low on this time scale. (A huge run up in other time scales, but not ‘long term strong’). MACD Crossing to positive too.
So all in all, money printing and weak currency inflate stocks, but at the expense of the currency inflating.
I think these graphs do show how lack of real economic growth causes stagnation of markets. Yes, you can ‘juice them’ with Central Bank Buggery Of The Currency… for a while. But as the EU graph shows, even that has it’s limits.
FWIW, Brazil and China are also in the “flat to flat-rolling” group and not very interesting either.
With that much of the world “doing nothing much”, it is unclear how much “money printing” can cause real economic growth, or even how long it can continue to inflate asset prices. IMHO, there is way too much emphasis on monetary fixes, and not nearly enough on fiscal fixes ( lower tax burden, more inducement to investment – the real kind not the “Government spending on consumption calling it investment” kind. Only the real kind grows net wealth…)
As long as the USA and EU are in the dumper, Chinese demand will be low as well as Chinese growth. Japan can “cheapen the yen”, but not enough to compete with China (not and stay a rich country). It looks to me like we are entering a stagflation phase and net real growth will be low. Last time that happened, Real Estate and then Collectables were the better choices. Metals are very volatile, driven by markets and, for Gold, central banks. Not stable, but longer term can gain. (IMHO better as trades than long term holdings). In essence, it looks to me like the USA / EU are running out of money / wages to use to buy stuff from China, and Japan has given up on trying to make it as a “high end” maker. China has collected the chips, but without others having some to play on the table, not seeing a lot of “new money” headed their way (even with sending us $Trillions of debt). That debt is ending up in the Government and Banks (via The Fed lending) and not in the US economy. So even the $ Recycle is reaching an ineffective limit. IMHO it would do much much more to “stimulate the US economy” to cut taxes and leave the money in the hands of folks who will spend it locally. I’d also put a nice fat ‘symmetrical tariff’ on any country that has one against us. Oh, and if they have a ‘must have 50% Chinese ownership’ in China, I’d have a “must have same 50% US ownership” here.
The USA stocks are still looking better than the others we’ve looked at; but just how much more corn can we sell to the rest of the world? Especially if they are doing “bugger the currency” and high taxes too?
All in all, I’m just not seeing where the “good stuff” comes from right now.
Usually that means “Stock Pickers Market” and finding special situations. When the aggregates are stagnant, time to look inside the box…