At the MoneyWeek conference 2012, the editorial panel were all asked where they would put their money to work for the next 12 months. Almost to a man (and me) they said somewhere in Europe mostly either Germany or Italy. That has worked out pretty well.
But here's the interesting bit: when they were asked again this year, a good many of them said much the same thing. James Ferguson, a regular writer for us, and also a founding partner of the Macrostrategy Partnership, made the case. It is, he says, all about quantitative easing (QE).
The point of QE in most of the countries in which it has been introduced has been to fix the balance sheets of their banks and to prevent a collapse in the money supply as those banks rein in lending. That's worked. America has managed more or less to fix its banks without actually seeing a contraction in money supply. Britain is on the same path.
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However, a whopping side effect of QE has been fast-rising stock markets and fast-falling currencies. Look at a chart of QE alongside one of the rise in the US and UK markets, and you will see they move almost dollar to dollar, pound to pound, for example. This makes the US market in particular a risky place to be.
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If QE is no longer needed, it might end up being stopped. Then the market will fall and the dollar will rise. The good news from an investor's point of view at least is that there is still one crisis-ridden area of the world that has not succumbed to the lure of over-easy money Europe.
It will -because it has no choice. British and US banks have, under cover of QE, already "hugely shrunk" their loan books; Europe's haven't, says James. That makes them now bigger than the US banks were when things were at their worst and just as dangerous. They have to shrink lending - and if Europe wants that to happen without kicking off a major and long-term depression, "European QE is inevitable".
If recent history is any guide, we know what will happen next: money will pour into stock markets and pour into real estate (anyone in any doubt as to just how fast this will happen need only glance towards Japan). Here's whatto buy when the day comes.
The Baring German Growth fund perhaps (Germany is James' favourite) or John Stepek's favourite play on Italy the iShares FTSE MIB (LSE: IMIB). Finally, for wider exposure you might look at two other trusts: Fidelity European Values (LSE: FEV) or Jupiter European Opportunities Trust (LSE: JEO).
Thanks to all of those of you who came to the conference. We had a brilliant time and very much hope you all did too. All feedback is, as usual, very welcome.
