Why I’m buying Italy
Politics matters. If the eurozone crisis has taught us anything, it’s that. As we go to press, investors are holding their breath, waiting to see if European Central Bank (ECB) boss Mario Draghi can deliver on his promise to do “whatever it takes to save the euro”, or if it’ll be yet another case of European leaders over-promising and under-delivering.
However, there’s something else that matters more than politics. And that’s price. As Russell Napier told Merryn Somerset Webb in last week’s issue (we’ve posted the full, unedited transcript here – it’s well worth reading, even if you caught the original), things may look bleak now, but eventually you reach a point where equity markets are discounting virtually every scenario bar the very gloomiest.
There was a very compelling illustration of this on Mebane Faber’s World Beta blog a few weeks ago. Faber, portfolio manager at Cambria Investment Management in America, writes regularly about the Shiller price/earnings (p/e) ratio, one of our favourite valuation measures.
• Read the full editor’s letter here: Why I’m buying Italy.