Question: Portugal’s Prime Minister said the three-year loan was a “good agreement that defends Portugal.” That’s another bailout for another European country. Does this spell the demise of the European Union or the euro?
Answer:
The euro is not centered on Portugal, Italy Greece or Spain, commonly known as the PIGS nations. Germany is the backbone of the euro.
- The reason the euro may not work is because Germany is the core of the euro.
- Germany has caps on labor cost;
- Germany has higher productivity than the other nations, so they export everything, and
- Germany has to be the one to agree to continue to bailout the PIGS nations.
- Currency has to be managed.
- When Germany’s growth gets out of hand they have to raise interest rates no matter what is going on elsewhere.
- This hurts weaker countries as the cost of borrowing increases, further hurting their economies as:
- Their credit rating is already low, and
- Monetary policy is set by the stronger nations.
- We see the euro as too disjointed.
- Individual countries set their own fiscal policy; however
- Their currency is regulated by one group: Germany, the strongest economy.
- We do not know how long Germany will agree to bailouts.
- In contrast, the United States works because:
- Our system is more fluid, and
- We have good productivity from every state.
Question: Earnings season is winding down. Who are your picks for this season’s winners and losers?
Answer:
Winners:
- Materials sector
- Energy sector
- Oil was not at or above $100 a barrel for the entire first quarter, but has been since March;
- Oil’s price pushed earnings up 44% for the sector, and
- Oil is down 15% at this time, from its top in late April.
- Time to trim back Energy holdings;
- With oil declining, sector may not have same earnings for second quarter, and
- Better for airlines as oil is coming down.
- Across the board earnings growth was near 25%.
Losers
- The worst performing sector year-to-date was Financials.
- However earnings averaged 18.36% growth for the sector in the first quarter.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
