EUROPEAN UNION

We've mentioned this before and we continue to believe it.

With the much-awaited ECB meeting tomorrow, many will be hanging on ECB President Mario Draghi's every word to see if he meant what many think he said last week at Jackson Hole.

It's about to QE now or not to QE. Meanwhile, the debate continues whether QE American style or not will be all what either is cracked up to be. A lot dangles in the balance.

The government of France is in trouble. Reform in Italy has stalled, and the country is slipping back into a recession from which it never really escaped. The mighty German engine looks to have run out of fuel. Unemployment continues to climb. The news coming of the eurozone is unrelentingly bleak.

Not surprisingly, investors are fleeing. The money that flowed into European equities at the start of the year, when there was a widespread view that the continent was finally starting to recover, has fled over the summer.

But, in fact, that is a mistake. The worse the economic data out of Europe gets, the more you should be buying. Why? There are two reasons, one short-term, and one long-term.

If pessimism is your cup of investment tea, search no further. Things look bleak. It's rapidly becoming like the old comparative case in English--bleak, bleaker and bleakest.

When the ECB meets this week, it will have no shortage of gloomy data to chew over. It has already had a couple of weeks to digest the fact the German economy is shrinking again, and that growth in both France and Italy, the next two largest economies in the zone, has stalled. Inflation has fallen again, to just 0.3%, only a whisker away from outright deflation. Bond yields have slumped to the same levels seen in Japan two decades ago, just as it was embarking on two decades of deflation and stagnation. This week, there has been another round of disappointing manufacturing surveys, pointing to a tough autumn ahead. The hopes that dominated the new year of a cyclical rebound have been shattered.

Meanwhile, the political outlook just keeps getting worse. In the German region of Saxony, the anti-euro Alternative for Germany (AfD) party won it first seats in a regional assembly over the weekend. French Prime Minister Manuel Valls faces a battle to push through even the modest reforms he has proposed. And Italy’s young reformist PM, Matteo Renzi, will soon see his popularity slide if he cannot deliver growth.

Not surprisingly, investors have been getting out while they still can. U.S. equity investors pulled $179 million from European stock funds in August, according to Thomson Reuters’ Lipper figures, while increasing their exposure to other markets. It’s not a region anyone wants to invest in anymore.

That's why we like it. With all that capital fleeing, it's another reason why we're getting selectively in.
t. man hatter
http://www.marketwatch.com/story/the-worse-europe-gets-the-more-you-should-invest-there-2014-09-03