The Independent Market Observer

The U.S. and Europe: An International Perspective

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Nov 18, 2014 1:05:00 PM

and tagged Commentary

Leave a comment

europeFor the past two days, I’ve been in London at a J.P. Morgan European investment summit, and a fascinating time it has been.

As investors, it's not so much the things we don't know that we need to be mindful of, but the things we don’t even know we don’t know. For Americans, how things really are in the rest of the world can easily fall into that category, so it’s been interesting to get some international perspective over the last couple of days.

Here are three of my key takeaways.

1. The U.S. remains the growth engine for the global recovery.

Almost everyone I’ve spoken with here has mentioned that the recovery depends on the U.S. Some say it with approval, others don’t, but the conclusion is well-nigh universal. The reasons behind the sentiment vary, but common elements include the recapitalized U.S. banking system and a flexible labor market. For all our problems, these are strengths the rest of the world wants to emulate. The U.S. recovery is seen as real and sustainable.

2. Europe is more fragile than we might think.

Although I turned negative on the euro some time ago, a number of participants here suggested that a breakpoint might be closer than I expected. According to some German interlocutors, the trigger could be whether or not Mario Draghi, the head of the European Central Bank, can push through a meaningful quantitative easing program. If not, the political environment may become even more toxic. Which brings us to . . .

3. European politics is becoming less and less supportive of the European project.

This is actually a special case of a wider problem—namely, as economic stress rises, countries become less able and less willing to make sacrifices for the common good. Arguably, the real intent behind Japan’s move to expand its quantitative easing program (apart from depreciating the currency) was to support its economy at the expense of, say, China’s—a position China has certainly thought about. Similarly, the confrontation between the European north and south has become focused on relative economic benefits.

In the meantime, voters are being told that their suffering is not the fault of the party in power, but of Germany (or Italy, or France, or Europe, or something—anything—else). The upshot is that nationalist parties are rising around the world (the National Front in France, the Alternative for Germany, and so on). Even countries where that’s not the case, such as China and Japan, are acting more nationalistic.

Will things get better before voters run out of patience? Talking with citizens of many countries, it doesn’t seem very likely. Even in the UKwhich has done the best of any of the European countries, with the possible exception of Germanymany people I talked with see a real chance that the country might exit the European Union were a referendum to be called as planned in 2017.

All in all, it’s been a deeply interesting look at a part of the world I don’t get to see all that often—and one that reinforces my conviction that, for the moment, and for all of our problems, the U.S. is the place to be.

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®