The UK has not printed money as fast as the US and Europe has not printed anywhere near as much as either in terms of the scale of its economy.
This has meant the Euro has been strong, too strong for all but the Germans liking.
It has mean the economy of euro has been and remains an anaemic laggard in the recovery.
The end of US QE looms and the start of the end of zero percent interest rates is over the horizon for the US and the UK, but it is coming.
Meanwhile Europe has eased and may well ease again. If Europe doesn’t ease further, the tightening or perhaps more accurately, anti-easing in the US and UK will do the job for Europe, by weakening the Euro in terms of dollars and pounds.
This provides close to a one way bet for currency speculators, sorry I meant forex traders.
The long term charts underline the set up.
(less dollars per euro)
(euro pounded)
This weakening Euro scenario is especially interesting because as Europe weakens its currency and the UK and US enter a boom in earnest, Euro stocks will rally hard with a double win of booming trading partners and a soft currency to trade against them with.
This could slingshot the European economy out of its current malaise.
Sadly if you are an investor denominated in dollars or pounds these rises and their gains could get heavily truncated by the currency loss associated with a falling Euro.
Its no fun winning on an equity investment only to have it shredded by the fall in the currency its denominated in. a profit in Euros could end up a loss in pounds or dollars.
You could hedge against that outcome with a currency position and in that way if you can bear the leverage and the complexity, you can ride the currency fall and the market rally that should come with it.
The French market looks especially interesting.
(dow v pcac)
This chart of the Dow versus CAC 40 just makes me want to short Dow in New York and long CAC 40 in France and just leave the position for a few years to mature. The relative performance and decoupling of the Dow and CAC 40 is not a differential that can last forever unless the currencies of one of the two economic blocks go totally off the rails.
As such in a market of a rampant and stretched US market, moving some risk to Europe seems looks like a good way to stay long equities without totally buying into the unstoppable US equity story.