Vacation, had to get away
Hola, and bonjour, I'm back from a couple of weeks vacation in Spain and France rested and ready to go. But go where? It seems that very little has really changed in the last two weeks, the markets have bounced a bit, because the fear of imminent economic collapse has receded. But none of the big picture issues facing investors have changed. Global economies are slowing, and the fiscal cliff still looms. If I were to base my investment allocation solely on macroeconomic data coming out of both US and foreign markets, I'd remain very cautious. However, based on the technical indicators I follow, the US equity markets have remained extremely resilient suggesting that we increase our weight to risk assets. The battle between fundamentals and technicals continues, and I'd expect a few changes to our allocations this week.
Anecdotal Observations from a European Vacation:
Fortunately I don't have to base investment decisions on anecdotal observations, we have a disciplined process, but it is always interesting to visit an area first hand. The flights to and from Europe were full, but not packed. Traffic in and around Paris was atrocious as usual, but the hotels had vacancies, and we never had any trouble getting a table, even without reservations. This was my first time to Spain's Costa Del Sol and the extent of the housing bubble was immediately evident. I've never seen so many vacant condo complexes, they put Las Vegas and Miami to shame. This was prime vacation time for southern Spain, but again we never had any problems getting tables for dinner, or chairs by the pool. While the yacht harbor in Marbella was full, it appeared that most of them were for rent or for sale. I was a little apprehensive heading to Spain because of the high 25% unemployment (50% of teenagers), but I never once felt uncomfortable. Everyone we met was friendly and helpful.
Southern Spain in August is a multicultural melting pot. The kids played beach volleyball with kids from Spain, England, Ireland, Italy, Jordan, and Lebanon. This being the social media generation, they exchanged email's and began Facebooking and Instagraming immediately.
I did have a couple of conversations with locals, and some other vacationing europeans, and what we are reading regarding their respective economies is all basically true. Politicians promised whatever would get them elected, and now no one wants to give up what has been promised. The adoption of the euro allowed countries like Spain and Italy to borrow at nearly identical rates as Germany, which led to massive overbuilding. In summary, it's a mess.
One of the best conversations I had was with a 30 something Parisian on my flight to Malaga. She works in consulting and spent five years in Chicago going to school. While she has a job her prospects for advancement are extremely limited. She said that her generation has very little hope for the future, they don't see any way out of their fiscal situation that doesn't lead to them enjoying a lower standard of living. On the bright side, she said, that instead of worrying about the future most of her friends just live for the day and try and enjoy life one day at a time. It's sad to see an entire generation resigned to the fact their standard of living is going to decline and there's nothing they can do about it. Education isn't the ticket out, they're all educated, there just isn't any growth.
Overall it was a great trip, the weather, food, and wine couldn't be beat.
Be careful out there, and keep the lights on,
Chris Wiles, CFA
412-260-7917
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This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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