- Published on Friday, 01 June 2012 08:00
- Written by Sara Nunnally, Editor, Inside Investing Daily
- Hits: 695
Not all of Europe is in trouble. The headline-grabbing crisis is a clear and easy opportunity for patient investors.
Back in December, I told you about the interesting dynamic between new members of the European Union that haven't adopted the euro and the rest of the eurozone.
Here's what I said:
An interesting idea would be to find out how much further the euro would have to fall to allow Emerging Europe to be able to jump in without adjusting any of their economic factors. Could the euro be headed there?
Or will it die first?
One thing's for certain... Even developed European economies aren't going to want another Greece on their hands. That could happen if new EU members adopt the euro before they're fiscally ready.
But this sets up a unique investment opportunity.
Well, now the euro may be singing its swan song. Some big-name economists such as Harry Dent even think Germany's on the verge of throwing in the euro towel, if only so it could stop bailing out struggling countries.
It's all a race to a non-euro finish line. Who's going to get there first? Greece? Spain? Or Germany, the only economy strong enough to keep the euro charade going?
Here's my point... There's opportunity here.
Let's take a closer look at Eastern Europe -- those non-euro members, and EU candidates. Poland was the only EU member not to slip into recession after the global financial crisis. Since then, the economy has grown 15%.
And there's a lot to love in how this country is dealing with the EU debt crisis.
In 2010, Poland's public sector budget deficit climbed as high as 7.8% of GDP because of things like healthcare, pensions and education.
But the government went on a financial overhaul, and in 2011, that 7.8% figure dropped to 2.9%, with more reductions to come this year.
Couple that with a few other key trends -- like rising GDP per capita ($20,100 in 2011, up from $18,600 in 2009), an industrial growth rate of 7%, and rising exports ($197.1 billion in 2011, up from $162.3 billion in 2010) -- and you've got good reason to like Poland.
And get this: 26.9% of its exports go to Germany, the strongest economy in the eurozone. That means its connection to the faltering euro-based economies is tenuous at best.
Look at how Poland's annual GDP growth has bounced back from the first financial crisis.
Now compare that to the euro area:
This is an opportunity... And it is easily played with the Market Vectors Poland ETF (PLND:NYSE) or the iShares MSCI Poland Investable Market ETF (EPOL:NYSE).
More on these two in just a minute. I'd like to turn you on to a different opportunity.
Indeed, a whole different country: Turkey.
This country has been vying for EU membership for years. That means it's far outside of the Union and the euro, but has made some strategic ties economically.
Germany is also Turkey's biggest market for exports.
And like Poland, Turkey is showing some good growth in key economic factors. GDP per capita was $14,600 in 2011, up from $12,900 in 2009. The country's industrial growth rate is 8.5%, and exports have climbed to $133 billion in 2011 from $120.9 billion in 2010.
All this means GDP growth has been strong, and has made a startling comeback from the global financial crisis.
The iShares MSCI Turkey Investable Market ETF (TUR:NYSE) is the simplest way to get in on this growth.
So let's talk about these three opportunities.
They are risky, and a bit outside the box. At the same time, they are big baskets that take the good with the bad in these two economies. That's why these ETFs are all down over the past year, with Poland down much more than Turkey.
These are emerging markets with developing economies. That means you're going to see inflation, high unemployment and other challenges to growth.
But at some point, that 5.2% annual growth rate in Turkey and that 4.3% in Poland is going to mean a whole lot more to investors... particularly those fleeing Europe and its 0% GDP growth.
Patience is a virtue here.
I've been beating the drum for the past six to eight months, and the mainstream media is starting to catch on.
MarketWatch.com is running a whole series on the "New Tigers" and the growth potential in certain key emerging markets. Its first two? Poland and Turkey.
The shift is coming... and in my service Macro Trader, we're waiting for the perfect moment to jump in.
What's so great about these shifts is the vast amount of untapped potential in "sleeper" markets -- economies just waiting for their day to dawn -- and the even bigger amount of investment cash that's looking for a home.
For the most recent year (2010), foreign direct investment has restarted its climb.
And we'll be tracking where all this money is headed.
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Why Individual Investors Will Save America
By Ryan Cole, Editor, Small Cap Insider
The big boys got us into our current mess. They're not going to be the ones who get us out of it.
The problem is large financial firms have lost their way. Once upon a time, they were the ones who helped the economy function. Moving cash from investors to small businesses or individuals making large purchases, the big banks played an integral role in the health of the nation.
- They increased liquidity -- taking savings and putting them to work.
- They increased velocity -- money would change hands quickly, increasing the punch of each dollar in circulation.
- They increased entrepreneurship -- giving young companies ready access to capital, letting good ideas bloom.
A Corrupt, Dying System
Today, they do the opposite. Money goes to big banks to die.
And the money they do use doesn't go toward small businesses or home purchases. In fact, when it comes to everything we think a big bank does, smaller competitors are eating their lunch.
Smaller regional banks are seeing loans increase 5%... while the big banks like Citigoup and Bank and America are barely holding the line.
M&A advisory fees are also fleeing the big banks, and going to smaller, boutique competitors like Evercore and Lazard.
Meanwhile, over the past year, regional banks have seen mortgage loans go up $100 billion, while the big banks have lost $15 billion worth of business.
No -- the big banks are too busy losing billions on exotic double-secret hedges that bank CEOs don't even understand.
That's not going to lead us out of our economic doldrums.
No -- what will lead us to good times again is the one thing America does better than any other place -- innovation and the funding that leads to it.
Cutting Out the Middle Man
Small banks are doing their part. They're opening their wallets again. The nascent real estate recovery is being helped by regional bank mortgages. New businesses -- carrying new jobs -- are going to regionals and credit unions as well.
And, in less than a year, an entirely new avenue for funding will open up. Individuals will be able to buy equity in startups the same way that venture capitalists do.
It's all thanks to the JOBS Act, which, surprisingly, will actually live up to its name.
Thanks to an overlooked amendment relating to crowd funding, everyone will be able to buy moderate levels of equity in small or startup firms.
We're about to enter a new Golden Age of America -- one led by individuals funding innovation.
If Wall Street is the sort of oppressive, corrupt force we once associated with King George, then we're the Minutemen.
We're about to cut the big boys out of the necessary transactions we perform every day, stop paying them tea taxes -- while simultaneously making the actual, real economy run. Not their paper one.
We've tried the paper economy -- and it ended with the entire system near collapse. It's time for a new one. And, thanks to the Internet Age, we can do to financial institutions what's already happened to media companies and newspapers.
Welcome to the New America. It's an exciting time to be an investor.
Chart of the Day: The Long Road to Ruin and Recovery
By Adam English, Associate Editor, Inside Investing Daily
It may see like everything started to go wrong in Europe in the last couple of years, but the truth is something this big doesn't erupt overnight.
European nations on the periphery of the eurozone were too generous with benefits and compensation. They compounded their problems by taking on too much debt. To make matters far worse, they didn't care their countries weren't growing.
It's been happening for almost 15 years. The recession and euro crisis only made us pay closer attention to the problems.
Unit labor cost is a very holistic way of looking at an economy. If the productivity of labor increases, the ratio slides down. If workers are paid more without a correlated gain in productivity, the ratio slides up.
The ratio will not give us precise information, but it will clearly show where labor is relatively too expensive. A multinational business will steer clear of high wage and low productivity economies. They will pay less and have cheaper goods or services elsewhere.
The only way to improve the situation and stimulate any real economic growth is to significantly increase international competitiveness. That means productivity gains and cutting compensation.
There is no quick and easy way to do that, especially when tax burdens and high wages stifle investment. Somebody always gets hurt.
As we saw in Greece, the politicians who try to do it quickly get tossed out by riotous workers.
Unfortunately for economies that saw massive unit labor cost increases over almost 15 years, odds are it will take just as long to drive them back down.
That means this euro mess won't go away anytime soon.
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