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Not another sequel

I made the mistake of asking more than one person at an industry party what I should write about this week. “It’s got to be Europe, hasn’t it?” they replied with-out exception and, I thought, most unhelpfully.

For I do not want to write a column on Europe – partly because I feel I have written too much on it of late but, more importantly, because I have pushed about as far as it can go my cartoon-mouse/shrieking-elephant/large-lady-in-voluminous-petticoats metaphor as a way of conveying my opinion on the general backbone of professional investors.

But then I saw somebody senior-sounding at RBS quoted in City AM – warning “Great Depression II” could be approaching and adding: “A European $1tn package that does little and political panic tells you we are about to reach the end of the road” – and I knew I would have to throw in the towel.

Not in the same way the RBS chap appears to have done, of course. Oh no, my towel-throwing merely involved giving in to yet another Europe-related column and what a dep-ressing little treatise it would be. Nothing could stop that, could it?

Two words. Olly. Russ. I’ve just returned from interviewing the manager of the freshly launched Ignis Argonaut European enhanced income fund and he was the perfect antidote to my dark thoughts about Greece, the euro and whether professional investors have custard for spines.

Yes, yes, I know. European fund manager bullish on Europe – hold that front page. Even so, given the choice between an analysis that has us standing on the brink of Great Depression II – “just when you thought it was safe to climb down from the window ledge” – and one that sees European equity markets as “a contrarian’s dream”, I know whose side I am on.

I also know how that sentence will look if you are reading it next week from a cave in Wales, shotgun across your knee, following the break-up of the eurozone but, as I say, today I’m sticking with Russ and feeling a lot chirpier for doing so.

“This is not a crisis of the euro but a reflection of the dollar’s strength,” he argues. “The US was first into the recession and it will be the first out and it is attracting assets because it is therefore likely to put interest rates up first. People have been selling on a mixture of seasonality – this is typical ’sell in May’ behaviour – and panic. They are selling on the idea of news, not the facts.”

Instead, Russ suggests, the major markets have been falling for other reasons – for example, the unexpected rise in US jobless claims – otherwise the euro would be down, as would the eurozone markets most at risk of going bust.

“Underlying all this is a strong US recovery and an increasing European recovery,” he continues. “It may not feel like it but this has been Europe’s best earnings season in five years. With Europe, we are looking at very cheap markets with very good earnings and an economic recovery that is being pulled up by the US and the Far East.

“The only problem – and I know only is not really the right word – is the deficits but the European Central Bank still has the nuclear option of quantitative easing. If it did as much quantitative easing as the Bank of England has done, it could buy all of Greece’s national debt. The eurozone is never going to allow a ’sovereign Lehman’s’ to happen.”

For what it’s worth, my own view is the origins of the eurozone crisis have always been political, not economic, in nature. In the rush to admit as many members as possible to their new club, the grouping’s movers and shakers overlooked in some applicants the sort of qualities that should really have led to their being comprehensively blackballed.

Those movers and shakers are now reaping the whirlwind – or at least the German taxpayer is – and blaming speculators rather than politicians for the mess is merely shooting the messenger. Still, the way some of those “messengers” have been behaving recently, I am starting to wonder if that might not be such a bad idea.

Julian Marr is editorial director of and www.


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