Michael Pascoe: Fearing German inaction more than German power – let alone trading volumes.

Push most people to the edge of a whopping great cliff and offer them an alternative to the quickest way down – they’ll tend to take the alternative, which would have to be almost unimaginably bad to make the jump preferable.

That’s basically the counter-argument to the world’s current great scare: Europe trashing the global banking system. The scare hangs over virtually all discussion of markets, whether trading or investing, as the Europeans keep playing brinkmanship games over their sovereign debt crises.

I have taken comfort over the past year or so from that counter-argument. Angela Merkel doesn’t want to waste a good crisis, seeing the opportunity to force a greater fiscal union to back up the shoddily constructed monetary union, so she keeps pushing Europe to the edge. At the edge, fiscal union looks better than the abyss, just as unleashing the European Central Bank as the lender of last resort and printing some money will then look better to Germany than oblivion.

So here’s an idea I’ve found rather interesting: despite the current uncertainty, volatility and general mayhem on equity markets, the times actually suit investors more than traders, at least in the Australian context.
Sydney stockbroker and uber-bull Charlie Aitken is unashamedly all-in Australian equities, which is not news. He figures Europe isn’t going off the cliff and thus concentrates on the local market having the greatest value and sustainable dividend yields in the last 30 years. By comparison, Aitken and his Bell Potter Securities team reckon capital protection strategies have never been more expensive “and never been more likely to deliver medium term capital losses and/or real returns below inflation”...

Excerpted from an article originally published in the Jan/Feb 2012 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2012, Your Media Edge Pty Ltd.
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