What Spain & Ireland Tell Us About Europe

The FT is reporting that home prices in Spain fell 7.7% in the second quarter. Western Europe has a lot of problems, like many other places. The real estate market became just as over inflated as the US housing market. The various gloomy and ominous pronouncements about the fate of the US also pertain to Europe.

Ireland and Spain seem to be in rougher shape than the other Western European countries. Ireland garnered a lot of attention for having very low corporate tax rates which helped create the Celtic Tiger economy. I used to own one of the banks to capitalize on that effect. The banking system subsequently collapsed.

When times were good on the continent they were especially good in Spain. It was a very popular destination for immigrants from Eastern Europe and North Africa looking for construction work. This is now fallen off dramatically.

 

 

The prospects for these countries, and I would submit most of Europe, are not good but that has not prevented the stock markets in Spain charted in red and Ireland charted in blue from skyrocketing more than 70% off of their respective March lows.

This shows that fundamentals do not always matter in short term market moves. Regardless of whether you think a bull market has started or this is one of the bigger sucker’s rallies we had these markets do not offer any fundamental underpinning to the move. With all the chatter about needing to own foreign equities (I am firmly in this camp) the countries that dominate the broad based funds (Western Europe and Japan) are not the places to be.