Despite the unendingly grim economic news out of the euro zone, most major European stock markets have shown robust growth over the last year. The German DAX is up over 32 percent since June of 2012. The Swiss Exchange is close behind at almost 30 percent growth over the same time period, and the Euronext 100 and CAC 40 have both risen by almost 25 percent. Heck, even the Athens Stock Exchange seems to have temporarily risen from the dead. It’s up more than 77 percent in the last twelve months.
So is it time to put aside our fears and jump into this rally? I have three answers: no, hell no, and don’t you dare.
Europe is a dead-continent-walking. These short term gains notwithstanding, European stocks may very well be the biggest value trap in the history of capitalism–though the reasons why might surprise you. It’s not just because of the region’s low-to-no economic growth, crushingly high debt levels, and disastrous austerity policies. Europe is “going to zero” in a different, more fundamental area, as well.
An unsurprising bit of news broke this past week–some highly respected experts screwed up.
A few years back economists Kenneth Rogoff and Carmen Reinhart claimed that countries with high debt loads suffered slow growth rates. Their research was used to justify draconian spending cuts in Europe. But it turns out Rogoff and Reinhart flubbed their numbers in a big way, and Keynesians like Paul Krugman have been having a grand old time gloating over it. But just because Roghoff and Reinhart were wrong doesn’t mean Krugman is right.
Every year, we spend more than a trillion dollars more than we take in. That’s a dire situation. But how we’re spending that borrowed money is the real crime. In short, old people are killing us. That’s right, I said it: if we don’t do something soon, grandma and grandpa are going to bleed us dry.