Tag Archives | European Debt Crisis

Ireland’s Demographics Point to Bright Future

The Irish are fleeing Ireland at the fastest rate since the Potato Famine.

Think I’m exaggerating? I assure you I’m not.  Recent data had one person leaving the Emerald Isle every six minutes.

Since the onset of the financial crisis, nearly 400,000 people have left Ireland.  That may not sound like much at first, but the population of the entire republic is only about 4.5 million.  That means one out of nine Irishmen has left the country in just the past five years.

Some wandering Irish have since found their way back home, but the flow remains unmistakably outward.

This may sound counterintuitive, but I consider the Irish willingness to wander a source of strength, and it is a reason why I expect Ireland will eventually emerge from Europe’s sovereign debt wreckage in better shape than some of the other hard-hit countries such as Italy or Spain.  Let’s consider a few demographic points.

To start, even after years of crisis, the Irish have maintained a much higher birthrate than their Catholic brethren in the Mediterranean.  Ireland has the highest birthrates in the European Union.  Interestingly, nearly a quarter of babies born in the republic were to mothers born outside the country—this gives you an idea of how cosmopolitan Ireland became during the high-immigration boom years.

Putting numbers to it, Ireland’s total fertility rate for 2011 (the last year for which there is final data) was 2.1 babies per woman.  In both Spain and Italy, the number was 1.4 babies per woman.

Aside from being interesting factoids for cocktail conversation, why does this matter?

It matters because the babies born today are the workers and—even more importantly—the consumers of tomorrow.   A country without a healthy birthrate is a country without a future.  The modern consumer economy depends on a steadily increasing supply of consumers to function; it’s hard to run a business when your pool of potential customers gets smaller every year.  Look at urban wastelands like Detroit—which has seen outward migration for decades—and you’ll see what I mean.

But didn’t I just say that Ireland is hemorrhaging people?  I did.  But those stats did not tell the entire story.  Yes, nearly 400,000 Irish have left the country.  But about 277,000 of them have returned or have been replaced by new immigrants.  And as Ireland’s unemployment rate continues to tick downward, I expect many of the young Irish who left to work in the UK, Canada or Australia to make their way back home, and bring with them the skills and experiences they picked up while abroad.

This won’t happen tomorrow.  But ten years from now, the Irish workforce may be the envy of Europe.

All of that is great, but what does any of this have to do with money and investing?

To start, Irish stocks have quietly been enjoying a bull market as the country works its way out of its long recession.  The iShares MSCI Ireland ETF (EIRL) is up over 40% in the past year.

I’m not suggesting you go run out and buy Irish stocks today.  The overall Irish market is far too heavily concentrated in basic materials for my liking.

But I would definitely recommend keeping an eye on Ireland as a hotbed for innovation in the years ahead.  This is the country that revolutionized European air travel with Ryanair (RYAAY), the European equivalent of America’s cut-rate Southwest Airlines (LUV).  Ireland’s demographic convection current of constant inward and outward migration gives it an intellectual and commercial vitality you would normally expect to see somewhere like Silicon Valley.

Think about that over your next Guinness.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he had no position in any stock mentioned. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”

Comments { 0 }

Charles Sizemore Discusses the Cyprus Crisis on Straight Talk Money

Listen to Charles Sizemore talk about the Cyprus crisis and what it means for investors on Mike Robertson’s Straight Talk Money:

If you cannot view the embedded media player, please follow this link.

Comments { 2 }

Investing Outlook for 2013

There are still a few weeks left in 2012, but focus has already shifted to 2013.  The next year will be a “make or break” one for some of the investment themes we’ve been tracking, but in others it will be more of the status quo.

I’ll start with Europe.  I spent much of 2012 attempting to buy the dips in the markets most affected by the ongoing sovereign debt crisis.  In my Covestor Tactical ETF Model, my primary trading vehicle was the iShares MSCI Spain ETF (NYSE:$EWP), and my record on this trade was very much a mixed bag.  I underestimated how truly terrified investors were of a Eurozone breakup, and I entered the trade far too early.  The losses I took earlier in the year on EWP are a big reason for the Tactical ETF Portfolio’s underperformance vs. the S&P 500.

In the Covestor Sizemore Investment Letter Model, I took positions in Spanish banking giants Banco Santander (NYSE: $SAN) and BBVA (NYSE:$BBVA), and my timing on these trades was better.  Both positions have thus far worked out nicely in 2012.

I continue to be a bull on European stocks in general and Spanish stocks in particular.  At current prices, I consider European blue chips to be very attractive, and I like several as ways to get “back door” exposure to emerging markets.  For European blue chips to be a profitable investment over the next 1-5 years, the Eurozone simply needs to avoid blowing up.

Unfortunately, that may be asking a lot.  Political forces are quickly pushing the UK to the exit door, and the return of Silvio Berlusconi puts Italy’s reform agenda at serious risk.  And Spain may be facing a bona fide secession crisis from Catalonia, which would likely mean a meltdown in the Spanish sovereign debt market.

So, while I remain bullish on Europe, I acknowledge that 2013 will be a “make or break” year.  If Europe survives 2013 intact, then chances are good it will muddle through.  But this is by no means certain.

Dividend-paying stocks were a major investment theme for Sizemore Capital in 2012.  In addition to comprising a large allocation of both the Tactical ETF Portfolio and the Sizemore Investment Letter Portfolio, we created a new model to focus specifically on dividends and dividend growth: the Covestor Sizemore Capital Dividend Growth Model.  The Dividend Growth model is currently concentrated in dividend paying stocks, master limited partnerships, and conservative real estate investment trusts.

Investors have been concerned that higher taxes on dividend income will be coming down the pipeline if President Obama gets his way on tax hikes for high-income Americans.  This is a legitimate worry, but I don’t see higher taxes having much of an effect on the long-term shift in investor preferences for income.

There are multiple, overlapping trends at work.  First, with rates on bonds and traditional savings instruments crawling along near record lows, investors have little incentive to dump dividend-paying stocks.  Yes, they will likely be paying more in taxes on the dividend income.  But what is their alternative for income?  Bond interest will likely be taxed at an even higher rate.

Demographics also play a role here.  As the Boomers approach retirement, they are developing a strong preference for income-producing securities.  And as the largest and wealthiest generation in history, the Boomers tend to get their way.  Dividend tax hike or no dividend tax hike, the demographic-driven demand for income is not likely to change.

Furthermore, current income is only one reason to buy dividend-paying stocks.  Companies that pay a reliable dividend are rightly viewed as being more stable and conservatively managed.  They are also less likely to be engaged in accounting shenanigans.  All of this matters more today than in years past to investors who have gotten burned by scandal after scandal over the past decade.

With all of this in mind, Sizemore Capital intends to continue its focus on income-producing securities such as dividend-paying stocks.

Finally, I expect a good year for emerging markets.  On this count, I was flat-out wrong in 2012 (as a value investor, I prefer to say “early”).   I underestimated how badly the markets would react to slowing in China and Brazil.  But after spending much of the past year in a correction, I expect to see emerging markets have a break out year in 2013.

Disclaimer: Sizemore Capital is long EWP, SAN and BBVA.  This article first appeared on MarketWatch.

SUBSCRIBE to Sizemore Insights via e-mail today.

Comments { 2 }

He’s Back: What Silvio Berlusconi Means For Italy and the Euro Crisis

Part of me really missed the guy.  There was something naturally endearing about Silvio Berlusconi.

Perhaps it was his ability to charm women 50 years his junior or his complete disregard for the conflicts of interest involved with being your country’s national leader and one of its richest men and the owner of its most influential media group.  Or maybe it was his willingness to change the laws of his country on a regular basis to protect himself from criminal prosecution or the fact that he ruled Italy—the third most powerful country in continental Europe—like a mafia don.  Through it all, naughty ol’ Silvio seemed to prove that, with a few winks and nods, a ton of money and a total lack of shame or scruples, a guy really could have everything he wanted in life.

On a serious note, I was not happy to see Mr. Berlusconi reappear on the political stage. It is a potential disaster for Italy, the Eurozone, and investors around the world.

Berlusconi’s party withdrew its support for Italy’s technocratic prime minister Mario Monti—the one political figure in Italy that both the international bond market and the other leaders of Europe took seriously—prompting Monti to turn in his resignation over the weekend.

Not surprisingly, Italian stocks sold off Monday morning — the iShares MSCI Italy Index (NYSE:$EWI) had lost more than 3% before recovering slightly by midday — the euro fell, and Italian bond yields shot up.  And across the Mediterranean, Spanish stocks fell, and Spanish bond yields rose.

The market is not happy about Silvio Berlusconi’s return.  The fragile peace we’ve had for much of the past year has been due to a belief that we finally had an adult running Italy.  Bond yields had been steadily dropping as a sign of confidence in Mario Monti and his austerity reforms.  An Italy without Monti is the same dysfunctional Italy that ran up debts of 120% of GDP while showing no real GDP growth in over a decade…proverbially fiddling while Rome burned.

Berlusconi will not win the upcoming election.  His party is a tattered mess, and most Italians are sick of the man.  And Mario Monti may yet stage a comeback, either as the head of a centrist movement or as a finance minister in a center-left government headed by Pier Luigi Bersani.

But Berlusconi’s presence is enough of a distraction to have the markets worried.  My fear is that he rattles the bond market out of its complacency and creates another self-reinforcing cycle of loss of confidence leading to higher yields and vice versa.

It’s too early for me to recommend dumping European stocks just yet.  Thus far, the market seems to have confidence in ECB President Mario Draghi’s ability to keep the entire dog and pony show together with creative monetary policy, and Europe’s leaders are slowly muddling through to a political solution to the debt crisis.  But given the ability of investor sentiment to turn on a dime, I would recommend tightening stop losses.  Or at least start keeping a closer eye on your European stock holdings.

SUBSCRIBE to Sizemore Insights via e-mail today.

This article first appeared on InvestorPlace.

Comments { 9 }

Charles Sizemore on Straight Talk Money Radio: All About the Fiscal Cliff

Listen to Charles discuss the fiscal cliff, the “triple dip” recession in Europe, infrastructure investment and more with Mike Robertson on Straight Talk Money.

If you cannot view the embedded audio player, please follow this link: Charles Sizemore on Straight Talk Radio

Comments { 4 }

This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.