There have been many instances when the adage “buy when there’s blood on the street” has turned out to be the best investment strategy. March of 2009 was one great example of this—there were not a lot of stock advisors saying buy stock back then as panic had set in. In the midst of this panic, the greatest buying opportunity was born.
These days, I hear stock advisors saying companies operating in the eurozone are a good buy. The words I hear thrown around are “good value” and “cheap.” My opinion on the eurozone stocks is very different. I feel the worst is yet to come for many companies operating in the weaker eurozone countries, especially the Italian banks.
I’m sticking to my original belief that the euro region is still in outright trouble and that the economic slowdown the region is experiencing could continue for a long time.
Yes, there is speculation the euro region is slowly getting out of its economic slowdown, but that opinion is not backed by the statistics—the numbers are telling a different story.
The unemployment picture in the area is not improving! In September, there were 19.47 million people unemployed in the eurozone. The unemployment rate remained at 12.2% in September, unchanged from August. (Source: Eurostat, October 31, 2013.)
What’s worrisome is the fact that the biggest economic hubs in the eurozone are seeing their unemployment rate increase. In France, the second-biggest economy in the region, the unemployment rate has risen seven percent from the same period a year ago. In September, the jobless rate in France stood at 11.1% compared to 10.4% in September of 2012. The unemployment rate in Italy, the third-biggest hub in the euro region, has increased from 10.9% in September 2012 to 12.5% in September of this year!
The root problem that created the economic slowdown in the eurozone remains—bad debt. According to Pricewaterhousecooper (PwC), the amount of bad loans has increased to 30% of all loans in Greece. At the end of 2012, this number stood at 25%, and it was 18% at the end of 2011. (Source: Kathimerini, October 31, 2013.)
To this day, there appears to be no light at the end of the tunnel for the eurozone. Buying companies operating in the region right now is risky, because we have yet to hit bottom in the eurozone. In 2009, in America, there was “blood in the street” and we hit bottom. I don’t think the eurozone has quite hit bottom yet.