by Brooke Thackray, Research Analyst along with Don Vialoux and Jon Vialoux for the Horizons Seasonal Rotation ETF that trades under the symbol HAC on the Toronto Stock Exchange.
Surprise….European countries are slowing down as more countries enter into a recession: eleven countries are now offi cially in a recession (WSJ May 1, 2012). Actually, it is not a surprise at all. Europe was already slowing down before austerity measures were put in place and now with government cutbacks economic contraction is taking place. Even the EU has even been surprised at the depth of the slowdowns underway (they tend to have a very positive outlook). The situation in Europe is looking bleak.
To complicate the situation further, Europeans are voting against the fiscal rescue packages and the resulting austerity measures. France has elected a socialist President who is promising to examine how the Euro-zone is dealing with the debt crisis. Greece has changed the political landscape with its election that has created big gains for the Coalition of the Radical Left at the expense of the mainstream New Democracy and Pasok parties, which had both agreed to major spending cuts in order to stabilize the country’s finances.
Holding the European countries together in the current state of mandated austerity measures for money is simply not going to work over the long-term. The “contract” between the countries that are giving the funds and the countries that are receiving the funds will not be able to stand the test of time. Solving the debt crisis will take a long time, one way or another. Either the “giving countries” will stop giving money, or the receiving countries will no longer put up with imposed austerity measures necessary to receive the funds.
The current politicians of the receiving and giving countries have shown a strong resolve to take action as they did not want to be seen standing on the sidelines and watching the EU crumble. The politicians have taken the stance that it is better to be doing something, rather than nothing. The citizens of both the giving and receiving countries do not share the same political resolve of their leaders.
The social fabric of the receiving countries is disintegrating: job losses, government cutbacks, pay cuts, pension reductions are contracting economies faster than even the EU had expected. Unemployment is skyrocketing in European nations, particularly with the youth. The most notable country with high youth unemployment is Spain with an eye-popping rate sitting just under 50%. The situation looks dire and populations across Europe are looking for someone to blame. They are just starting to turn on their political leaders. Rising opposition to austerity measures will bring forward more and more politicians that are willing to run on a platform that removes their countries out of the austerity contract.
Historically, social changes are often brought about during periods when the masses have too much idle time. The Romans knew of this danger. As a result, they developed the gladiator “sport” of sacrificing people for the purpose of entertaining their unemployed so they would not rebel against their emperor.
Read the complete letter in the slidedeck below - Fullscreen for the better read:
Thackray Market Letter 2012 May
Brooke Thackray is a Research Analyst along with Don Vialoux and Jon Vialoux for the Horizons Seasonal Rotation ETF that trades under the symbol HAC on the Toronto Stock Exchange.
