Europe: What Wall Street Is Missing

By: Jeff D. Opdyke

ďWe are better. We are not great. But we are better. And being better feels like great after what we had.Ē

ó Barcelona cabbie, April 30, 2016

I am, quite unfortunately, in the final days of a three-week research trip to Europe. Iíve been north to south (Denmark to Spain) and east to west (the U.K. to Romania). Iíve talked to several executives, a few friends, a couple of airline people on a couple of Europeís low-cost carriers and a gaggle of cabbies. And Europe is all right.

If nothing else, itís healthier than America, where our debt-addled GDP expresses all the life force of a septuagenarian sucking on an oxygen tank.

Spain demonstrates that most effectively.

This is the place upon which much ire, consternation, hand-wringing and vitriol was heaped, generally by the proletariat who were rightly up in arms about Spainís excessive debts and its epic building binge that aimed to sate the desires of plump, alabaster Europeans seeking a sunny holiday along the countryís various costas, as well the Keynesian thinkers (i.e., the Dark Side) who lambasted the countryís austerity and its wage decline, and who foretold of what was surely Spainís imminent demise as the second-largest member of the infamous PIIGS pack.

So much for Keynesian prognostications and their anti-austerity bloviations.

Spain might not be back to precrisis levels (though, arguably, those were unsustainable bubble levels, anyway), but Spain is, nevertheless, back in its own way ó a fact thatís apparent at my port of call on this particular day: the Port of Barcelona.

Whenever I alight in a country that isnít America, I invariably head to nearby supermarkets and shopping malls. There are no better places to see a countryís consumer economy in action. Ports are the industrial equivalent. Thereís no better way to gauge an economyís relative vibrancy than to look at whatís happening with imports and exports.

In the States, exports are crumbling, the knock-on effect of a dollar that, as Iíve been repeating ad nauseum, is simply too strong. Imports arenít doing so well either, an indication the American consumer isnít the model of financial health that some want to believe.

Spain is moving in a different direction.

An Unexpected Shift

Imports are still lower than precrisis levels, but theyíre moving up again ó a sign that the average Spaniard is feeling better about life. Gasoline imports, in particular, are up huge, and that can only be an encouraging sign since it implies a few likelihoods: Spaniards are out running around more in their cars, thereís more trade-related truck traffic on the roads (and Jordi Torrent, the portís head of strategy, tells me there are 10,000 trucks a day now crossing both of Spainís road borders with France) and there are more Spaniards who have cars now.

Exports, meanwhile, are well ahead of precrisis levels. Exports to China, by far the most important destination for goods leaving from and arriving at the port, were up more than 18% last year. Each month this year, total China-related traffic has risen between 4% and 19% relative to the same month a year ago.

The head-scratcher, to me, is that my former employer, The Wall Street Journal, reported just days before I met with Jordi here in Barcelona that seaborne trade between China and key ports in Rotterdam and Hamburg has declined and is, therefore, sour news on the European economy. And, yet, hereís Barcelona ó the largest and most modern container port on the Mediterranean ó recording substantial growth on the China route.

Might it be that, just as Los Angeles and Long Beach replaced New York as Americaís trade gateway, weíre now seeing a structural shift in European trade that has Barcelona emerging as a primary gateway into Europe since itís a weekís sailing time closer to European customers than are the northern European ports?

Healing Old Wounds

Iím not saying Spain is the poster child of economic perfection. The country still has its woes.

Away from the coasts, Spain suffers with a lack of economic opportunity.

Unemployment there rages, which warps national statistics. (Unemployment in Barcelona, for instance, is less than 11%, while nationally itís 21% ó though even those stats are overstated in that many Spaniards work in the informal economy thatís not easily tracked.)

Moreover, debt remains a bugbear there, with too many towns that are overextended. But, again, this is different from America how, exactly? If bankruptcy forced cities to vanish just as it does to small businesses, then names such as Detroit, San Bernardino, Harrisburg and others would no longer exist on American maps. Illinois would just be a hole in the map.

On the whole, though, Spain is improving, as I predicted it would when I began putting readers into Spanish stocks such as the countyís liquefied natural gas leader, EnagŠs, a few years ago. Weíre up more than 30% in those shares.

But youíve not missed the boat.

An Overlooked Opportunity

Based on my preferred measure of valuation of national stock markets (the so-called Shiller P/E that takes a decade-long inflation-adjusted view of a countryís price-earnings ratio), Spain is the cheapest major market in Europe today ó yet itís one of the best-performing European economies.

Itís why I will be looking to add Spanish exposure soon to both my monthly investment letter, Total Wealth Insider, and my weekly global-investing service, Frontline Investor.

As the cabbie told me ó and as my port visit confirmed ó Spain is better. Itís not as great as it once was. But the economy doesnít have to be great to be an investment opportunity. In fact, the best opportunity is when people still have the wrong impression, as many still do about Spain today.

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As a lifelong world traveler, Jeff Opdyke has been investing directly in the international markets since 1995, making him one of the true pioneers of foreign trading. He is Investment Director for The Sovereign Society and a weekly contributor to The Sovereign Investor Daily.

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