We discussed our projections before the US elections and mentioned that a Trump win would bring divergence between European and US stocks. On the morning after the election result, the S&P rallied 2% and the European stocks on the correlation and on the algorithms also rallied 1.5%.
Algo’s are not smart yet and the above shows that there is still a long way to go for algo’s, AI, smart data, et cetera. It was just a flow game on the morning after the elections, but valuations where out of line. To our newsletter members, we mentioned to reduce exposure in European stocks as the rally did not make sense.
Days after, smart slow money arrives
Now, since just before the US elections, the S&P us up around 5% and the European EuroStoxx is down around 2.5%. Oh yeah, do not forget that the Euro also lost around 4% in value against the Dollar.
When the quick, greedy and not so smart automated trading activity lost some ground, the smart money arrives. Investors who are actually did some due diligence and sold into the uptick in Europe. How can Trump be positive for Europe on the short and medium term? Not. Europe loses its babysitter and will be more on its own. Europe needs to reinvent itself and that takes time.
Reinventing means for example:
- Deregulating and focusing more on the economic world’s importance instead of trying to make everyone happy within the EU
- Focusing on a more decisive structure. Currently, important changes always get vetoed within the EU, often by Orbán.
- Rethinking geopolitics. How can we become an important player again in worldwide geopolitics?
- Focusing less on putting out fires and more on the bigger picture.
- It takes time, many years, or even generations. But Europe needs to start NOW.
Trading and investing are different things
Trading is a full time job, while investing has more to do with doing the homework and taking a position. The latter is the best for most people and investors. Maybe traders are able to make some cash on the European uptick on the morning after the elections, but for most people the real money is in doing the homework and rethinking overall asset allocations. Do you want to be heavily invested in Europe on a Trump Victory? Not for a while probably. Generally it is better to wait for inflection points – evidence that the situation is turning around, before you step in.
