Quote: (06-05-2014 08:10 AM)frenchie Wrote:
Quote: (06-05-2014 08:06 AM)Ardbeg Wrote:
Best course of action: start buying hedged (if in U.S. dollars) European equities.
Finance n00b here, can you explain this?
The goal of the ECB is the same as was for the Federal Reserve three years ago: very loose monetary policy, with low interest rates to encourage people to shift money from bonds into stocks. With a still fragile European economy flirting with deflation, the ECB wants the public (read: Germans) to take their savings out of their bank accounts (where they will earn a lower rate of interest than before) and put it into the stock market. This will push up the market, creating a "wealth effect," where people see their brokerage accounts swell up and feel wealthy. The hope is this will encourage people to start spending more (because their portfolio just went up 25%), which will improve the economy and create some healthy inflation. That's the plan.
Again, the plan is to make the European markets go up. But with the ECB loosening monetary policy, the Euro will likely depreciate against the dollar (a flood of Euros will create excess supply, lowering the price of the Euro versus the dollar..i.e. the Euro will depreciate against the dollar). So if you are an American with dollars buying European stocks, and European stocks go up but the Euro depreciates by the same amount you end up essentially same (though it's very unlikely they would move the exact same amount. Likely the markets would go up say 15% and the Euro would depreciate 8%). That's why you would want to hedge the currency risk.
If you decide to play this angle, WisdomTree has a hedged European equity fund:
http://www.wisdomtree.com/etfs/fund-deta...x?etfid=73