Oh what a difference a week doesn’t make!
The world’s still preoccupied with all things Europe. Even the ouster of two Prime Ministers wasn’t enough to calm nerves about the unfolding debt crisis.
Of course, since it’s Friday, I’ve selected a handful of charts to do the talking for me. I promise not to overwhelm you with too many depressing graphics, though.
To the contrary, I’ve actually selected one chart that reveals the most compelling reason I’ve seen in weeks to back up the truck and load up on U.S. stocks.
I know. How could I suggest such a foolish action when Europe is crumbling? But I encourage you to take a look at the evidence and decide for yourself. That is, after I share some more depressing news about the debt crisis in Europe.
Italy (and France), Come on Down!
You’re the next contestants on “It’s Time for a Bailout Package!”
Last week, I revealed that the spread between safe German government bonds and risky Italian government bonds went vertical. Well, the situation’s only gotten worse.
The spread between German and Italian 10-year bonds widened by another percentage point. In a single week!
Italy doesn’t stand a chance to stay afloat if its financing costs keep soaring. And if Italy gets bailed out, France is going to be the next in line.
At least that’s what the 10-year yield spread between French and German bonds suggests. It just hit the widest level since the euro started in 1999.
Yes, folks. This is what a debt contagion looks like.
Cowboy Up and Buy Stocks
Even though Europe’s financial systems is falling to pieces, that doesn’t mean we should run and hide in the safety of cash or U.S. Treasuries. Heck no!
Truth is, now is likely the perfect time to start loading up on U.S. stocks.
As I told you earlier in the week, corporate profits are in record territory. Yet stock prices aren’t keeping pace with rising profits. And that’s not normal.
Historically, the S&P 500 index shadows the trailing 12-month earnings per share of the companies in the index. Or as I like to say here all the time – share prices ultimately follow earnings.
Yet that’s not happening right now. A disconnect clearly exists.
More than 40 years of data suggests that it’s only a matter of time before stocks play a game of catch up. And I’d hate to be caught on the sidelines when it happens. Just saying.
That’s all for this week. Before you sign off, though, do me a favor…
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Thanks and enjoy the weekend!
Ahead of the tape,