From Mark Hulburt, MarketWatch, comes an interesting reminder about not trading the headlines:
Where does the euro stand today compared to the beginning of this year?
No cheating, either. This is a closed-book exam.
As you think about your answer, remember that this has been a year in which the very survival of the European Monetary Union has been regularly and forcefully called into question.
How many of you answered that the euro has risen?
Don’t be too hard on yourself if you didn’t. Given the bankruptcy watch that is the daily drumbeat of news out of Europe, you’d be excused for thinking that the euro should have completely collapsed.
But it hasn’t. At the end of 2010, one euro EURUSD -0.92% was worth $1.3391. It currently stands at $1.3631. That means that the euro has performed better this year than the S&P 500 index SPX -0.47% .
Source: MarketWatch
What has been largely omitted from the conversation is what positives are taking place in Europe:
To gain insight into what is going on, I checked in with John Dessauer, who in the 1970s worked for a multinational bank in Switzerland and who, in the decades since then, has been a money manager in the U.S. ( Read my Jan. 21 interview with Dessauer about the euro’s prospects, entitled “Reports of its death are premature.” )
One reason Dessauer says that we should not have been surprised by the euro’s strength, notwithstanding the overwhelmingly bad news about the European Monetary Union (EMU): Non-member countries have wanted to become members. Estonia joined at the beginning of this year, for example, and there are a handful of other countries that are standing in line to join as well.
Why, Dessauer asks, if the euro really did represent a sinking ship, would non-members be so eager to jump on board?
What is attracting these non-member countries to join, according to Dessauer, is the EMU’s success in reducing the barriers to trade. By eliminating tariffs and other barriers, and by countering ongoing protectionist tendencies, the EMU “has been a tremendous success,” Dessauer argues.
“Those who think that the euro is doomed are just not focusing on these many benefits” that the euro has created, according to Dessauer.
It’s hard (perhaps impossible) to be an objective investor when trading due to the fact that we can all be so easily influenced by our own biases and by compelling stories. Hence the Systematic in Systematic Relative Strength.
