eurozone mapYesterday, I reviewed the reasons why the Eurozone as a monetary union is a flawed construct and why the implications for a breakup are disastrous. I believe this is so much the case, that the odds of a Eurozone unwind are actually quite low. The breakup option is really the self-immolation option as all parties involved would come out dramatically worse off. Investing in the whole mess that is Europe, makes sense now, particularly for any investors who seek to be contrarians. A number of subtle, yet bullish items have come about and most importantly the markets are 30% cheaper relative to the spring. I’ve read a lot that Europe is “to be avoided” from an investment perspective and that the region is “un-ownable”. These types of comments generally come from shorter-term, fearful investors who have just went ahead and lost a lot of money by purchasing at poor prices. I’ll suggest that the time where you really shouldn’t have owned Europe was 30% higher! For investors who are globally focused I’ll list a number of global industrial and consumer geared companies that sport very high dividend yields and have pulled back sharply which may be worth researching. Of course the indexes can be owned through ETFs such as: EWG, EWQ, EWI, EWP. There are surely many others as well. Lastly we have a unique situation where you can own Europe’s top companies for a much higher yield than you can lend to the two largest counties in the region? German 10-YR yields are 1.7% yet the DAX sports a dividend yield of 4.5%. French 10-YR yields are 2.7% yet the CAC sports a dividend yield of 5.2%.

  1. As I have been writing about, many of the stocks in these markets are not geared towards domestic demand but are globally oriented companies. The slowdown in operating results (if any) will be geared towards global GDP more so than domestic GDP. Investors lose sight of this in a panic.
  2. Pull-back in price and valuation. Here are what these markets are down ytd in local currency: Spain -17%, France -20%, Germany -23%, Italy -29%, Greece -37%.
  3. Sentiment is very poor which is a contrarian indicator.
  4. Dividend yields are 4-6% for all the major markets.
  5. Germany’s top court (The Federal Constitutional Court in Karlsruhe) threw out suits this morning which would have prohibited Germany from participating in the European Financial Stability (EFSF) programs.
  6. The Swiss National Bank (SNB) is helping to monetize Europe through what may amount to “unlimited purchases of Euros” to stem currency appreciation. In actuality, the purchases are of course limited, but will no longer be needed when the crisis risk abates. Watch carefully to see how Switzerland invests the euros – a surprising and very bullish event would be if they expand to purchases of Italian and Spanish debt (I think they should as this would help accomplish a number of aims).

Some household (or perhaps semi-household) names worth considering with their dividend yields:

  • Carrefour (CA-FP)  6.5% dividend yield
  • PPR/Gucci (PP FP)  3.3% yield
  • Vivendi (VIV FP)  8.8% yield
  • BASF (BAS GY)  4.8% yield
  • Daimler (DAI GY)  5.5% yield
  • Metro (MEO GY)  4.6% yield
  • ENI (ENI IM)  7.6% yield
  • Pirelli (PC IM)  3.1% yield
  • ArcelorMittal (MTS SM)  4.0% yield
  • Repsol (REP SM)  5.6% yield
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