Europe’s Submerging Economies

The Land of Lack [Morning Reckoning] February 01, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Europe’s Submerging Economies Asti, Northern Italy February 01, 2024 [Sean Ring] SEAN RING Good Morning Reader, “India may be an emerging economy, but the UK is a submerging economy!” shrieked my friend’s father. Only a few years ago, my friend G brought his parents to the UK from his native Chennai. His objective was to ensure they had the best medical care money could buy. They could live in an exciting city like London, stay healthy, and live a long life close to family. A few weeks ago, G sent them back to India because England’s medical service appalled them! Yes, G’s parents would rather have doctors in India look after them than stare in awe at the wonders of European socialized medicine. (Do mention that the next time your idiot lefty buddies say how excellent Europe’s healthcare is.) 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But the trip's highlight was a helicopter ride over the Twelve Apostles to where the Atlantic and Indian Oceans meet. I also recall a fantastic meal at an Ethiopian restaurant, and I wondered, “What kind of cuisine could the benefactors of the ‘We Are The World’ fundraiser possibly have?” G’s father was as charming and intelligent as G, and I immensely enjoyed their company. To this day, it’s the only time I’ve been to southern Africa. I can’t recall if G gave me the idea of importing my parents to Italy, following his example. But I’m sure hearing his intention made an impact. Part of me laughed when I heard the news of G’s parents’ departure, as my father, philosopher-truck driver John Ring, is having a hell of a time adjusting to Italy. For a man who constantly railed against government stupidity, the old truck driver sounds more like Lee Iacocca than Ron Paul. But I didn’t bring my parents here for the healthcare. I got them here to spend time with their grandson, eat the best red meat, and drink the best red wine Gaia’s green earth offers. Oh, and to remove them far from the dreaded Tex-Mex border (not that it’s much of a border). The Land of Lack But let’s face it: Europe is in big trouble. It self-strangulates economically through excessive regulation. Resource-wise, European dirt is practically worthless. And with friends like Joke Biden, who needs enemies? Didn’t you hear? Thanks to Biden trying to punish Texas for its unabashedly disobedient razor wire laying, the muddleheaded POTUS announced a temporary pause on pending decisions on exports of Liquefied Natural Gas (LNG) to non-FTA [Free Trade Agreement] countries until the Department of Energy can update the underlying analyses for authorizations. Quoi? In plain English, President Potatohead used the green lobby to shield himself from looking petty and spiteful in his treatment of Texans… but he really screwed Europe. Yup, Victoria Nuland finally got her chance to “F*ck the EU.” That’s because Europe has depended on US LNG since “parties unknown” (wink, wink) blew up the Nordstream pipelines. This act of terrorism on civilian infrastructure deprived Europeans of cheap, plentiful Russian pipelined gas in the name of solidarity with Ukraine. Getting into a brawl over Ukraine was stupid for the US. Backing the US is economic suicide for Europe. As Henry Kissinger said before he entered Inferno Eternal, “To be an enemy of the US can be dangerous. But to be a friend is fatal.” Hence, we do not have emerging economies in Europe. As G’s father said, we have “submerging” economies. Eurotrash is Green “America innovates. China replicates. Europe regulates.” It’s not just the US’s fault, but the US has accelerated Europe's economic seppuku. Instead of talking Europeans off the ledge, the US told them to jump. Let’s look at a few examples. Germany Germany, once a global manufacturing powerhouse, has been experiencing a gradual deindustrialization trend in recent years. This decline is attributed to a confluence of factors. Rising energy costs: Germany's reliance on fossil fuels, particularly Russian gas, makes it vulnerable to energy price fluctuations. However, that reliance was not harmful as long as the US didn’t antagonize Russia. The war in Ukraine and the subsequent sanctions have led to higher energy costs for businesses. Competitive pressures: Global manufacturing has become increasingly competitive, with emerging economies like China offering lower labor costs and attractive investment incentives. German companies have faced pressure to relocate production to these lower-cost regions. They’ve also started moving to the US to escape Europe’s insane energy costs and taxes. Digitization and automation: The rise of automation and technological advancements have transformed many industries, leading to job losses in traditional manufacturing sectors. Changing consumer preferences: The demand for goods has shifted towards services and experiences, reducing the need for some traditional manufacturing products. United Kingdom I’d pull the lever for Brexit a thousand times over again. But I’ll never vote for the Tory morons who are running the UK into the ground. Globalization: The rise of globalization has made it easier for businesses to source goods from cheaper locations, further putting pressure on UK manufacturers. Financialization: The UK's financial sector has grown significantly in recent decades, drawing investment away from manufacturing. The City of London (financial center) is between 8% and 16% of the UK’s economy. Changing consumer preferences: As in France, the demand for goods has shifted towards services and experiences. France France is an unbelievably productive country when it feels like working, but it hasn’t fared well in modernity. Global economic shifts: The rise of new manufacturing powerhouses in Asia, particularly China, has pressured French manufacturers to compete on price and quality. Labor costs: France's relatively high labor costs compared to other European countries make it less attractive for businesses to invest in manufacturing. Government policies: Some government policies, such as high taxes and strict regulations, have been seen as hindering the growth of French manufacturing. Changing consumer preferences: The demand for goods has shifted towards services and experiences, reducing the need for some traditional manufacturing products. Wrap Up All three of these countries are also run by green loonies who’ve made it their mission to drive their countries back into the stone age. They’ve attacked their farmers, who’ve literally covered them in merde in return. And they also have large numbers of immigrants who utterly refuse to assimilate. Like Russia, don’t be surprised if these countries start looking eastward. They won’t get help from anywhere else. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( [Exposed: Biden’s 2022 mistake to cost him election?]( [Click here to learn more]( Will this ugly scandal doom Biden in 2024? In February 2022, [Joe Biden made the most dangerous mistake]( any President has made in the past 150 years. If it all plays out like Jim Rickards is predicting… Biden’s blunder will soon cost good Americans EVERYTHING. There’s still time to protect your money. But you can’t wait. [>>See Biden’s terrible mistake here<<]( [LEARN MORE]( In Case You Missed It… Pandemic Traders Are Resurfacing Greg Guenthner, Editor [Greg Guenthner] GREG GUENTHNER Good Morning Reader, We’re encountering some strange signs of froth in a few not-so-dark corners of the market in the aftermath of the late 2023 melt-up rally. Sure, the averages have soared off their lows and are teetering on new highs. But most stocks are beginning to churn as the spell of December’s disbelief rally begins to fade. Now, we’re entering a seasonally weak stretch for the stock market as Q1 of an election year historically brings choppy, sideways conditions. And, as Goldman Sachs notes, February has been the second weakest month for the Nasdaq over the past 40 years. Could these data points align with what we’re seeing in recent market action as we wrap up January trade? As the unflappable mega-caps continue to prop up the major averages, let’s check in on the other stocks that aren’t shooting higher every day: - Small-caps are lagging after breaking out as potential new market leaders in Q4. The Russell 2000 is down more than 1% year-to-date, while the Nasdaq 100 has gained more than 4.5%. - Growth names are taking a beating. Tesla Inc. (TSLA) has fallen from grace, breaking from its Magnificent Seven brethren after reporting disappointing earnings. It’s down 25% just this month. Meanwhile, tech-growth bellwether ARK Innovation ETF (ARKK) is also underperforming by a wide margin, down almost 9% year-to-date. - The VanEck Semiconductor ETF (SMH) is starting to sputter after trading at nosebleed levels just last week. The sector is finally losing steam following an ugly earnings tumble from Intel Corp. (INTC). Even the most optimistic tech junkie would admit that these impressive stocks could use a break here… While stocks aren’t triggering any terrifying “sell everything” moments, it’s not difficult to envision the averages hitting a rough patch – especially as some familiar faces from the Pandemic Bubble reappear on the airwaves. “Cathie 2.0” Gives Innovation a New Name My trusty market hype-o-meter is flashing a red alert as growth-stock pushers return to pump their favorite holdings. Just last week, Morgan Stanley’s Sherry Paul put on a PR clinic during a CNBC appearance where she attempted to describe growth investing criteria by referencing the “price-to-innovation” ratio. No such metric exists, of course – a fact that Paul clarified as she continued to spout her investing wisdom. Still, all this innovation speak gives me 2020 flashbacks. After all, these buzz-metrics were pioneered by the famous Cathie Wood. It’s all part of the playbook! Just rattle off some outrageous price targets and you create a powerful FOMO factory to help your funds vacuum up more Main Street money. As you might expect, Paul’s “price-to-innovation” brouhaha elicited plenty of groans on social media. But I’m more interested in the timing. Remember, growth stocks are struggling this year. Many of these names attempted to break out of big bases during the fourth quarter melt-up rally. Yet many of these moves didn’t stick… Could these false breakouts lead to more chop and/or downside action in the weeks and months ahead? It’s possible – despite whatever “price-to-innovation” metrics they’re concocting out there… The Return of Davey Day Trader Not to be outdone, Barstool Sports founder Dave Portnoy is back in action as “Davey Day Trader” on social media after scooping up shares of Spirit Airlines (SAVE) just before the stock took a 25% nosedive on news that the JetBlue merger plans were starting to crack. You might recall the rise of Davey Day Trader and his green hammer during the peak of the pandemic lockdowns. Portnoy was in the trenches every morning, going live on social media to sling message board stocks and tout his favorite holdings, always with the disclaimer that he’s a gambler – not an investor or advisor. Well, Portnoy is diving back into the markets headfirst with the same swagger, rebooting his Davey Day Trader sessions to stick it to the “suits” and the “shorts” as he chases one hot stock after another. Portnoy is incredibly entertaining – and probably much more calculated and strategic than he admits on his live shows. The fact that he perceives there’s a large audience hungry for meme stock content hints that we’re seeing some wide-eyed speculators return to the markets following a bear market hiatus. AMC and GameStop might be dead and buried, but it’s clear the speculative money is starting to churn now that the 2022 bear market is fading into the past. Again, timing is the issue here. If there’s one thing we know about the crowd, it’s that everyone always seems to get excited at the wrong moment. These same speculators were throwing in the towel and selling every stock in sight in late October. Now, they’re loading up on meme stocks and growth names following a historic melt-up rally. It’s the perfect time for the market to humble the herd. It’s starting to get weird out there. We need to keep our thinking caps strapped on tight! Stocks continue to chop along this week as we cruise into the heart of earnings season. Household names litter the list of companies reporting, with a significant chunk of the surging mega-caps announcing numbers ahead of the weekend. Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), and Meta (META) are just a few of the big boys attempting to wow investors. Then, there’s the Fed meeting minutes hitting the tape Wednesday afternoon. Plenty to distract investors heading into what could be a pivotal week as the calendar flips to February. Don’t get fooled by the hype… Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Sean Ring] [Sean Ring, CAIA, FRM and CMT]( is a former banker and financial educator and is the editor of the Rude Awakening. Sean has trained interns and graduates from Goldman Sachs, Morgan Stanley, Citi, Bank of America, Standard Chartered Bank, DBS (Singapore), the Abu Dhabi Investment Authority (ADIA), Bank Indonesia (the central bank), HSBC, Barclays, RBS, and BlackRock. He knows the global economy is being corrupted by forces that most people can't understand and has used his unique and worldly experiences to help people navigate the markets. 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