ECB’s Money Printing a Profitable Opportunity for U.S. Investors?
By George Leong for Daily Gains Letter |
The money printing presses may be dry in the U.S., but they are just being inked up across the Atlantic in the eurozone, where they’re beginning to print easy money in the form of euros. While there are both pros and cons to this move, there is the potential for American investors to profit.
Recall how the Federal Reserve’s three rounds of quantitative easing (QE1, QE2, and QE3) over the past six years helped the stock market and economy. Of course, there are the negatives with the booming $18.0-trillion national debt.
ECB Introduces Easy Money Printing Program
Looking to avoid a hard landing, so to speak, the European Central Bank (ECB) did just as it was expected to do and held the current near-zero interest rates intact; but even more important was its decision to buy about 60 billion euros in bonds monthly in the 19-country eurozone. That’s about 69 billion greenbacks (or $69.0 billion). That amount isn’t far off of the $85.0 billion the Fed was buying, or should I say printing, each month before the ink dried up on QE3. The ECB’s program will begin in March and continue to the end of September 2016.
Just like what we witnessed in the U.S., the aim of the monetary easing in the eurozone is to help jumpstart the stalling economy and avert a potential recession.
Easy Money Just in Time
The timing for the eurozone was critical, given that the region’s two major pillars, Germany and France, are beginning to feel the effects from the other weaker member nations.
And recall that the eurozone has Greece and its financial issues. The country is set for an election that could change the government and result in Greece exiting the eurozone. However, I doubt this will happen now, as Greece needs the financial infusion from the ECB, rather than trying to do it on its own. Heck, why walk away from some free cash?
The International Monetary Fund (IMF) cut its gross domestic product (GDP) growth rate estimate for the eurozone to 1.2% this year, which is a third of what the IMF expects the U.S. to grow at.
Moreover, given that consumer inflation in the eurozone actually fell 0.2% in December versus a year ago, there are concerns of deflationary pressures, which is not what investors want to see. Deflation causes lower prices for goods and services, meaning that it ultimately kills growth. Hopefully the eurozone’s money printing will help drive consumer spending. Of course, there’s no guarantee this will happen.
With a mass market in excess of 500 million in the eurozone, there’s a serious need to avoid a hard landing. After all, a plunge would have a significant impact on the region’s major trading partners too, including the U.S. and China.
The Potential Opportunity for U.S. Investors
To play a possible bounce in the European stock markets, investors could consider eurozone-focused exchange-traded funds (ETFs). Two examples may be the iShares Europe (NYSEArca/IEV) ETF or iShares MSCI EMU (NYSEArca/EZU).