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Cumberland Advisors CIO David Kotok on the outlook for the European economy and markets.
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European leaders defined very low expectations.
And take bold action to bring down soaring borrowing costs were struggling attack Italy and Spain so -- the turning point for the eurozone.
Joining me now is David -- -- chairman and chief investment officer at Cumberland advisors and also author rob.
From bear to bull with ETF Steven thank you so much for joining us is a great pleasure I'm sure is a bullish today area are you going along with the bulls in the markets.
This is a little step.
Under duress at the last minute.
The Germans the -- they said okay will give off the two tiers of debt out of the ESM.
Will make sure mr.
Monti doesn't loses government we don't want to have to wrestle this out with somebody else it is a step.
It's better than nothing but it doesn't solve problems this is a rally.
Up from a very oversold position.
They're using words like breaks -- they've broken the vicious cycle.
-- breaking new ground these are also quotes from.
From the articles and from from leaders that are there.
We've had twenty rounds of breaking through and breaking new ground.
And someday we may actually get -- Europe took a long time to build that'll take a long time to rebuild.
I don't see the break.
So what do you think they have to do at this point.
In the problem is this you have economies which are shrinking right so.
The output of the economy shrinks the debt.
Expands the ratio of the debt to the GDP widens.
Do not fixing that they're not fixing but.
How do you fix that I mean the only fix that is by expanding growth I mean you need some sort of growth in order for them to make money where they can't make money off right now for all -- that mean.
Absolutely so if you can't get growth by imposing more taxes and -- -- -- doing that.
What do you do you have to cut those.
And you can't deliver spending streams where even when you're insolvent.
Which means you have to say your people I promised you a pension when -- retired 55 I can't pay it.
But none -- -- address the growth questioning how do we get economies growing up you get economies growing by reducing two things levels of taxation rate that stimulates okay.
And levels of spending that freeze private sector and reduces government.
-- a very difficult thing to do especially in New York.
OK so in light of all that.
Would you stay away from Europe until they fix everything in and how do you do that because there's so many companies here in the US and every routes that are exposed to run out.
If you -- this -- European Union is big eurozone as -- it in our shop in our global multi asset class we are underweight Europe.
The only eurozone country we own is Germany and it's a small position -- and a little UK little sweet little Poland.
Europe as a -- some big big piece in the index and we're very underweight Europe we think it's too soon to go into it.
But even when you own stocks here in the US they inevitably have some sort of exposure whether it's a bank and -- exposure to the debt or if it's just you know a company that sells stuff and they -- to sell stuff to Europe or they need a growing global economy in order to make money.
Forges a little good examples are I mean.
In the US in the banks we are taking up the -- We own them we found regional banks and big banks who we continue to scale in on weakness both.
We think US banking system is now insulated not fully -- a lot against -- we've had four years of a financial crisis.
We know auditor.
Would ever dare.
Under state a loan loss reserve in an audit.
They -- that they have they had whacked off so after 45 years of crisis we think the banks are in pretty good condition here.
JPMorgan of the top the list there it's the only one that's negative on the day you -- nickel pedal -- say it was down about 22% I think she -- in the quarter.
It is that a good risk right now.
-- -- Think.
JPMorgan is it idiosyncratic it's a one off event.
We're gonna end up with six billion or seven billion or some number of billion we don't know yet keeps -- mayor keeps getting bigger and we're gonna find out when they -- earnings next month right and they're gonna have to report.
But is it systemic you don't see that come in from Wells Fargo we don't see from the other than that nobody is JPMorgan a buyer would you stay where I would yes but I'd buy ATF's and it's in the ETF causes a big position so the answer is yes and that's -- your books about -- go -- and check it out thank you -- an indirect -- two copies already we didn't contact thank you.
