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Hello, welcome back to the Note, and Happy Thanksgiving to our American viewers.
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Now we've had a fairly quiet day on world market. Perhaps the most interesting development was another fall for the Euro against the Dollar.
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It's now almost back to its lows for the year set much earlier. And that's in line with another very dramatic long-term trend,
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which is the European stocks' utterly underperforming American stocks.
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If you take a look at this chart, you can see that since January 2008, the FTSEurofirst 300, when you judge this in common currency terms,
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has lost more than half of its value compared to the S&P 500.
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Those who remember back that far that top there was created by the rock tracing instant the Jerome Kerviel incident Société Générale
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Ever since then, European stocks have inextricably underperfomed US' stocks.
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Now a lot of this is the currency. So if we take the currency ex-fit equation and compare the Eurofirst in Euros with the S&P in Dollars,
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look at everything in local currency, you can see that the effect is more muted.
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There was a much more impressive rally for European stocks in the beginning of this year.
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But you can still see European stocks have given up some third of their value against the S&P, and the trend still looks very negative at present.
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How do we explain this? Some of this obviously is the Eurozone crisis. A lot of this is that the US has had a much more lenient monetary policy.
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Whatever you think of that, it certainly helps to boil the valuations of stocks.
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But I think the most important reason is to do with hope or optimism, a good theme of US Thanksgiving.
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American stocks have a very rich valuation of what appeared to be top of the cycle earnings;
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European stocks have rather low valuation of what appeared to be depressed earnings.
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That is the main driver. This we can expect that to reverse.
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And so, I think the American should be very thankful for the strength of this stock market at the moment.
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The chances are that at some point before too much longer, this long term underperformance by Europe of the US is going to start its reverse.