Swiss Banks & Gold will rise again

European Austerity doesn't work
=====================

Disappointing PMI data from Germany confirms that the European slowdown continues and not just in southern Europe.
Austerity combined with limited access to credit by SME will only result in prolonged no-growth and higher unemployment. The continuous jobs reduction from European businesses (now at the 16th consecutive month) will likely push the 12% unemployment rate higher.

Central to the problem is also the financing disparity of European SMEs (that accounts for 98% of euro-zone companies
and 75% of employment). On a five year loan German and French SME will pay 3.5% vs. 6% in Spain or Italy (GS data). This cannot be easily solved by the ECB.

Europe needs a set of pro-growth policy that will ensure that cheap money is not just available to banks but is properly transmitted to SME. Austerity will not simply kill growth and make many of the European countries uncompetitive.

Gold will rise again
=============

I view the recent drop in Gold as a buying opportunity especially for these portfolios that have little or no gold component. Physical gold sales (e.g. Golden Eagle coins sales surged eight fold vs. the same month last year) are seeing increased demand while "paper gold" in the form of futures and new investment vehicles like ETFs created an higher level of volatility. It is now much more easier to react and sell gold in the case of rumours, founded or otherwise, that a central bank is around to sell a large amount of Gold in the market.

Gold will reach, in time, new highs but investors should be prepared to higher volatility. Further drops will likely be followed by new physical demand both by investors and central banks.

European Equities: Opportunities
======================

Despite the various issues that Europe has European equities remain relatively cheap. Given that only 46% of the revenue of the companies in the MSCI Europe is actually linked to Europe investors can still benefit from global companies based in Europe that present attractive valuations. For instance, given the recent improvement of the political situation in Italy, the Italian market might present some interesting opportunities. This is particularly true for global "made in Italy" brands like luxury makers. (e.g. Prada, Ferragamo, Cuccinelli).

In Short
========

- The European slowdown will continue as Austerity will only fuel a no-growth, high unemployment environment. Pro-growth measures are needed quickly.
- Gold will rise again and the current lower pricing is a good buying opportunity especially for physical gold.
- Despite the no-growth environment European equities are still attractive