European S&%# Storm

When I first read that the bailout of the Spanish banks was $125 billion it seemed like a massive number but based on the deterioration in markets as Monday went on, it apparently is nowhere near big enough. The story in Europe is of course ongoing and there does appear to be a contagion going from country to country although it is happening slowly.

We have been out of any meaningful European exposure for about four years ago. We have always been very underweight the region but we owned Telefonica from January 2006 until August 2008 which was our last exposure. We sold an Irish bank in March, 2008. From the top down I can't envision any sort of end to the crisis which if correct means Europe is years from getting right which is plenty of reason to continue to stay away. Long time readers might recall this as an going theme here.

All of the ten big SPX sectors were down yesterday (based on the sector ETFs I watch to keep tabs) but there were a few pockets here and there that were up. Not surprisingly tobacco stocks is one such group. This is a good reminder for a few things. Right here right now there is obvious uncertainty about various aspects of Europe and what that might domino into for other countries including the US

That a tobacco stock (or a drug stock or any other stock) could go up yesterday is a good reminder even just as a microcosm that there is demand for all sorts of things. People need to consume things in order to live and the companies that sell what must be consumed have needs that get fulfilled by other companies.

This is not a rah rah hold on no matter what post but in terms of thinking about the big picture and speaking to people whose goal is simply to have enough when they need it (proper asset allocation is crucial too), a good company is probably selling a lot more thingamajigs (to pick a topical word) than they did five or ten years ago and will be selling a lot more in the future. This should lead to earnings and dividend growth which will be reflected in stock prices when things normalize if it is not already reflected.

Obviously I believe in trying to manage the short term (something that may or may not be right for you) but it is important to understand and remember the long term. If you have a diversified portfolio of individual stocks it is very likely that at least a few of them have done quite well by any measure during the last ten years.