TAKING STOCK: European markets worse off than our own

Dear Mr. Berko: I think you're all wet with your negative comments on the European markets, especially France. Nigel Bolton manages European stocks for BlackRock, the largest money manager in the world, and the famous Mark Mobius is the executive chairman of Franklin Templeton Investments' Emerging Markets Group. Both Bolton and Mobius recently issued very positive positions on the European markets. They're knowledgeable, expert professionals who have been running these funds for more than 20 years. They have access to huge amounts of data, they employ dozens of Ph.D. analysts, and they oversee huge research staffs that collate all this impressive information. In many instances, they travel to Europe to visit management of various companies in which they invest. So how can you possibly disagree with Mobius, Bolton and other fund managers who are bullish on Europe? Have you grown too big for your britches, or is your ego getting in the way of your brain? SB, Phoenix, Ariz. Dear SB: I learned something a long time ago: Never ask a barber if you need a haircut, an auto salesman if you need a new car or a broker if you need a variable annuity. I have a small, 12-by-17-foot office with two and a half desks, three computers and one and a half employees, and my front door is near the corner of an old, recently updated business complex. In fact, I'm between a travel agency and a beauty salon. There are half a dozen mom-and-pop diners within walking distance. I'm 10 minutes from home and 10 minutes to the gym. My costs are modest, I don't have massive overhead, I'm not in the selling business, and I don't need to attract investors with grand stock-market projections. Therefore, I can afford to write honest advice. Sometimes, my advice may be wrong. Now, when have you heard Bolton or Mobius publically say, "Don't buy my fund" or "Keep your cash in your pocket?" I'm paid by newspapers that publish this column. I'm not paid by a multi-billion-dollar mutual fund, and I don't earn brokerage commissions. So, unlike most on Wall Street, I have the wonderful liberty of honesty. Meanwhile, I suggest you glimpse the funds run by Bolton and Mobius, as well as some of the French banks in their portfolios. An extremely credible French source tells me that his country's three largest banks are in trouble and may have serious solvency problems. Credit Agricole, BNP and Societe Generale own more than $60 billion in Greek debt, $200 billion in Spanish debt and more than $700 billion in Italian debt. If Greece defaults, those three banks will bleed like thrice-stuck pigs. But if Spain defaults, the French banking system will collapse. And if Italy defaults, the European banking system will fall to its knees. French banks lack the capital to absorb those potential losses. France is the second largest economy in Europe, with a GDP of about $3 trillion, but the total debts of its three largest banks is $7 trillion. That's equal to 233 percent of the French GDP. The total debt of the largest three U.S. banks--J.P. Morgan Chase, Bank of America and Citigroup--is $6 trillion, or 42 percent of the U.S. GDP. A partial Greek default may be less than six months away, and those three very French banks still carry $60 billion in Greek debt at par on its balance sheet, when the real value is less than $20 billion--if that. Italy, also a very sick puppy, recently approached China, which owns foreign currency reserves of $3 trillion in euro assets, about buying $280 billion in Italian bonds. China has already refused Greece, but the odds are better than even that China will come to Italy's aid. I think the risk of loss is much greater than the potential for gain. Stay away from Europe and France, and when you next read a market opinion, ask who pays the author's salary before you believe what he writes. ---------- Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com. © 2011 Creators Syndicate Inc. Published: Fri, Oct 21, 2011