- Running out of time in Europe

The delay in taking decisive action to stop the European debt crisis is creating an even bigger crisis of confidence that is now spreading to core countries like France. With a possible downgrade of France further delays will undermine the credibility of any possible solution like Euro bonds or ECB direct or indirect intervention.

It is not likely that the new Governments will be able to implement measures fast enough to restore investor confidence. For this reason I think that failing to intervene promptly (directly or indirectly via the IMF) will lead to even bigger problems.

- Bad Governments but Good Companies

Several analysis predicts that selected European companies could see their profit grow 10.5% in 2012. Some examples are carmaker Porsche, retailer Burberry and Anglo American that have a solid outlook for next year.

- Diamonds are Forever

On November 4th Anglo American (that dropped 29% in 2011) bought 40% in De Beers, the largest diamond company in the world. Trading at only 6 times estimated earnings it might be a bargain. Similarly Porsche lost half of its market capitalization since the beginning of the year and is trading at 4.9 times estimated earnings. With a strong sales forecast in many of their models like the Porsche Cayenne this might represent another opportunity. European Luxury makers like Burberry are also seeing no slow down in the growth with sales clustered among 25 top city markets like Hong Kong and New York.
According to McKinsey the Chinese purchase of luxury products will grow 18% annually till 2015.

- Strategy: In short

- Europe is running out of time. Austerity alone won't restore investors confidence so clearly intervention, in whichever form direct or indirect, is needed;
- Despite the Political mess several European companies are trading at even more attractive valuations. A rigorous selection is needed to isolate the companies that are likely to experience growth despite of the Sovereign debt crisis (e.g. some luxury brands);
- Other conservative European plays are Food & Beverages companies that can rely on recession-proof businesses;