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George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Emerging Markets/International Stocks

United States of Europe?

June 15, 2012

What’s the difference between Illinois and Greece? The biggest similarity is that they are both reported to be virtually bankrupt. But the big difference is that Illinois is part of the United States and Greece is part of the European Union. 

If the state of Illinois goes bust, it won’t be great for people holding its bonds, but otherwise economic life will go on pretty much as normal for Illinois residents. Moreover, there won’t be much fallout for residents of Indiana, or Wisconsin or any other state. And nobody is likely to worry about the problems in Illinois leading to the demise of the U.S. dollar. That’s because Illinois is part of the United States, and we have a federal government that can levy taxes and a strong central bank. The European Union lacks those features, and so the problems in Greece are raising fears of economic turmoil in Europe, perhaps leading to the collapse of the Euro.

It remains to be seen if the Euro-zone countries can agree on the strong measures that it will take to stem the turmoil. In the meantime, we would be very cautious about investing in most European securities. As turnaround investors, we would normally be tempted to jump into a situation like this, but right now we find the outcome too difficult to call and the downside risk still too great.

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Traditional Retailers: Will Brick-and-Mortar Stores Disappear?

Our answer is “No, at least not for many decades,” but many investors appear to disagree. When some retailers posted disappointing results last autumn, many retail stocks dropped 40-50% from highs set only a few months earlier. Read More.

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Banking on a Financial Sector Turnaround

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MoneyShow.com recently tapped George's favorable opinion for a banking industry rebound. In "Turnaround Expert's Banking Bets," Steve Halpern highlights a trio of Putnam's top stock picks from the battered financial sector.

 

George reminds value investors: "Fortunately, many of the factors...just aren't present in the market, and the other reason that investors seem to be down on the banks is they sort of expected the Fed to raise interest rates a little faster than they have. And the banks do better when interest rates are rising because they have wider margins on their loans, but I think the Fed will gradually raise rates to we will see profits improve, and so I think this downturn is really temporary."

 

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