This update today from Mark Grant at Southwest Securities we feel does a good job of explaining why we continue to be underweight international equities:

“Europe and the United States are heading in two different directions. That became quite clear today as the manufacturing numbers for Europe were dismal while unemployment for the entire Eurozone reached 10.9% which is up 9.1% from last year. The entire Continent is in a recession, with the exception of Germany, and I think their next release, in mid May, will show that they have joined the rest of their brethern. Austerity has its costs and two of them are increased unemployment and a decline in demand for goods and services which is then exacerbated by the drop in the number of people that are working. All of this will get played out in a number of ways including a drop in the value of the Euro against the Dollar, ever widening spreads for European assets versus corresponding American assets and increasing costs for the refinancing of European bank and sovereign debt. As the effects of the LTRO wane and as it becomes apparent that there will be no new easing by the ECB; the problems mount. Liquidity wins in the short term but the issues of solvency and structural deficiencies remain and, being unsolved, they continue to weigh upon various credits and worsen their financials as investors take note and shed European assets. In the months ahead, for both political and economic reasons, I think we will see a flight back to American assets as the picture in Europe becomes both clearer and obviously worse.”

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