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What’s the worst possible investment you can make right now? I bet a lot of investors would say Europe. After all, everyone knows most countries are in deep trouble. The latest economic data, such as manufacturing activity, suggests even the powerful German economy is slowing down.

But the thing is, everyone already knows that. It’s baked in the cake. That’s exactly why European stocks, as a group, are trading at a P/E (price to earnings) ratio of 10, a discount of 40% to the U.S. market. And that’s why Europe is the place to be if you’re looking for bargains.

The sentiment has also been improving recently. One easy way you can measure investment sentiment is through the ETN BUNL, which tracks the performance of German bonds, known as bunds.

Much like in the U.S., risk aversion drives investors into the safety of government bonds. So when sentiment is bad, bunds tend to rally. And when sentiment improves, investors dump bonds to invest in stocks.

German Bonds May be Topping

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As you can see, bunds have been rallying for the past year. But now it seems this uptrend is losing momentum. In other words, the market sentiment is improving. If BUNL closes below $23, it will indicate investors’ confidence is on the rise. This will be good for European stocks.

Evaldo Albuquerque,
Editor, FX Breakout Alert

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