In THIS World Cup Match, Europe Has Nothing on Team USA!

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The U.S.A. has never been a big soccer country. Or “futbol,” if you prefer. But, boy, has this World Cup ushered in some changes.

Whether it’s on my Facebook page … at restaurants where I’ve watched previous games … or just in passing conversations with people on the street, I sense that America really cares about how its national team is doing. That’s a good thing – a great thing, really. And I can only hope that as you read this column, it’s with Team U.S.A. firmly ahead and on its way to victory against Belgium (or with the match already in the bag!)

But regardless of what happens on the pitch today, there’s one World Cup where the U.S. is firmly trouncing Europe.

The economic Cup!

Inflation. Growth. Job creation. Monetary policy. No matter what variable you choose, you find that the U.S. is well ahead of Europe – and that has significant investment implications for all of us.

Look at prices for starters. Euro-zone inflation was running at a paltry 0.5 percent in June. That’s a fourth of the 2 percent target that policymakers over there are striving for. It’s also the lowest inflation rate since the 2009 recession.

Here in the U.S., food prices alone rose that much in a single month in May. The “core” inflation rate closely followed by the Federal Reserve is now running at a 2 percent rate, hitting the Fed’s target well before the Fed ever expected it to! Everything from medical care to rent to apparel to airfares is surging at even-faster rates, putting the real life inflation rate you and I are experiencing much, much higher.

Prices on everything we buy from medical care to apparel to airfares are surging.

Or how about employment? The unemployment rate across the 18 euro-zone countries was a sky-high 11.6 percent in May, down just a couple tenths of a percentage point from the peak a couple quarters ago. Many countries are even worse off, with Greece at 26.8 percent, Spain at 25.1 percent, Portugal at 14.3 percent, and so on.

Here in the U.S., unemployment has dropped sharply to 6.3 percent in May from a peak of 10 percent in October 2009. That’s also the lowest level in 68 months. Even the “all in” unemployment rate that includes underemployed and discouraged workers has declined steadily.

What about growth? Well, first-quarter GDP figures may have been disappointing here. But other than that report, things have generally been improving here. A U.S. manufacturing index compiled by Markit surged to 57.5 in June, the highest since May 2010, while Europe’s comparable reading slumped to a worse-than-expected 52.8 from 53.5 in May. That was the lowest since November.

“I also believe a significant policy shift toward tighter money is gradually underway, in part because inflation is finally turning up again.”

I could go on. But I think you get the picture. We may not win the World Cup. We may be out of the contest entirely by the time you read this.

When it comes to investing your hard-earned dollars, though, you would be better served by investing in companies sensitive to U.S. economic growth over those tied to Europe’s economy. I also believe the U.S. dollar is going to continue to advance against the euro, and that U.S. policymakers will tighten long before the European Central Bank does.

That means interest rates are likely to rise here in the U.S. along with inflation. So I would continue to avoid long-term Treasury bonds, and I would consider ETFs that rise in value along with the dollar.

How about you? Are you pulling for the economic Team USA … or do you think Europe is a better bet? Are you a dollar bull or bear, and if so, why? How about monetary policy – is this Fed going to pull ahead of the ECB, and what do you believe that means for interest rates and growth? Go ahead and use the comment section to discuss with your fellow investors!

OUR READERS SPEAK

Now that our commenting system is back up and running, it was a pleasure reading everything you had to say in regards to yesterday’s piece on the Bank for International Settlements, central bank policy in general, and the threat of inflation.

Reader Steve said: “Central and world bankers are distorting the markets so that there is a disconnect now. As long as interest rates remain lower than real inflation, businesses will engage in all sorts of buybacks, mergers, and other activity to pump up share value.

“But the economic numbers that just came out last week are bleak – businesses are not hiring, investing into new processes and infrastructure, and productivity. So as the real economy and employment rolls wither, the markets gave nary a blink to the economic reports and they continue bubbling along, completely disconnected from any production of real values.”

Reader Ann W. liked what she heard from the BIS, but argued that talk is cheap. Her comments: “It is long past time society stopped feeding the beast that is capitalism as practiced by the banks. Finally, a voice of a bit of reason from BIS – I am waiting for action; too much talk, too many promises.”

As for what to do in this economic environment, Reader Shen had some pointers: “Put your money not just gold and silver; but, I think land and non-genetically modified seed would be important purchases when a collapse is imminent. You can’t eat gold or silver. And, I think investments into the US oil and gas industry would be good. We will need to buy local energy when the Middle East is in turmoil.”

In case you’re wondering where I stand, I’m a bit more optimistic about the U.S. economy and the growth outlook given all the forces I mentioned earlier. I also believe a significant policy shift toward tighter money is gradually underway, in part because inflation is finally turning up again. So I am increasing my exposure to gold and silver miners for the first time in a long time, and getting even more bearish on long-term bonds.

Feel free to weigh in with your view on the wisdom – or folly! – of those approaches in the comment section.

OTHER DEVELOPMENTS OF THE DAY

 General Motors (Weiss Ratings: GM,B-) may be in the midst of its worst recall wave ever, but somehow it still managed to record a 1 percent rise in June sales. Sales at Ford Motor Co. (Weiss Ratings: F, A-) weren’t that impressive at minus 6% year-over-year. But Chrysler sales popped 9 percent to around 171,000 vehicles – its best June in seven years.

 Geopolitical tensions continue to flare in Europe and the Middle East. Ukraine launched air and artillery strikes on separatists after a cease fire failed, while Israel carried out airstrikes in Gaza. It also promised more potential retaliation for the kidnapping and killings of three Israeli teenagers, which Prime Minister Benjamin Netanyahu blamed on Hamas.

 My colleague Mark Najarian wrote about the surge in Initial Public Offerings (IPOs) this year in a Money and Markets column  last week. One of the hottest is clearly GoPro (Weiss Ratings: currently not rated), which hasn’t let up since it came out of the gate! It rose into the high $40s today, roughly double the level of its IPO just a few days ago. Wow!

 This is an inspiring story I happened to come across in today’s Washington Post. It talks about the long recovery road for a quadruple amputee and Army veteran who lost his limbs in Iraq in 2009. Certainly gives you something to think about as we celebrate America’s independence this week.

Reminder: You can let me know what you think by putting your comments here.

Until next time,

Mike Larson