Immigration and EuropeLow Interest Rates
---In 1963, when my father was an engineer at Raytheon, he had the opportunity to spend 18 months in Paris, teaching French engineers how to use the company’s HAWK missile system. (HAWK, by the way, stands for Homing All the Way Killer. Subtle.)
So he consulted with my mother. And though neither one of them spoke French, that July they boarded the S.S. Rotterdam in New York City, traveling with 11 trunks and five young children, ages 2, 5, 6, 8 (me) and 9.
We moved into a rented house outside Paris, and the four of us who were school age spent the next year and a half attending French schools and learning French customs, like going to school on Saturday but not Thursday, and enjoying lunch treats of dark chocolate and butter between halves of baguettes.
But this story is not about me. It’s about some people we met while vacationing in Switzerland the following summer.
We were riding up some mountain (probably Mount Pilatus) on a cog railway, and my parents got talking to an older English couple who were also “on holiday,” though they had no children accompanying them.
A day or so later, while on an excursion boat on Lake Lucerne, we ran into the same couple again. So the adults talked some more, with my parents learning, among other things, that their names were Bernard and Lillian Gardner and that they had one son, 19 years old, who was in the Merchant Marine.
Well, before the day was out, they’d invited us to visit them in their home in Croxley Green, a suburb of London. All seven of us! Maybe Lillian was wishing she’d had more kids—I don’t know.
So in October 1964, we took a ferry across the English Channel and visited Croxley Green. I don’t remember the house, but I assume tea was served; the Gardners were very English.
What I do remember—I was nine then—was going to the movie theater in London and seeing the film A Hard Day’s Night, which had opened in July. I thought it was fabulous, though confusing.
In fact, in retrospect, the whole 18 months abroad was a great adventure, and without a doubt a part of my upbringing that makes me love travel now.
But I haven’t gotten to the point yet.
The point revolves around the fact that we’ve kept in touch with the Gardners ever since—well into the next generation—through mail, email and actual visits.
Bernard and Lillian passed away long ago, but their son Graham, who became a steward for British Airways, visited frequently when he happened to have an overnight in Boston.
And even though he’s now retired, he still gets free standby travel on British Airways. So last month, Graham and his wife and their son came to visit us again. They came in part to get bargains on clothes, which are much cheaper here than they are in England. But we spent a fair amount of time eating and drinking, as well as updating each other on the economic and political changes in our respective countries.
And now I get to the point.
IMMIGRATION AND EUROPE
England has been changing, and rapidly. In recent decades, it’s absorbed hundreds of thousands of immigrants from India, Poland, Pakistan and China (to name the top four). It’s now the third most crowded nation in Europe, after the Netherlands and Belgium.
But the Gardners prefer England the way it used to be, full of white people behaving properly, speaking the language properly, and following the traditions of the Church of England.
And the Gardners aren’t alone in their thinking.
Prime Minister David Cameron promised in 2010 that he would reduce net migration from “the hundreds of thousands to the tens of thousands.” But he’s failed spectacularly, as net migration has continued to grow.
Graham says, “It’s partly our fault. We gave the world the English language, and if they learned that in school, it’s natural they’d rather come to England than Germany or France.”
But I think the English—as well as the French, Germans and other European nations—should welcome immigrants to their countries, and here’s why.
Demographically, European countries are old and tired, with growing numbers of retired people and shrinking numbers of young working people, and if they don’t get a shot of new blood (or reform their generous social support systems), they’ll soon be drowning in the costs of spending on pensions, health and long-term care.
The current young migrants from Syria and other troubled lands, therefore, are exactly what these countries need, economically. They’re young, so they can work—at relatively low wages. They have made the effort to travel to a foreign country, so they are well motivated—just like the centuries of immigrants to the U.S. who became successfully integrated. And many have children, so the more they become productive members of the economy, the more they will become consumers who will feed those economies.
Now, you might argue that too much immigration can be a bad thing, and I’ve no doubt that’s true.
But in investing, one of my most important tenets is that you should respect the trends that are in effect, in both the market and the individual stocks you own or are considering owning, and then make the best of those trends.
Trends are extremely important, because they tend to last longer than expected (just ask Janet Yellen about interest rate trends) and go further than expected.
So while reasonable people may differ on the question of how much immigration is ideal, I think the best course for these European countries hanging onto the past is to recognize the trend and take advantage of it.
And by take advantage, I mean devise a plan that gets these immigrants integrated into society rapidly. The worst thing these European countries can do is put up roadblocks to integration.
The minor downside of this flood of immigrants is that they do change a country’s culture, albeit slowly. Part of me—the vacationer—likes Europe the way it was, a museum of continental culture.
But another part of me—the investor—says change is a necessity. Stop change and you get Cuba (until recently) and North Korea. Embrace change, and you get the U.S., which is the home to a never-ending parade of high-potential growth companies.
When was the last time you heard about a great young growth company that was started in a European country?
Low Interest Rates
As everyone knows, the Fed last week chose once more to leave interest rates near 0%.
Do you see a trend here?
Has this trend already lasted longer than anyone expected (just as my tenet states)?
Do you want to bet that this trend will last even longer?
That’s what I’ve been betting all along (supplementing my trend analysis with an awareness of Europe’s struggle to grow), and so far I’ve been winning.
Furthermore, the fact that every investor is worrying about the next interest rate hike means that you don’t need to worry about it at all. It’s already been factored into the market!
But these continuing low rates do present a conundrum to investors looking for regular income. With the S&P 500 yielding 2.1% and one-year CDs yielding 1.2%, where do you go if you’re looking for more?
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Yours in pursuit of wisdom and wealth,
Chief Analyst, Cabot Stock of the Month