European stocks, this column has pointed out before, are not as cheap as they look. They have dipped in the past few years because of the sovereign debt crisis, but it is still reasonable to factor in a risk of more trouble to come from that quarter. And while European stocks look cheaper than US stocks, that is in large part because they always do: US indices are stuffed with high-technology companies that trade on expensive multiples, while European indices have a lot of dull dividend-paying utilities.

But there is still scope to argue for a European buying opportunity. What if European profits were to take off in short order? That hope is not as far-fetched as it sounds and has driven a flurry of interest in “l(fā)ong Europe”, as funds switch into EU equities at the urging of brokers.

We can construct such an argument first by looking at how European profits fare over the cycle. Over time, profits tend to revert to the mean, with each peak in the cycle higher than the one that preceded it. That is what happened in the US, where earnings were back above their 2007 peak by the end of 2011.