Less than Good News from Germany

The elections are over in Germany and the new finance minister is making sobering statements about recovery. Germany is a major part of the European economy. With Italy limping and Spain bleeding, Germany’s statement is hardly welcome.

New York Times (October 25, 2009)

“Germany’s new finance minister, the veteran conservative politician Wolfgang Schäuble, moved swiftly Sunday to assert his power and tell his compatriots and the world that the finances of the largest European economy were dire and would take years to mend. … It was “utopia” to believe that the budget could be balanced during this legislative period that lasts four years, he said. … The programs announced for the new government included a €24 billion, or $36 billion, cut in taxes, which Mr. Schäuble had opposed as unrealistic given the parlous condition of state finances and the continuing uncertainty over the stability of German banks.”

The IMF recently published their forecasts for 2009 and 2010 growth for key countries and regions. Germany (as well as Italy and Spain) are lower performers in that list. France and the U.K are expected to grow faster than the other listed European countries, but not as fast as Japan, the U.S. or Canada.

click image to enlarge

Related funds: Germany (EWG), Italy (EWI), Spain (EWP), United Kingdom (EWU), France (EWQ), Europe (VGK), United States (SPY), Canada (EWC) and Japan (EWJ).

Perhaps Europe’s stock markets have gone too far too fast, as the U.S. market seems to have done when looking at prices from a fundamental valuation perspective instead of a momentum perspective.

Disclosure: We own SPY, VGK and EWC in some managed accounts.

Comments

[Moon Kil Woong:]

"France and the U.K are expected to grow faster than the other listed European countries, but not as fast as Japan, the U.S. or Canada."

Asides from Canada, I would assume that the only reason the US, UK, and Japan have such high estimates is that they are fooling themselves or will shrink in real terms but will show GDP growth via inflation and currency depreciation which is even worse than simply facing the bitter truth.

As for Canada, tons of natural resouces and a prudent paternalistic atitude towards banks coupled with strict enforcement has certainly proven that regulation in this sector trumps a lack thereof. If only the US can learn this lesson and stick with it, it would save themselves and the world a lot of headaches.

The day the US gave up on Glass Stegal is the day they signed up to ride the great depression rollercoaster once again. Disneyland should consider making such a ride. It's much scarier than all the other ones they have in the park. And apparently, a great many people are still eager to ride it. Otherwise, they would re-enstate Glass-Stegall and shut the ride down for good once again.

Oct 26 02:41 AM

[Albertarocks:]

On Oct 26 02:41 AM Moon Kil Woong wrote:

> As for Canada, tons of natural resouces and a prudent paternalistic atitude towards banks coupled with strict enforcement has certainly proven that regulation in this sector trumps a lack thereof. If only the US can learn this lesson and stick with it, it would save themselves and the world a lot of headaches.<

It's true that Canadian bank regulators have taken their jobs seriously. That's probably why we often hear our American friends describe Canada and Canadians as "boring".

The truth is that it has always been pretty difficult to borrow money in Canada. You have to prove to the bank beyond the shadow of a doubt that you don't need the money. If you can prove that, you can borrow some. That has led to a rather unexciting atmosphere especially for small business, so in that regard, the American perspective isn't that far off the mark. It's boring! Canadian banks are masters at gouging their customers as well, so in reality they aren't very popular in the eyes of the people, who consider their techniques something akin to constant raping. On the other hand the citizens are very appreciative that the banks themselves have a strict and impatient regulator who's not afraid to lower the boom on them. As a result the banks are very well behaved. "Boring" has proven to equate with "prudent".

Canada's vast natural resources are nice to have "in the bank", but when the world (especially the United States) doesn't need Canada's resources, the effect is felt heavily. Australia on the other hand isn't dependent upon the USA as a great place to sell goods. For all intents and purposes, the Australian dollar has already hit parity with the Loonie for that very reason. Both countries are very similar, their people are very similar (except Aussies talk funny, eh) and as the Aussies who are constantly present in Canada would vouch, the Canadian people are far from boring. Pass me a beer, eh.

As for the news from Germany, since it's the biggest economy in Europe, the election will even have an affect in the USA to a certain extent, and this time around, it might not be all that good.

www.baltimoresun.com/n...

Oct 26 03:19 AM

[Plant the s...:]

Exporting countries are struggling to replace the lost demand from the American consumer. Makes sense.

Nov 06 04:54 PM