Richard Shaw's  Instablog

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 Your 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.

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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.

Richard Shaw
QVM Group LLC