Weak end readings

1. German economy expected to grow, some say even by more than 2%. Unless you read Ambrose

2. Call that perfect timing, perhaps: after saying Yes (with thumb screws on) to the EU constitution Lisbon treaty Ireland may now have to say „Yes, please came in“ to the IMF.

3. When a listless female chancellor and a gay mono-lingual slime boy fondle each other during coalition talks you need to bring out morsels of good news, such as that the German export economy is going to grow (is it 1.2 or rather a good 2%, heck the press prints it). This is Zero Hedge’s take:

Yet total capital inflows are still not enough to support the dollar. Europe is now locked in a vicious cycle whereby its export economy will continue suffocating, resulting in a weaker dollar, a stronger euro, a failed asset inflation scheme (sorry, Bernanke can’t be everywhere at the same time), even less exports, an even higher euro, and yet another isolated bubble, however with totally different dynamics than the U.S. version. Eventually, every country will be forced to consume just what it can produce, with viable European exporters going the way of the dodo, courtesy of Bernanke spreading the Moral Hazard Doctrine, eradicating the U.S. middle class, killing the dollar, and inflating the latest stock market bubble merely to bail out his Wall Street entourage.

4. Max Keiser making hid point very clear about the corp. bank gangsters.

5. The stock market in a vid.

Germany’s pre election economic upswing

The German press went bananas over the 0.3% GDP gain reported some weeks ago. This is the pre election number and there will be some sobering post election accounting.

Still, even in these pre election times there are some numbers that put the rather pathetic export gain into perspective. That is individual consumption.

As Retail Sales Continue To Fall Domestic Demand Remains Weak

Domestic demand remains very weak, and retail sales dropped for a secondconsecutive month in June as rising unemployment prompted consumers to cut back their spending. Sales, adjusted for inflation and seasonal factors, decreased 1.8 percent from May when they fell 1.3 percent. From a year earlier, sales decreased 1.6 percent. As can be seen in the chart, German retail sales have been in decline since 2006.

The  chart shows clearly the impact the VAT increase in 2006 to 19% had. It is a given that the German gov will increase VAT yet again which will further impede any real recovery. Add to that a rise in unemployment in winter 09 and first half 10.

It is fair to say that domestic demand will not be the basis on any recovery in Germany. Germany is is in a depression, the .3% GDP rise was based on inventory filling, watch for the real stats coming out after Sep 24.

Bottom line, this is as much of a statistical recovery as anything else at this point. After the election the new German government will need to address fiscal deficit concerns, undermining the fragile growth, and my current forecast is for a further 0.5% contraction in the third quarter, and a 7% fall in 2009 as compared with 2008.

Germans happy to pay for 0.3% growth

The recession is officially over because Germany eked out point three percent growth. Never mind that there is a boring election creeping, some good spin will come in handy and that this number can easily be revised months later.

Giving it the benefit of the doubt, this miniscule rise is based on a very deep slump, deeper than the US of A’s. But why is this rise so surprising?

Cash for Clunkers. Germany’s two-fer, keeping autoworkers busyworked and and consumers spending like the missiles are already flying. What better way to perpetual motion the system than using taxpayer dollars to subsidize the purchase by taxpayers of taxpayer dollar produced automobiles?

„Invest in Green.“ (That is, make everything more expensive to bring the relative cost of „going green“ in line with the umwelt schmutzig alternatives and create thousands of busywork jobs for unskilled labor installing government certified insulation panels).

Then there is the dazzling orator – snore – German ultra bore Mr. Steinmeier who is happy to settle Germany with a bill of 50 billion Euros for green investments. Among the program are energy efficient busses and, fasten your pants, energy efficient computers. This is supposed to create 4 million jobs, says Mr. S. although the German solar industry is in deep trouble.

But back to the 0.3% growth story. Now Germany is known for its machinery and tools industry. So they produce the stuff in A and then ship it to B. Great but why is it that Hapag Lloyd is in its deepest slump ever? How do the Germans get their goods transported? You may as well read the Baltic Dry Index.

Leading shipping line operators are on the verge of bankruptcy, as are shipping banks and charter shipping companies. The industry, once one of the biggest beneficiaries of globalization, now threatens to turn into one of its chief casualties.

„There has never been a crisis like this before,“ says Reinhard Lange, the CEO of Kühne + Nagel, the world’s largest sea-freight forwarder. Shipping line operators alone are expected to suffer combined losses of $20 billion in 2009.

Drewry Shipping Consultants, the world’s top consultant to the industry, warns: „The industry is looking at the edge of a deep abyss.“

Still, all of Germany’s QE had to be working one day and it is showing results. Yet Germans will be surprised at what cost to them when they wake up in 2010: gradually rising inflation (there will be no steep rise), rising direct and indirect taxes, VAT at 23%, a total falloff in car purchases, rising unemployment … and in 5 years the next German car crises because they have just too many car companies.

Weak end reads

1. The Opel saga continues to bore because German politicians still believe they are deciding the fate of this doomed car company.

Don’t believe everything you hear, says J. Smith, group VP of GM.

2. Secret Apple app rejection code revealed (TC)

3. Rejoice all Windows 7 fucktards. Here is your personal upgrade chart. Jerk off before upgrade.

4. Oh those Goldman bitches (H/T GS666)

5. Germany’s export dependence

The presumption that what is good for exports is good for the economy partly explains why consumer spending in Germany has historically been weak. Its typical response to a faltering economy is to trim manufacturing costs, including wages, in order to keep exports keenly priced against other countries.

German government sounds ever more desperate

Steinbrück’s (futile) threat to force banks to loan money shows the desperation about the export-dependent German economy. Add to this the push and shoves between Germany and France, in short the dilemma that Europe is, and you have all the ingredients to have Japanese-style stagnation for years to come.

The Europeans have a bigger task and they operate in a more difficult political environment. The economic policy framework of Europe’s monetary union only barely succeeded during a normal economic cycle, during which its most important framework of policy co-ordination, the stability and growth pact, was dislodged. The policy framework proved utterly dysfunctional during this economic crisis, as leaders like Angela Merkel or Nicolas Sarkozy have resorted to their nationalist instincts. It would take an even bigger crisis for them to agree on a joint resolution strategy for the banking system.

America will get out of this first for various reasons. One of them letting the dollar fall against the Euro. This will will hurt especially the German export industry.

I would expect the US to have something approaching a genuine recovery at some point in the next decade, but probably not in 2010 or 2011. Judging by the co-ordination failure at the level of the European Union, the persistent failure to deal with the continent’s 40 or so cross-border banks at European level, and in particular Germany’s inability to sort out its toxic-asset contaminated Landesbanken, the economic prospects for the eurozone are infinitely worse.

Blaming the German banks of not lending is nonsense; it rather shows that banks do not believe in lending to companies they do not deem creditworthy. Keeping dead companies alive as Germany tries to do will only harden the banks stance.

The problem is that the trillions of dollars and euros in liquidity are not getting through. There is no point in blaming the banks. Mr Trichet appealed to the banks to behave responsibly. Over the weekend, German politicians also made desperate and implausible threats against the banks unless they increased lending. Not only is this a waste of time but the banks are, in fact, behaving responsibly when they deny credit to customers whom they judge to have lost creditworthiness.

Germany needs to come clean with the true situation of its banks which clearly have a lot of shit on their books.

Liquidity injections by a central bank, however large, cannot restore health to the banking sector in a sufficiently short period of time if the underlying problem is lack of solvency. Nor do accounting tricks that allow banks to freeze their bad assets in bad banks without any resolution mechanism, such as the German law passed last week. And since the European economies are far more dependent on the banking sector than their Anglo-Saxon counterparts, the need to sort out the banking sector is even more urgent there.

Full Münchau article here

Addicted to exports: Germany

Michael Jackson’s daily drug cocktail was impressive. Germany’s drug addiction is moderate in terms of varieties, huge in terms of its single-minded addiction: E.X.P.O.R.T.S.

And as P. Kedrosky rightfully points out, can you come up with any blockbuster investion out of Germany?? Adding the 37th airbag to a car does not count.

(H/T P. Kedrosky)

Weekend reads

1. Germany: The credit is not flowing. (FT)

Anton Börner, BGA president, told the Financial Times that “for middle- and long-term credit we already have significant difficulties”. Even for short-term credit, he expected banks to “exert massive pressure on borrowers”.

2. Again Germany and this is no surprise: The 13 billion Euro (in German) strong infrastructure economy kick-in-the butt-wake up investment program does not get out of the blocks. That is small wonder as it takes a long time until it gets actually to a shovel and an earth mover.

3. Sir Allen Stanford: What, me guilty?? (VF)

4. Michael Jackson-o-rama (CW) RIP

5. Get MS shit at a discount. (FT)

6. Facebook and the love for Asian pussy. Zuckerberg’s hand on the leg of her …

7. Now that’s adventure tourism: pirate hunting (H/T Dealbreaker)

German economy strictly based on morals

Germany will make it unconstitutional to take on debt. That’s like no sex without marriage.

From 2016, it will be illegal for the federal government to run a deficit of more than 0.35 per cent of gross domestic product. From 2020, the federal states will not be allowed to run any deficit at all.

The intention is noble and redeeming but somewhat a tad over the top. Especially in light of the coming years where investments will no doubt be crucial. Wolfgang Münchau sees two possible scenarios:

I can foresee two outcomes. First, Germany might end up in a procyclical downward spiral of debt reduction and low growth. In that case, the constitutionally prescribed pursuit of a balanced budget would require ever greater budgetary cuts to compensate for a loss of tax revenues.

To meet the interim deficit reduction goals, the new government will have to start cutting the structural deficits by 2011 at the latest. There is clear danger that the budget consolidation timetable might conflict with the need for further economic stimulus, should the economic crisis take another turn for the worse. There is still economic uncertainty. Bankruptcies are rising, and the German banks are just about to tighten their credit standards again. I simply cannot see how Germany can produce robust growth in such an environment, not even in 2011. If that scenario prevails – as I believe it will – the new constitutional law will produce a pro-cyclical fiscal policy with immediate effect.

One could also construct a virtuous cycle – the second outcome. If Germany were to return to a pre-crisis level of growth in 2011, and all is well after that, the consolidation phase would then start in a cyclical upturn.

There is the good chance that this will collide with France’s view on how to view deficits.

Either of those scenarios, even the positive one, is going to be hugely damaging to the eurozone. In the first case, the German economy would become a structural basket case, and would drag down the rest of Europe for a generation. In the second case, economic and political tensions inside the eurozone are going to become unbearable. Over the past 25 years, France has more or less followed Germany’s lead at every turn, but I suspect this may be a turn too far. Deficit reduction has not been, nor will it be, a priority for Nicolas Sarkozy, the French president. On the contrary: he has listened to bad advice from French economists who told him that budget deficits are irrelevant, and that he should focus only on structural reforms. Budget deficits and debt levels matter in a monetary union. But a zero level of debt is neither necessary nor desirable.

Germans are loath towards credit cards and some feel deeply prickly about debt. You just avoid it, it’s bad for your personal standing and stuff.

While the balanced budget law is economically illiterate, it is also universally popular. Average Germans do not primarily regard debt in terms of its economic meaning, but as a moral issue. Der Spiegel, the German news magazine, had an intriguing report last week on the country’s young generation. One of the protagonists in its story was a young woman who had borrowed a little money to set up her own company. The company turned out to be a success, and she had began to repay the loan. And yet she said she had not felt proud of having taken on debt.

This general level of debt-aversion is bizarre. Many ordinary Germans regard debt as morally objectionable, even if it is put to proper use. They see the financial crisis primarily as a moral crisis of Anglo-Saxon capitalism. The balanced budget constitutional law is therefore not about economics. It is a moral crusade, and it is the last thing, Germany, the eurozone and the world need right now.

Weekend Reads

1. „Germany shock absorber of the world“ by ifo prez H. W. Sinn (German lang.)

2. How to piss properly. Don’t leave home without reading this first.

Germany’s economy discovers deep-rooted shoots

Based on its unsustainable business model of trying to be the export godzilla of the world Germany’s indicators clearly show that ‘green shoots’ are rooted deep. See this graph:

So the green shoots are currently around -25% and shoots indeed do start deep in the ground.

Output of investment goods such as machines slumped 6.4 percent in April from the previous month, and by 29.6 percent year on year (following a 23.9 percent drop in March). Production of intermediate goods fell 1 percent and manufacturing output slipped 2.9 percent from March. Output of consumer goods rose 0.5 percent in April from the previous month. Energy production was up 5.8 percent and construction output rose 0.5 percent.

W. Munchau sees Germany’s prospects gloomy.

Global current account surpluses and deficits add up to zero. So if everybody is saving more, who will be dissaving? It will have to be the corporate sector in the countries with large net exports. So if the US, the UK and Spain are heading for a more balanced current account in the future, so will the surplus countries.

The current account balance can also be expressed as the sum of the trade balance, net earnings on foreign assets, and unilateral financial transfers. In several countries, including the US and Germany, the gap between exports and imports serves as a good proxy for the current account. A fall in the trade deficit in the US, UK and Spain implies a fall in the combined trade surplus elsewhere. And as some of the shifts in the US and the UK are likely to be structural, this will have long-term effects on others. In particular, it means the export model on which Germany, China and Japan rely, could suffer a cardiac arrest.

When it comes to Germany you might argue there is a lot of intra-european trade going on. Sure, but:

What about the argument that a large part of German exports goes to the rest of the eurozone? This is true, but there are imbalances within the eurozone too. Spain has been running a current account deficit of close to 10 per cent of gross domestic product. As that comes down, so will Germany’s equally unsustainable intra-eurozone surplus.

And Munchau gives unintentionally some investment advice: the Euro will gain against the buck. My personal guess is the Euro will go over 1.60 to the dollar and even for a brief period cross 1.65.

Through what mechanism will this export-sector meltdown come about? My guess is that in Europe it will happen through a violent increase in the euro’s exchange rate against the US dollar, and possibly the pound and other free-floating currencies.

With aggressive and continued QE and subsequent exchange rate devaluation of the dollar the US will invest, export and consume (not in the previous sense, though) itself out of this economic crises. I am absolutely bullish on the USA.

When it comes to Europe – BTW the UK will be the first out of the crises – and especially Germany I concur with Munchau.

If my predictions prove correct, Germany will be down and out for a long time with a huge and still unresolved banking crisis, an overshooting exchange rate and lower net exports, presided over by politicians who panic about domestic inflation. This will not end well.