On Friday, German reported some very nasty economic news—their economy fell at a 16% annualized rate during the first quarter of 2009. An excellent summary of the key problems now facing Germany and the Eurozone is provided by Anatole Kaletsky, an economic commentator for the UK Times and resident guru for GaveKal. We have provided the key points below for your perusal[our emphasis]:
Maybe we are just sticklers for detail. And maybe it’s simply rear-view mirror stuff we are worried about. But we keep having trouble with the use of the term “optimism” when two of the world’s biggest exporters—China and Germany—aren’t doing what they do best--export.
Unemployment continues to rise across the globe. But not to worry say the economists; that’s a lagging indicator don’t you know! Hmmm…
Let me quick say that stocks and the US dollar have turned this week. Sure, I may have been a few days early in expecting the move; but in watching the reaction to the news so far this week, risk-appetite has a few extra days (at least) to go hungry. As it pangs, we’ll find out whether a resumption of investor confidence and growing risk-appetite is in order ... or whether potential renewed economic and/or financial concern surfaces to significantly pressure risk-bound investments.
One of our main premises which our long-term dollar bull market called is based was on the core belief US dollar-based credit would not again flood the global to any degree we saw during the last dollar bear cycle (2001-2008), which incidentally marks the third time in a row the dollar bear market (if we are right) was around 7-years, maybe something biblical there eh? [No apologies to the Christopher Hitchens’ crowd]
Jack noted it yesterday: the consensus anticipated a sell-off in stocks. I certainly didn’t disagree with all the headlines – indeed, over the last two weeks I’ve been harping on the potential (read: need) for stocks to sell off. But I do agree with Jack’s point that it’s not always a good thing when you find yourself in the same predictive position as mainstream analysis.
Either way, the market talked about the potential for a sell-off yesterday and that’s exactly what we got. Not surprisingly the risk dynamic remained in play – the commodity-dollars sunk; the European currencies forfeited ground to the buck; the Japanese yen took solace in the risk-averse money flow.
