Germany: As Good As It Gets?

Position: Long Germany (EWG); Short Italy (EWI) and Euro (FXE)


The question is set: is German data as good as it gets? While we like Germany and are currently long the country in the Hedgeye Virtual Portfolio via the etf EWG, we think there is an increasing probability that the data could roll (mean revert) over the next months, especially as Europe remains mired in its sovereign debt crisis.  We’re starting to get a preview of this from the DAX and German PMI and confidence surveys.


Germany PMI Services crawled higher to 60.0 in January versus 59.2 in December, while Manufacturing declined to 60.2 in January versus 60.7 in December, according to Reuters’ preliminary reading. Importantly, the 60 line (see chart below) is a heavy resistance level on a historical basis that is worth calling out; equally, we see a similar “topping” trend from recent German confidence surveys, including the Ifo Business Climate Index (see chart), which rose to 110.3 in January versus 109.8 in December.


Germany:  As Good As It Gets? - ger1


Certainly German fundamentals have remained strong and benefitted from the Sovereign Debt Dichotomy in Europe last year and the early part of this year. Despite a heavy move in imports in November, Germany’s trade surplus stood at a healthy €12.9 Billion; unemployment is outperforming the region at a consistent 7.5% rate; and industrial production figures were positive at 11.1% in November Y/Y.  


However, we caution that we’re seeing inflation rise globally, and Germany is not immune to this trend, which could erode capital market performance. German CPI rose to 1.9% in December Y/Y versus 1.7% in November and PPI came in at 5.3% in December Y/Y versus 4.4%.


All in, we like Germany’s growth outlook. Our GDP forecast for 2011 is ~2.5-3%, versus the Eurozone at ~1%.  


From a quantitative perspective on the equity side we caution that Germany is flirting with our overbought immediate term TRADE line of 7,163 on the DAX; we’d buy our position back closer to its intermediate term TREND support line of 6761.


Germany:  As Good As It Gets? - ger2


European markets have seen short term gains this month on assurance from China and Japan that they’ll buy European bonds, and speculation that European ministers (including the Germans) will increase the European Financial Stability Facility (EFSF) pot.  However, long term we continue to expect underperformance for Europe’s fiscally strained nations, as we view the “band-aid” bailouts for Greece and Ireland (perhaps Portugal next) as short term fixes to longer term fiscal imbalances. Political instability in such countries as Ireland, Italy, Hungary (to name a few) will continue to stoke these imbalances.


We remain short Italy via EWI and the Euro via FXE in the Hedgeye Virtual Portfolio.


Matthew Hedrick


Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more