Why We're Out of Germany (EWG)...

Markets appreciate and depreciate based on the confidence people have in them…

German expectations just came in at a 25 year low… and that’s the best story in Western Europe!

In sharp contrast to the improving confidence surveys we have been highlighting in the USA, Germany’s continues to worsen. The data released by the IFO institute this morning paints a bleak picture of sentiment among German business leaders with the primary confidence indicator reaching 82.6 –the lowest level the survey has reached since 1982. Ominously, the survey index specific to future expectations declined further to 76.8, suggesting that corporate leaders there will not be making capital investments in the near term (even if they should).

We sold our German position yesterday with the EWG ETF up +33% since mid November, and booked a modest gain. Although we continue to view the German economy as the strongest in Europe on a relative basis, we are taking a “wait and see” stance for Europe as a whole until the data changes.

The Euro’s 10th birthday is on January 1st, and the prospects for exporters have darkened materially ahead of what was supposed to be a devaluation party. The Germans can thank Hank the Tank and “Heli-Ben” for the surprise.

Andrew Barber

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