Confidence and Clunkers Working in German Favor

We have had a bullish bias on Germany for most of the year. Today the ZEW Center for European Economic Research released its sentiment reports for September, and as we’ve seen over the last months (see chart below), this month’s reading shows an improving trend in the outlook  for Europe’s largest economy.  Its index of investor and analyst expectations, which aims to predict 6 months ahead, rose to 57.7 from 56.1 in August and current conditions rose to -74 from -77.2.  While future expectations came in under a forecast of 60, we believe the improvement rhymes with slow and steady growth for the remainder of the year and into 2010. Additionally, two economic institutes raised their forecast on the German economy today. The Halle-based IWH Institute said the economy will expand 0.9% in 2010 after predicting in March that it would shrink 0.2%, while the Essen-based RWI institute raised its forecast to 1.2% from a previous estimate of +0.2%.


Confidence and Clunkers Working in German Favor - a6


Secondly, the European Automobile Manufacturers’ Association said today that European car registrations, a measure of sales, rose 3% in August from the previous year, a gain on the previous month’s +2.8% reading. The data suggests that sales rose for countries that issued auto rebate programs (see table below). Germany led the charge at +28.4% annually in August, followed by gains in Italy (+8.5%), France (+7%), UK (+6%). To better quantify Germany’s August sales figure it’s worth noting that the German government set aside some $7 Billion for its program (Abwrackpraemie) that expired earlier this month, more than double the $3Billion the US allocated. Further the data clearly shows the lack of demand in Eastern Europe, a region that has been severely crippled under a cocktail of Western financial leverage and depressed demand from the Eurozone, its largest trading partner.


Confidence and Clunkers Working in German Favor - a3


Europe’s largest automobile manufacturer Volkswagen reported today a growth of 9.5% in August, citing a rise in demand domestically and in China and Brazil, and noting uncorrelated global demand with “very different market trends in various regions of the world.”  As we’ve stressed, China is an important and growing market for Germany.  Volkswagen said it delivered a third of its passenger cars in August to China alone, a rise of 69%.


We continue to like Germany as a slow and steady growth play, which we’ve traded via the etf EWG. With European and global fundamentals improving, we believe demand for German exports will buoy growth. Yet we remain cautious that much of the improvement, through stimulus measures such as the cash for clunkers, is now rear-view and short-time worker contracts, which have held unemployment steady, will be expiring coming into the end of the year.


Matthew Hedrick


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more