Forecasts Revisited: Germany vs USA

Position: Short France (EWQ)

 

Germany’s Bundesbank raised growth forecasts for the country in its bi-annual economic outlook report today, calling for +1.9% this year (versus a previous estimate of +1.6%) and +1.4% in 2011 (versus +1.2%). For comparison, Bloomberg’s average GDP forecast for Germany is +1.8% in 2010 Y/Y and 1.7% in 2011.

 

We agree with the report that inflation levels will likely be moderate over the medium term, despite the Euro’s depreciation, and that exports may get a boost from a weak Euro and improving global demand.

 

However, we’re cautious on the contagion threats from sovereign debt default across Europe. As we’ve pointed out in our Q2 quarterly theme work, investment risk related to sovereign debt default or restructuring is not limited to Greece, but will spread to Spain, France, and Italy, much larger economies than Greece with significantly higher levels of debt exposure to European banks, especially in Germany.  

 

Flipping to the other side of the pond, we think that growth estimates for the US, like Germany, may be lofty.

 

At the Federal Budget Committee hearing on Wednesday, Fed Chairman Ben Bernanke forecast 3.5-4% GDP growth in 2011. For comparison, Bloomberg’s average GDP forecast for the US is +3.2% in 2010 Y/Y and 3.0% in 2011.

 

Keith wrote the following comments in response:

 

“So Ben Bernanke is not only forecasting a higher level of US growth than the Bloomberg consensus for 2011 but now more than a DOUBLE of the Bundesbank’s forecast for Germany in 2011!

 

With both pending US deficits and debt maturities demonstrably higher than Germany’s, we have a very hard time comprehending the world Bernanke sees coming in 2011. Much like our differences in forecasts versus Bernanke’s in 2008 this, unfortunately, remains a consistent divergence of analytical opinion.”

 

Tack on a jobless recovery that could run out of stem in 2H10 and headwinds facing the consumer coming down the pike – including housing – and it’s easy to see why Bernanke’s Bet might be a bit too aggressive.

 

Matthew Hedrick
Analyst


7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

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