Teutonic Shift Ahead?

Rodney Johnson | Thursday, January 3, 2013 >>

In 2008 I almost bought a Mercedes. It was a two-year-old E500, black on black… very cool… very fast… and for my wife who has a sense of style as well as a lead foot.

While considering the car I did some research on what maintenance it would require and its general performance (I know, I’m a geek). While poking around the Internrnet I came across another E500 – same year, same color scheme – that was for sale.

The owner stated the car was immaculate, except for a cracked plastic button that controlled the air conditioner. “This was not a problem,” the owner explained, “because you could easily get a new button from Mercedes for $800.” Yes, $800. Not $8, or even $80. $800!

I did not buy the car.

But what I know from German export figures is that lots of other people were indeed buying these cars… and at a record clip.

The buying slowed in 2009, but has since rebounded and now has driven German exports to record highs, at least for the moment…

Exports are a mainstay of the German economy, accounting for roughly one-third of GDP. It’s really nice when people in other countries buy that much of your stuff, because it means you can better weather domestic slowdowns. Unfortunately, it also means that when foreigners quit buying your stuff, or at least quit buying it at the same pace, it can cause a domestic slowdown. That’s bad.


Over the last several years we have marked the dramatic slowdown in the U.S. and around the world… and then the reflation of assets that is the handiwork of all major central banks. This reflation, created through the massive printing of dollars, pounds, euros, yen, francs and yuan (in terms of credit), has simply put off the day of economic reckoning around the world. It has not avoided it.

Now the adrenalin rush created by such infusions is wearing off. The world is slowing again, in spite of continued central bank and governrnment efforts. The affects will reach all cornrners of the world, even the one that speaks Deutsche.

The mark of a slowdown is falling consumption. A country will experience a drop in aggregate demand and then look for the quickest and easiest way out. Germany (and the U.S. for that matter) gets a check mark on both counts.

The next thing on the hit-list is to devalue one’s currency in the hopes it will drive down imports and drive up exports and bring in foreign currency. This, again, is already being done, as you can see with a quick glance at the actions of central banks around the world.

After such options are exhausted, the only ones left are the painful ones: cutting wages, raising taxes, trimming benefits. All of these lead to even more reductions in consumption. This is where countries that rely heavily on exporting take a huge hit.

And that brings me back to Germany…

Germany is seen as the engine that is keeping the euro zone in motion. However, this engine relies on the fuel created when Japanese, Chinese, American, French and all sorts of other foreigners buy their goods… specifically cars.

As the world goes through another slowdown, the exports of Germany should decline, pulling the country into recession.

Consider the economic forecast in each of these countries… none of them is expected to have a bright 2013. At best there is a call for muddling through, and we think that view is optimistic.

Currently the German stock market is a few percentage points from its highs of the mid-2000s. This march higher comes as its banks retrench, its large debtors (like Greece) show no signs of making good on their loans, and its largest clients around the world face a difficult future.

It is entirely possible that the German economy is about to shift into a lower gear and take the domestic markets with it.

By the way, my wife now drives a Volvo C70 with a retractable hard top.


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I got a good laugh myself when Rodney first told me his story of the $800 plastic button. It reminds me of similar gripes my dad had when he drove a BMW – the parts were just ridiculously expensive!

Rodney Johnson

Rodney’s investment focus tends to be geared towards trends that have great disruptive potential but are only beginning to catch on to main-stream adapters. Trends that are likely to experience tipping points in the next 5 years. His work with Harry Dent – studying how people spend their money as they go through predictable stages of life and how that spending drives our economy – helps he and his subscribers to invest successfully in any market.