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What do Germany and China have in common?
While Europe struggles, Euro weakens, Euro rates remain unchanged at 1%, German economy appears as resilient to the global problems as ever, probably strengthened by the European Debt Crisis (ie weak Euro currency) and its strong export based industries. Who would have thought ten years ago that it will be German economy that will be benefiting from the low interest rates that are needed for Greece, Spain and Portugal.
In a similar way, but on the global scale China continues to produce, exporting on average some USD20bn a month more than it imports, yet while China is forced to spend this surplus on potentially very risky US debt, Germany shows little interest in bailing out Ireland and Greece, as specifically confirmed by Berlin yesterday with their fully understood no to Euro Eurobond - quiet possibly a single biggest trust of no confidence in Euro that they have shown so far (how bad things would have to be for me to refuse credit to my own child?).
Returning to China though, in the crude terms it is fair to say that the drug that is leading to some of the illnesses in the "developed world" is being supplied by China itself, where as on the other hand Germany having permanently fixed itself to the weak EURO is now significantly benefiting. How China wishes that it could lock the entire world into some SDR standard, just as Germany - albeit on the lower scale - has managed to do.
On the other hand, perhaps Spain, Portugal, Greece and Italy would have never got themselves into such high Debt to GDP ratios, should their interest originally be at the level of 10 - 20%, where they were in the 1990s. Something is telling me that the entire economic theory, including few Noble Prizes for Economics should be revisited.
So what next?
https://sites.google.com/a/financewithvision.com/vf/research/market-commentary/29-september-2010
https://sites.google.com/a/financewithvision.com/vf/research/market-commentary/12-august-2010
Our view - unlike that of many others - remains unchanged.
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