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    Stalling German Economy Will Throw Gasoline on Eurozone Debt Fire

    Germany's economy is slowing dramatically, an unwelcome turn of events that will put even more strain on existing fractures in the European Union (EU) as it struggles to cope with its ongoing sovereign debt crisis.

    Last month a consortium of eight leading economic institutes slashed their forecast for German economic growth in 2012 by more than half, from 2% to 0.8%.

    That decision was validated yesterday (Monday) when Germany reported a 2.7% drop in industrial production for September. That's the biggest drop since February 2009, and triple the decline that analysts had expected.

    Worse, such a decline will make it even tougher for Germany, which has supplied the bulk of the bailout money that's prevented the Greek debt crisis from triggering a global financial meltdown, to play the role of hero in the European debt crisis.

    "This is very, very serious on a lot of levels," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "If Germany drops into recession the pressure on German banks will be extreme."

    Fitz-Gerald said that the banks, as well as the German people, most likely would want to "bring their money home" to address Germany's own economic needs.

    Of course, the loss of its greatest benefactor will have dire consequences for the Eurozone.

    Fitz-Gerald thinks the situation could even reach a point where Germany would opt out of the common euro currency to save itself.

    "Everyone's been talking about Greece leaving the euro," Fitz-Gerald said. "But Germany leaving is a real possibility, depending on how bad it gets. It's no longer inconceivable."

    Catching the Contagion

    Germany's economy is faltering mainly because of the problems plaguing its Eurozone partners. A report last week showed that orders for German industrial goods from other Eurozone members fell 12.1% in September following a 1.4% drop in August.

    "German industry has finally caught the crisis virus," Carsten Brzeski, an economist in Brussels for ING Groep NV (NYSE ADR: ING), wrote in a research note. "The financial turmoil and the economic slowdown in other Eurozone countries have obviously spoiled the appetite for goods made in Germany."

    Many economists now are worried that the entire Eurozone is heading into a recession, which will make it harder for countries like Germany and France to help struggling Portugal, Ireland, Italy, Greece and Spain (PIIGS).

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  • German economy

  • German Business Confidence Hits a Two-Decade High – Just One Day After Money Morning Rates the Country a "Buy" Just one day after Money Morning columnist Martin Hutchinson told readers to invest in Germany, that country's business-confidence index jumped to its highest level in 20 years. Berlin this week also raised its forecast for economic growth by a hefty half a percentage point.

    Hutchinson's report – complete with an investment recommendation – appeared in Money Morning on Thursday. On Friday, the Ifo Business Climate Index for German industry and trade advanced to its highest point since the early 1990s, the latest sign that the economy of this European linchpin is being fueled by strong domestic demand, and not just export growth.

    Earlier in the week – after Hutchinson had penned his column and made the call to "Buy" Germany, but a day before the article was actually published – German Economic Minister Rainer Brüderle said his country's economy would advance at a 2.3% clip this year, a significant increase from the estimate of 1.8% he made late last year.

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  • Investing in Germany: The Closed-End Fund to Buy Now U.S. investors tend to regard the European Union as a region of low growth, an area of the world that has little to offer to non-EU investors.

    For much of the EU, this is true (I've never found much of anything that's investment-worthy in Italy, for example).

    Overall, however, this anti-EU sentiment is pretty unfair.

    In fact, it's now becoming increasingly clear that even U.S. investors would be mad not to have some of their money in Germany.

    To discover the one way to profit on Germany's resurgence, please read on...

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