Bill Blain: "Germany Is On Fire: How Long Until Bundesbank Demands Rate Hikes To Cool It?"

Blain’s Morning Porridge – November 27th 2017, submitted by Bill Blain of Mint Partners

Germany - not solved and likely to prove an even larger problem..

“El castillo, le torre yo soy, le espada que guarda el caudal.

Another massive shopping day – Cyber Monday. Let’s see if the declining footprint into US malls confirms the end of retail and tomorrow belongs to Amazon, Ebay and Tencent? Suspect so… (Personally, I’m furious as I bought a new evening suit recently and picked it up Friday to discover even a proper West-end tailor was having a “black Friday sale”. I won’t be going back there again!)

Looks like I got Germany wrong.

My predictions Angela Merkel would find herself trapped into a difficult minority or a convention defying second election look increasing unlikely as she is now threshing out a “Grand Coalition” CDU deal with the SDP. My “bad”.The membership of both parties apparently support it. I read a single member of her own party who dared to call for her resignation was subsequently booed down by the mob of enthusiastic Merkelistas.

The market is welcoming the news as far more positive for Germany than the earlier Jamaica Coalition, and positive for Europe as a reinvigorated Merkel will re-engage with Macron’s France to solve Europe’s many problems with sprinklings of German good-fairy dust.

Huh. I’ll reserve judgement. I suspect the path to a German coalition will remain fraught and distracting for some time to come. Moreover, although a new coalition will happen, I reckon that far from being positive, Germany is going to be one of the big negatives pulling down Europe next year. Everyone is talking about how strong European growth is – it’s not; across the soft-underbelly of the continent it’s anemic at best with massive unsolved youth unemployment. Except for Germany, European growth is positive, but constrained and lethargic.

In contrast, Germany is on fire – witness last week’s confidence numbers and the recent growth numbers. How long before the Bundesbank is demanding rate hikes to cool the overheated economy?

I suspect that far from Germany engaging closely with Macron’s European vision, self-interest will see Germany diverge further from Europe as political necessity dictate a harsh German line on further austerity and reform demands upon the rest of Europe. Banking Union is a non-starter before NPLs are sorted. Higher rates to suit Germany spell slowdown in Germany’s European satellites.

Meanwhile, reading through the stock picker comments this morning, none of them sound particularly convinced on further upside from here, but all report strong sentiment indicators as the buying wave continues. My colleague Steve Previs notes the VIX hit 8.56 on Friday – a record low.

I’m still struggling to understand just how the market remains so convinced to the upside. Sure, we’ve got growth and it’s been a strong year, but that’s never sustained. Financial gravity dictates a sell-back at some point.

The numbers this year have been spectacular – according to my Macro economist, Martin Malone, through 2017 risk assets (stocks, and residential real estate) have delivered some $23 trillion of upside. That’s incredible! Meanwhile, monetary and fiscal policy, economic growth and global fixed income (risk free bonds) have delivered $15 trillion. Global GDP has grown $5 trillion to $80 bn. (The value of Global Residential housing has added $10 trillion to $210 trillion!)

What’s not to like? The IMF has update growth projections twice, and the EIU (Economist Intel Unit) upgraded growth on Saturday.

But these gains also highlight risks. Can the $13 trillion gain in Global stocks be maintained – and would a correction tumble global sentiment? Full employment (at least outside Europe) will prove inflationary (I’ve attached Martin’s inflation driver chat!). And there are just so many things visible on the threat board from Saudi, China, Brexit, Washington and Oil. Perhaps it’s the things not yet on the threat boards we should worry about – the no-see-ums, like the hi-yield bond bubble!


css1971 ludwigvmises Mon, 11/27/2017 - 07:04 Permalink

They're printing hundreds of billions to support them. Hell is for poor guy who's living on the margin in a crime ridden neighbourhood, barely able to afford rent, basics and tax. This was always the point. Same for the massive immigration levels to the UK. Wage suppression. People seem to think because something is an average it applies equally to all... Nope. The whole point of political meddling in the economy is to move wealth to the top. Wages get suppressed as the largest cost to business. Assets get inflated because they're held by the wealthy.

In reply to by ludwigvmises

julian_n Mon, 11/27/2017 - 07:12 Permalink

What is needed is for the Germans to pay more tax - more tax = less money to spend = cooling - just like the way interest rates cool only wider.Then, all the extra taxes can be transferred to Greece and the other PIGS.What's not to like?

fattail Mon, 11/27/2017 - 07:18 Permalink

They have to stop printing money to buy bonds first.  More likely they will just hedonically adjust their inflation calculation and poof, inflation will be gone.

Der Libertäre Mon, 11/27/2017 - 07:48 Permalink

Germany is in an keynesian experiment a la Krugman's "debt does not matter".All Germans work, the earnings are taxed and new debt (on Germans) is added to the government tax income - this large sum is given directly or indirectly to the "new Germans" which Merkel invites.  That is the "growth in GDP".The funny thing is that Germans are happy to work, although in reality they are enslaved by Merkel to pay for all the rest of Europe and the "new muslim criminal Germans", who steal rape and kill them as a thankyou. Oh there is extra growth in police costs and we need lawyers and judges and replacements for burnt down asylum houses. The raped German women need psychologists and the rapists from Africa as well for their terrible youth experiences - GROWTH!!!Oh dear we are growing us the ass off.But the wealth of the Germans does not grow and surely not the wealth of my dear real European fellows. Numbers grow. The German growth wonder is a ponzi sceme. It has nothing to do with wealth building. It is a tulip economy without blossoms.Stocks are rising because CEOs buy them with new money (which is extra debt) back. Bitcoin is rising, paintings are rising, and the German economy is rising - BUT ALL ON DEBT!!!And as Marc Faber likes to say: There is no free lunch. If you want to see reality in Germany - look at the BER airport in Berlin, which will never get ready and costs billions more and more (all GROWTH of course) or the train station in Stuttgart or or or...Germany is a destroyed country, governed by clowns paid by Soros - I am totally heartbroken, but the slaves are happy. “Happiness in intelligent people is the rarest thing I know.” ? Ernest Hemingway, The Garden of Eden

OverTheHedge Der Libertäre Mon, 11/27/2017 - 08:21 Permalink

Fifteen years ago, or more like 20, perhaps, at the beginnings of the Euro, I asked lots of people why Germany would want to tie their good, strong currency to a bunch of southern ne'er-do-wells. I fully understood why Italy, Spain, Portugal, and even Greece would want to be associated  with Germany, but I couldn't quite twig why Germany would want the same. How young and innocent I must have been. Now, I get it: Germany uses the soft currency countries to lower its own currency rate, and export the arses off everyone else in the entire world, all at the expense of the other Eurozone countries. Brilliant.Until, of course, it all falls apart. German currency rate MUST go up, Greek rate MUST go down. Oops. So we we either have rampant inflation in Germany (Verboten!) or deflation everywhere else (also forbidden, but in too many languages to count). I hope Draghi gets a big pay-cheque - he's going to need it.

In reply to by Der Libertäre

HenryKissinger… OverTheHedge Mon, 11/27/2017 - 08:48 Permalink

ALL acording to plan...nothing to see here, it is just a plan to turn europe into a future race of mongrel (((bolshevik)))-worshippers... check also:-KALERGI plan (miscegenation into low IQ brown mongrels) / also Hooton plan-George Soros leaks on the Merkel plan Merkel Plan Compassion and Control…-Kalergi/ Charlemagne Prize BEARERS list professional rapefugee smuggler operation… divörsity™ Lerner Spectre"I think there is a resurgence of anti-Semitism because at this point in time Europe has not yet learned how to be multicultural. And I think we are going to be part of the throes of that transformation, which must take place. Europe is not going to be the monolithic societies they once were in the last century. Jews are going to be at the centre of that. It’s a huge transformation for Europe to make. They are now going into a multicultural mode and Jews will be resented because of our leading role. But without that leading role and without that transformation, Europe will not survive." ~ Barbara Lerner Spectre…"Instead of destroying European Jewry, Europe, against its own will, refined and educated this people into a future leader-nation through this artificial selection process. No wonder that this people, that escaped Ghetto-Prison, developed into a spiritual nobility of Europe. Therefore a gracious Providence provided Europe with a new race of nobility by the Grace of Spirit...The man of the future will be a mongrel.  Today’s races and classes will gradually disappear owing to the vanishing of space, time, and prejudice. The Eurasian–Negroid race of the future, similar in its outward appearance to the Ancient Egyptians, will replace the diversity of peoples with a diversity of individuals."Practical Idealism - by Richard von Coudenhove-Kalergi… Must Perish: A Plan For Permanent Peace Among Civilized Nations"I believe that the Jews have a mission in life. They must see to it that the nations of the world get together in one vast federation. "Union Now" is the beginning of this. Slowly but surely the world will develop into a paradise. We will have perpetual peace. And the Jews will do the most to bring about this confederation, because they have the most to gain" Theodore Newman Kaufman…"it does not get any better than this" ...… Lego:…

In reply to by OverTheHedge

StarGate Der Libertäre Mon, 11/27/2017 - 13:06 Permalink

Must be something in the German gene code “Work, don’t complain”. It is said the Germans were chosen by the Cabal to be destroyed by both World Wars because it was known they were like cows that always give milk. Destroy them and they will dust off and rise again.

Which is exactly what happened in WWI and WWII.

This time may be different in that Merkel specifically invited in backward religiously oppressed people to suck the Germans dry while raping their women — in order to destroy Germany once and for all.

And the Germans obediently march to Merkel’s slaughterhouse.

In reply to by Der Libertäre

Der Libertäre StarGate Tue, 11/28/2017 - 03:51 Permalink

Agree totally. I left Germany and many other do. And most of these new expats are wealthy and educated. They carry their money and knowledge out.Absolutely its not a big number, but relatively - Germany loses from the top 10% and adds to the low 1%...Cycles tell us we have to expect a hard turn to the right - I wonder will it be a military figure (Germany has no working military) or an islamic leader (Germany has plenty of them). 

In reply to by StarGate

wholy1 Mon, 11/27/2017 - 08:29 Permalink

"Germany Is [will be] On Fire" LITERALLY - if comrade Merkel remains in power allowing the moosies to over-run the damn place making the Huns look like wussies.

Multi Fireman Mon, 11/27/2017 - 11:18 Permalink

"They never paid anything for the 2 wars they created neither ... although most others were forced to cough up economically". Stupid would be a compliment to you.Germany has been paying millions of dollars in reparations for BOTH (I and II) World Wars until a couple of years ago.… has paid an arm and a leg (billions of dollars) to the Jews and Israel, for the 200,000 to 300,000 Jews who died from Typhus and malnutrition after the Allies bombed the hell out of the supply lines of the Labour Camps. Oooooops, I'm sorry for the, at least, 160 million who were gassed to death while shitting diamonds, and converted into lampshades and soap.…

In reply to by Fireman

Fireman Mon, 11/27/2017 - 09:35 Permalink

Strange that so many posting here still imagine that it's "the Germans" or the krauts as the intellectuals here insist that are responsible for the gutting and butchering of Urupp. Get up to speed on the reality of the disease that is destroying's the same bunch of greedfilth that has turned USSA into a drug-addled, bleeding open sewer of a nation with the disparate mutt tribes at each others' throats. Mission accomplished as far as the khazarian bandits are concerned.How the Goldamn Sucks fucks put lipstick on the Greek pig, and then butchered it.…

supermaxedout Mon, 11/27/2017 - 09:40 Permalink

The good thing is, the  German economy is acting as a locomotive for the rest of the EU, except the UK unfortunately due to the Brexit..Look at the groth rates in Romania and Bulgaria. These beautiful places with a mld climate along the Black Sea are now slowly but steady coming back. This year with 7 or 8 % GDP growth.  These countries are starting to boom rightnow.  Great Foods, Great Wines, Great Climate, Great Women,  Stable currency based on the Euro.Europe does not need so much imports anymore since also within the extended Euroland (EU) borders there are minerals, metals and oil. So Europe wants to have the cake and eat it too. Poor England, good wines and olive oil is getting expensive because the Pound is plummeting plus the North Sea gas and oil is repalced by cheaper imports from Russia and soon from production within the EU (Greece).There is lots of untapped oil and gas in the ground of Euroland, but the governments do not give permission to extract it because the concessions are owned by US and UK companies only.Inflation is going to be the top theme for the UK economy in the years to come. There the rates have to go up to defend the Pound, because otherwise things do look very bleak.  But this is a big chance for the UK. The Pound is down so that production costs in the UK will become much cheaper. This is going to attract foreign investment from Euroland and China as well.  Unfortunately its taking a generation or so till this bears fruits so the joy about the Brexit is mixed with some heavy thoughts about the future of the UK.

Hkan Mon, 11/27/2017 - 11:00 Permalink

So many people predicted European union including southern Europe would turn into chaos. So easy to predict.So many power hungry greedy politicians turned a blind eye to these problems focusing only of a personal career.So now we are looking at this predicted chaos.So what is there to be done?Cutting loose southern/eastern part "roughly" from EU creating 2 or maybe 3 financial zones.Or kill EU permanently. 

Sudden Debt Mon, 11/27/2017 - 17:44 Permalink

Why would you cool down the economy when the currency you use isn't just yours?They can let it overhead and all of Europe will pay the price.Same for the Dutch, Belgian economies. Why would they cool it?Inflation will be worst for the poor countries.