German GDP Outlook Cut

The German Bundesbank admitted to a decelerating economy, and reported real GDP growth would slow in 2013. The admission of weakness in Europe’s key economy lends to concern of the contagious nature of the euro region’s financial and economic crisis. As a result, stocks across the euro region were lower, as the news also weighed on U.S. futures in the early morning. The SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and Powershares QQQ (Nasdaq: QQQ) are pressured by the report, though the day’s jobs report will ultimately dictate direction.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

German GDP

The German DAX Index was down 0.2% just after 7:00 AM ET, and the EURO STOXX 50 Price Index was off 0.3%. Key German securities like the iShares MSCI Germany Index (NYSE: EWG) were likely to open lower as well. Deutsche Bank (NYSE: DB) shares were trading lower in Germany to start the day, and my expectations are low for a short list of important German shares.

German Based Stock	Premarket Trading (7:30)
Volkswagen AG (OTC: VLKAY)	NA
Deutsche Bank (NYSE: DB)	-1.3%
SAP AG (NYSE: SAP)	-0.1%
Siemens AG (NYSE: SI)	NA
BASF (OTC: BASFY)	NA
Bayer (OTC: BAYRY)	NA

The German central bank said that soft euro region economies combined with global economic slowdown are weighing on Germany’s economic production. The Bundesbank reported real GDP would likely slow to a growth pace of 0.4% in 2013, down from its June forecast for 1.6% growth. The bank also reduced its 2012 expectations to 0.7% GDP growth, which was down from its previous estimate for 1.0% growth. The bank colored its gray forecast with a note that: if all should go well with the euro region bank and sovereign debt crisis, then growth could revive to a pace of 1.9% in 2014.

Investors will and should have little faith in hopeful long-term forecasts during a period of declining current estimates, as in my experience, cuts to forecasts in such periods are more likely than the realization of them. The same goes for stocks in periods of declining EPS estimates, based on my personal experience and study as an analyst.

Thus, investors might reconsider early bets on recovery. Ahead of the ECB In early September, I noted European stocks likely marked near-term bottom, and I said they should experience a short-term recovery. If you think that was something, see my June article discussing a super relief rally for Greek and European shares, and look at the charts.

Chart by Yahoo Finance

At this point, I see that recovery tested and would lighten or exit positions even as European central banks discuss adding more support. The shares of relative securities are much higher since our articles authored in September and June. However, if recovery is pushed forward now, then investors could reconsider the securities, especially if estimates and operating results are hampered near-term. Depending on the importance of tax considerations, sales of such securities could begin today or in earnest in January.

European ETF	Change Since August
iShares Europe (NYSE: IEV)	+8.4%
iShares Germany (NYSE: EWG)	+12.4%
iShares France (NYSE: EWQ)	+10.2%
iShares U.K. (NYSE: EWU)	+5.1%
iShares Spain (NYSE: EWP)	+11.4%
iShares Italy (NYSE: EWI)	+8.7%
Global X FTSE Greece (NYSE: GREK)	+32.6%

I conclude and reiterate that pressure remains on American shares as well, due to the apparent deterioration in the important German economy. However, the U.S. market will be completely dependent today on the data from the Labor Department. The news regarding employment is not expected to be healthy, but pundits have Hurricane Sandy to place the blame upon for now. On net, at this hour, I would take risk off.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Merkel Hypocrite!

Germany’s Finance Ministry warned in a monthly report Monday that Europe’s largest economy would mark a significant slowdown in the fourth quarter. In an attempt to mitigate the economic issue, German Chancellor Angela Merkel last week suggested opposing German political party members stop blocking her proposed tax cuts. Merkel indicated that the German economy needed economic stimulus, and that tax cuts should help domestic economic growth by giving her countrymen more money to spend. Likewise, she is promoting pension contribution cuts to help German prosperity, and advising companies to give more lucrative pay increases to their employees. Sounds sensible no?

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Now imagine the perspective of a Southern European onlooker. The hypocritical divergence of the two directives being issued to the various groups must fill Greeks with disgust. European leaders, at the nudging of Germany, have pushed the complete opposite strategy for Greek and Spanish prosperity than those being promoted in Germany today. So which is the true path to prosperity, the one being promoted by the Germans for the Germans or the one being promoted by the Germans for the Greeks?

Obviously, the issue is more complex than that, given the debt and management problems of the Greeks versus the smooth operating German economic machine. The Greeks must adhere to the prescription of their emergency creditors in order to receive desperately needed funds. Still, why does the economic prescription contrast so sharply to the pill being recommended by Merkel for the Germans? It is after all for the same ultimate purpose, the betterment of the economy, and in Greece’s situation, the ensuring of debt repayment.

Perhaps the Europeans have it all wrong with regard to Greece, and instead of ensuring the repayment of their loans, are instead burying their money into a deep depression with the ruins of Ancient Athens. That’s what the esteemed student of the Great Depression now running the American Federal Reserve might suggest, given Ben Bernanke’s comments to U.S. legislators over the years. He would tell you that it was precisely the mistimed budget mindedness of American leaders that led our economy into the Great Depression. It turned an average recession into a once in a generation economic struggle.

A few voices, including from yours truly, have from the beginning warned that growth spurring initiatives for Southern Europe should precede and outweigh a graduated austerity program, and that Greece’s repayment program should have extended terms. We have been happy to see Europe more recently acknowledging the burdensome drag of its initial repayment demands.

Still, while Greece’s public entities reduce workforce, draw back pension benefits and raise taxes, they are constraining the Greek economy. This is something that the Germans can no longer dispute, given their own domestic policy push, though to be fair, Merkel’s opponents are calling her demands irresponsible. The repercussions of the actions in Greece are pushing away private industry, illustrated recently by the move of Coca-Cola Hellenic (NYSE: CCH), which is relocating its headquarters to Switzerland and relisting its shares in London. Merkel does not want to trigger that same sort of flight in Germany, but is asking for companies that face no foreign competition to pay an alternative energy surcharge from which they have long been exempted.

What drives German stocks, like those found in the DAX and the iShares MSCI Germany Index (NYSE: EWG), likewise drives Greek stocks, like those found in the Global X FTSE Greece 20 ETF (NYSE: GREK). For that matter, it’s what drives the iShares S&P Europe 350 (NYSE: IEV) and the SPDR S&P 500 (NYSE: SPY)! The rules of economic prosperity are indifferent to the language spoken or culture found within a given country; they are universal. Thus, the economic policy prescribed to Greece and Spain should be the same as that being recommended for Germany, or at least should stress growth over austerity.

It is ignorant closed-mindedness and ethnocentricity which has kept the groups of people within the euro-zone from fairly and effectively resolving their crisis together. The problem is most clear when the leaders of Europe go home to seek approval of international plans. We understand the cost of this issue through the observance of the most effective action taken to-date, which in my opinion was the brave plan of the Mario Draghi led European Central Bank (ECB) to support sovereign debt in a sterilized manner. When Europe can accept its unity on the streets of Brussels, Paris, Berlin, Athens and Madrid, then it will have the resources and the will to fulfill its brave dream. On that day, it can likewise stop lying to the Greeks and the Spaniards about what’s best today for their economies.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.