HOW Exchange (for dummies)
Government policy does not support the private sector, but may change in the 2017 election.
Very strong external sector with the large and growing balance of trade and capital flows.
Foreign direct investment a strong vote of confidence from the outside world.
This is another in a series of articles that makes a fundamental analysis of macroeconomic sectoral flow of economies of major countries around the world.
The purpose of the review is to see if the local stock market is worth investing via ETFs ETF Funds are available to all investors, even for non-residents or those who can not trade in the stock market in that country directly.
In this article we look at Germany from the perspective of sectoral flow analysis to see if the private sector, containing the local stock market, is to get the support he needs in government and external sectors to continue March up.
The details of the method used to analyze these opportunities are available in the sectoral analysis section later in this article.
The first port of call is the ETF page at Alpha Research and a look at the ETF and country performance.
The picture is from early December 2016 as time positions have changed slightly as shown in the table.
Most countries on the list are in the red and have no interest, although we might learn from them what to avoid, as could the governments and politicians However, investors we will leave that for them .
Since the beginning of this series of articles, Germany has risen from 27th to 22nd on the list is Germany up 18 in the last 12 months.
One can find the iShares MSCI Germany ETF NYSEArca EWG top of the list of ETF SA, and the current financial situation is as follows.
Rabobank provides a good summary of the fiscal stance of Germany.
The German federal government has made a budgetary surplus in 2015 for the second consecutive year 2015 is also the first year that all levels of the recorded surplus German government increase the budget surplus government to 0 7 Figure 5, the government has fiscal space to stimulate the economy by investing in obsolete digital infrastructure and education.
It could also be an opportunity to introduce reforms in the labor market extending the retirement age, the integration of women and immigrants into the workforce and the services sector sclerotic As we have said before it could increase the potential for growth in Germany by increasing productivity growth and labor force effects positive impact that fiscal stimulus would have on other countries in the euro area is important and, as we simulated June Unfortunately, there is little reason to suppose Germany will change its course after years of complacency and lack of reforms, particularly in the next federal election in October 2017 and a political obsession with zero black- ie a balanced budget, the government also will use part of its fiscal buffer to accommodate new immigrants.
Draining the private sector funds is hardly an achievement and certainly of no use to the people or the extract made some good points on what Germany might do with the positive fiscal policy and also his obsession with balanced budgets .
The table below shows the long-term fiscal balance.
The graph shows the budget surplus rose to a recessionary and was in that position since 2014 Unnecessary destruction of financial assets from the face of the longest recession since the Great Depression.
The following list shows the budget value and a measure of the amount of money is added or drained from the private sector.
The graph shows that over the very long time, the government added net the private sector and has been proactively influenced useful.
Over the past 10 years, this position has largely changed except for acute years of structural budgets forced by the deployment of automatic stabilizers in response to the global financial crisis after 2007, the budget was mostly recessionary over the great recession the opposite of what he should be.
The ten-year period corresponds to the reign of Angela Merkel and the CDU neo-conservative politicians of all, a coalition with the more conservative FDP until the PLR has become so unpopular that disappeared at the next election.
The CDU had then to form a coalition with the SPD This would be the same in America as if the Republican Party formed a coalition with the Democratic Party and yet sharing possible power in America, the standard in Germany This is the second time depending on the budgetary situation is even more oppressive than the first.
At present, about 20 billion per quarter are drained from the private sector by the government.
With the public sector mostly useless, Germany needs a positive external sector to offset the difference.
The German private sector is saddled with some of the highest taxes and most complex in the world.
One can understand why they might not want to live or run a business in Germany, there are not that high rates, but also the Tax sales tax very complicated bureaucratic transom that creates added value fees administrative stifle small businesses while larger companies are better able to bear the burden of domestic consumption 19 suffocated while exports are not taxable.
The table below shows the long-term balance of trade position.
The graph shows that Germany has a very positive assessment of the business situation that has almost never been stronger, in terms of revenue, like today.
The growth trend is both durable and great and strong.
More remarkable is that it does not consist of commodities such as iron ore, coal and wheat, but the cars, trucks, machinery and manufactured goods This fact speaks to the basic skills of workers German and efficiency that must exist for these products to compete in one country to high cost, as opposed to a sweat shops low cost Asia.
The graph shows a similar trend in the trade balance in that it has a long trend of capital flows, sustainable and increasingly more have never been higher than at present.
Foreign direct investment was mainly positive over time and while the trend is not as strong and positive that the balance of trade and capital flows was a net positive FDI add to private sector shows that people of business abroad see Germany as a sound destination for their investment capital and is a strong vote of confidence.
The table below shows the situation of the current account.
The graph shows that since 2003, the current account balance has always been, increasingly strong and positive, even in the face the great recession.
This strong trend is on the rise after a period of over 10 years of negative returns of about 1991 to 2002 In that time, the economy was experiencing a housing crisis in the early 1990s, the fall of the Wall Berlin in 1989, and thus the receiving part is dilapidated homesick to rebuild the introduction of a tax on the added value and also the euro and the boom of dot com bust in 2000.
You can see government charts above that, meanwhile, the government exercised the expansionary fiscal policy of support to maintain aggregate demand at a time when the private sector would otherwise have been drained by the external sector This shows Governance cautious or deployment under automatic stabilizers in the form of social support triggered by unemployment.
Now, with large surpluses in the external sector, the government has the public policy recessionary This does not mean however that all is well in Germany and that the population is happy and satisfied There is still a growing level of inequality income and poverty among those who lack the wealth This is reflected in the recent increase in political parties such as the Alternative party Deutschland who stand to stop the migration, an exit from the euro and a return national sovereignty.
Germany is a sovereign nation Germany is a user of the currency and not the issuer of the currency, the federal government has no money creation power and should only finance with debt and the treaty limits Maastricht limit budget spending to 3 of GDP when more might be necessary to meet appropriate public purposes.
To achieve its fiscal targets, the federal government has starved the states and local government funding so they must borrow to fund themselves the fundamental neoliberal belief is that the market will regulate investment by supply and demand and that the things that a profit will meet the investment hurdle required to pay regular interest payments and repay the loan.
This trend has led to a steady decline in public service levels and public infrastructure, even in the face of large external surpluses External surpluses are after all the benefits of private companies and not government revenue.
Investing for public purposes such as social support, roads, bridges, schools, hospitals and libraries are not very profitable, but no society can exist easily without them when we force state and local authorities to get increasingly indebted to fund basic services, which do not pay for themselves, then we can see how a nation can become dysfunctional without sovereign power to create money and control of strict budgetary expenditure Germany has internal decay public sector amid a large outdoor wealth.
The gold to debt rule is that the debts can not be paid will not be paid.
It will be interesting to see if the Federal Government applies the same stringent fiscal conditions on its dependent states and local authorities that he is insisting be applied to Greece the German states and local authorities are forced to cut pensions , sale of ports and roads and railway infrastructure, to repay their debts near schools, hospitals and libraries to reduce costs or that the federal government be replaced with one that works in the public order in the next elections in October 2017.
You can see the total trend when comparing GDP with the amount of money in circulation, shown in the two tables below.
Both graphs show a sharp rise in overall growth profile trends More recently, however, and since 2007 the GFC shows that GDP growth has stabilized and even declined in 2016.
We see that the value of GDP following the increase in the money supply He had to be about the same amount of money in circulation to allow transactions that make up the GDP occur If there is inflation, because more money than the GDP is outstanding and vice versa.
At present, we can expect there to be little or no inflation or deflation in Germany that GDP largely matches the amount of money circulating in the country, although the decline in 2016 GDP could create some inflation we have less production and the same amount of money in circulation.
One can reach the inflation in two ways one is positive that the government is too much money in circulation and the other is negative in that the economy contracts and produces less while the money supply increases or remains the even.
In deflationary times a government can create more money and improve the general level of education, health and public infrastructure This adds liquidity to the system and also the long-term productive capital in the saving what can be considered a social dividend and the result of the government providing more means of exchange to reflect greater and more productive economy.
Germany can do it because it is not the issuer of the local currency unit, fresh water can not enter the system through debt or external surplus.
Germany is the third country we reviewed it is not a sovereign nation in the truest sense of the word, Austria was the first and Greece was the second.
We can also infer that the austerity policy, facing a surplus in the external sector, can lead to GDP growth and decline of the public sector and a process of disintegration of the domestic public sector and social polarization can not grow the economy by austerity more a person can gain weight by eating less Germany is a case where the policy of austerity has not narrowed the GDP, but has damaged the economy in this infrastructure and public services are declining and this leads to a polarization of the population and the rise of the extreme political parties for the first time since the 1930s.
Germany shows the danger of being a rich exchange of user rather than the monopoly supplier of the currency in which a tax extreme stress weakens the government and implementation of effective public purposes facing the private sector wealth rising and rising discontent social.
That when we do we faced high taxes and public sector pension is losing confidence in the future and saving money for a rainy day The table below shows that German households have been deleveraging since well before the global financial crisis in 2007.
Each nation state consists of three essential elements.
The private sector includes people, businesses and the community, and especially to investors, the stock market for the stock market to move up, this sector must be increasingly the sector itself is a driver for growth and innovation However, he needs the income of either of the other two sectors to grow in value.
The public sector includes the Government with its judiciary, legislative and regulatory The key to the stock market is that this sector can be both a source of private sector financing through spending and also a drain on funds by the through taxes.
The government through its Treasury also fixed the interest rate in effect and provides the medium of exchange is too important and too little inflation is deflationary It puts the oil in the economic engine and can put in as much as its inflation rate target allows not financially constrained, to a sovereign government with a freely floating exchange rate any financial stress such as corresponding bond issue is an imposition.
Germany does not enjoy this sovereign privilege because it is the user of a currency and not monopoly issuer of its currency.
The external sector is trading with other countries, this sector can generate revenue from a positive trade balance, or it can drain funds from a negative trade balance.
Note that the negative trade balance also means that a country has exchanged currency, which is infinite in supply, the actual resources that have a limited supply.
For the stock market in the private sector to thrive and continue to go up, income must enter the stream Otherwise, the sector can not circulate existing funds, or is drained of funds and is in decline.
The ideal situation is that the private sector was a net inflow of funds and continues to grow, giving the height of the stock market in which to grow in value for that to happen, one or other of the other sectors must add funds to the circular flow of income.
The following formula expresses this simple relationship.
Public Private P G external sector X.
For the best result of the investment, we seek in countries where the public sector and the external sector are both net addition to the private sector and causing the index of the local stock market to increase with the receipt of additional funds.
Germany is a speculative purchase until the election results are known in October 2017 and a possible change of government policy occurs.
Germany does not tick all the boxes regarding our evaluation criteria, but has an overall net addition to the private sector.
The public sector net draining the private sector is a trend towards less support in the future on its current trajectory on EU education in Brussels and the ECB who know better how to weaken a nation at the expense of his people.
The external accounts are very positive, and Germany has a large and growing external surplus that not enough people in this part of the land in the non-inclusion leads to discontent and political instability and change.
If you want to speculate on the fate of Germany up then these ETFs may be of interest.
Currency Hedged iShares MSCI Germany ETF NYSEArca HEWG.
WisdomTree Germany Hedged Equity Fund NASDAQ DXGE.
Deutsche X-trackers MSCI Germany Hedged Equity ETF NYSEArca DBGR.
Part of the funds are covered, which is an important consideration, given the weak outlook for Euro If and when the euro breaks and is replaced by various sovereign national currencies a new German brand is likely to increase greatly in value due its strength in the external sector the force is currently muted by the lowest-performing members of the euro.
Disclosure us I have no positions in the stocks mentioned, and no plans to initiate positions in the next 72 hours.
I wrote this article myself, and it expresses my opinions that I do not receive compensation for it other than research Alpha I have no business relationship with a company whose stock is mentioned in this article.
German ETF A Speculative Buy Seeking Alpha, German, ETFs, speculative.