German bad news is good news
by Peter Switzer
Some good news overnight should keep the market optimists cautiously positive with an European Central Bank (ECB) official talking about adding innovative firepower to the eurozone’s key bailout or rescue fund. Meanwhile, a well-placed company had a positive outlook for the world economy. Also, what might look like bad news but is probably good — Germany got another bad business confidence number!
More on this oddity in a moment.
The Dow was up 58.73 points or 0.47 per cent to 12,676.05 but the S&P 500 was just negative, down 0.03 per cent to 1,337.89. This is an important resistance level and so holding is another positive sign.
Before focusing on the good stuff, there was a disappointing number with US new home sales down 8.4 per cent in June, which was the biggest drop in a year. The housing sector is showing some promise and so any negative is not appreciated by those who know a sustainable US economic recovery needs a stronger homebuilding trend.
The good news
Now for the good news:
- Caterpillar, which is a company in construction and infrastructure around the world, reported well, but more importantly it pumped up its earnings forecast for 2012. This key bellwether company for global economic growth could be a good omen.
- A senior ECB official, Ewald Nowotny, suggested that the European Stability Mechanism be given a banking licence, which would mean it could exchange bonds for bailout cash to help the likes of Spain and Italy struggling with debt. Something new has to be tried by the ECB as it’s the only hope to bring the ruinous bond yields down in countries such as Spain and Italy. Now the idea does not have support yet but at least we’re starting to see some overdue lateral thinking.
- This might sound weird but I think the third fall in German business confidence in three months is a good thing as the Germans have to understand that their addiction to discipline and bondage when it comes to fiscal austerity is straight-jacketing Europe and ultimately has hurt the global economy. The Germans might have to feel economic pain before they realize that they’re sowing the seeds of a long recession. Europe needs a TARP program used by the Yanks but the Germans are too stubborn to recognize that they have hitched their cart to the eurozone and they ignored the bad behaviour of their fellow members. Now they have to sort it out as the senior member of the EU family.
The jam the world economy and financial markets find themselves in needs an outside the square solution — Edward de Bono-style — and I think Mr Nowotny is thinking in the right direction. I hope more agree with him before a market crash makes Germany and the rest of the powerbrokers in Europe get their act together.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Published on: Thursday, July 26, 2012
The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.