German tailwinds

It appears it’s not only the US finances the ones that are deteriorating, as Germany, the manufacturing core of the European Union, is also leveraging up. Part of Trump international policy has been to tell the U.S. allies they need to chip in in terms of military spending, which makes total sense in the context of the Ukraine war. If we combine that with the fact that Germany has been one of the few adults in the room when it comes to fiscal spending, with a reasonable 65% debt to GDP, you can expect them to do it. If you look at the chart below, you can expect Germany’s debt to gdp to reach 80% in 5 years and perhaps 90% by 2035. But you also have a very dovish ECB, with official rates now at 2.15%, which injects liquidity in the system from the moneyary side as well. In the absence of the old Weimar Republic hawks, who lived the inflaironary period, politicians prefer the sugar high of spending, justified by the probability of a contagious conflict within Europe, rather than the boring fiscally responsible behavior, inherited by their grandparents. As a result, the European equity markets have an incredible tailwind, and that’s what we’re seeing YTD, widening the gap with the U.S. and other parts of the world. The German Dax ETF is up 35% YTD, measured in USD, while the US is fighting to remain flat for the year.

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