Wednesday, May 21, 2008

Who is the World's Largest Merchandise Exporter? Not China. Or the US.

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Think Germany. Yes Germany. What a surprise. When I read this story it reminded me of the story of the turtle and the hare.... as we discussed last week [May 16: Friday Readings] sometimes being old fashioned and conservative is not such a bad thing.

Let's see, countries who allowed the financiers of the globe to introduce their magic of "financial innovation" and stupid human tricks aka toxic mortgages are suffering across the globe - United States, England, Ireland, Spain.... while countries who stuck to traditional methodology aka "you want a house? No no no... you cannot have it for no money down and 1% interest rate for 2 years", seem to be doing fine - Germany, France, even with a terribly strong currency that is hurting their exports plus their worker friendly "socialist" backdrop. Ironic. Keep in mind, those tight fisted French and Germans still require crazy things like 20% down to buy a home. Nuts, I tell you.

So while the Germans (turtles) were mocked for not moving to this "new wave" finance based, service economy.... instead doing outrageous old school things such as "making stuff that other people want", it's turning out pretty well over the long run. Versus the hares who are now enjoying their service economies whose only saving grace are things they are exporting... what little they have left and has not been outsourced. Meanwhile Americans are brainwashed... err instructed... err reminded, that an economy cannot do well with reasonable regulations that keep things from constantly going out of control or into bubble status every 4-5 years, with higher tax rates that provide a true social safety net or relative equality among people, nor could their companies function without CEOs getting "what the market bears" instead of a (very good) but reasonable wage like "those socialists" (because only people paid in the $10M+ range at the top of a co. could ever make a solid decision, mind you). How those backwards people are thriving is beyond me... they seem to be doing EVERYTHING opposite to what Fox News tells me is the core of America competitiveness. Oh the irony of it all.
  • Turning bolts, Germans were told - often by other Germans - had no future in Germany. The persistence of heavy manufacturing symbolized the country's inability or unwillingness to transform itself into a modern, services-oriented economy like the United States or Britain, two oft-used yardsticks.
  • Today, the manufacturing sector in Germany is growing as a proportion of the country's total economic output, and Germany looks set to outpace far larger economies like China and the United States as the world's largest merchandise exporter for the fourth year running.
  • In addition, making all manner of valves, motors, machine tools and robots is providing Germans with something rare in the global economy: shelter from the storm. Thanks to bolt-turning, the German economy grew at an annual rate of 6 percent in the first quarter of this year.
  • "The critics have one point in that the Germans are dependent on the 'old economy,"' said Andreas Rees, chief Germany economist in Munich for UniCredit. "But paradoxically that is an incredible strength of Germany right now."
  • German manufacturers have had very fortuitous timing because major emerging markets, above all China, have a voracious appetite for their products. These countries now account for about 7.5 percent of German merchandise exports, roughly the same portion as the United States.
  • Rather than complaining about the strong euro, German executives are prone to emphasize its benefits. Crude oil, a vital ingredient in some plastics, now costs almost $130 a barrel, and prices of basic metals like copper, aluminum and steel have also skyrocketed. But the euro's strength has cushioned the blow when the commodities are priced in dollars.
  • "I would imagine it's difficult in the United States," said Gerhard Lerch, general manager of ContiTech, a multinational maker of auto parts and other industrial components. "But we pay in euros." (oh dear)
  • But each day German manufacturing executives have to deal with the shortage of qualified engineers. The machine-tool industry alone estimates it will hire 30,000 new engineers in 2008, up from a projection of 10,000 it made in November. Over all, the German Association of Engineers reckons employers could hire up to 95,000 people, who would generate economic output of €7 billion. (solution: import Americans. They'll work, and cheap!)
Speaking of those backward socialists, somehow they had the foresight to create a cottage industry in solar power - before it was an emergency. See, pro-active, not re-active (like some countries). Who would of thunk it? An interesting read here for any of you solar investors.
  • Yet the sun was shining here the other day — and nowhere more brightly than at Q-Cells, a German company that surpassed Sharp last year to become the world’s largest maker of photovoltaic solar cells. Q-Cells is the main tenant among a flowering cluster of solar start-ups here in an area known as Solar Valley.
  • Thanks to its aggressive push into renewable energies, cloud-wreathed Germany has become an unlikely leader in the race to harness the sun’s energy. It has by far the largest market for photovoltaic systems, which convert sunlight into electricity, with roughly half of the world’s total installations. And it is the third-largest producer of solar cells and modules, after China and Japan.
  • Conservative lawmakers, in particular, want to pare back generous government incentives that support solar development. They say solar generation is growing so fast that it threatens to overburden consumers with high electricity bills.
  • Solar-energy entrepreneurs warn that reducing incentives will deprive Germany of its pole position in an industry of the future. As proof, they point to the United States and Japan, which were once solar stars but have faded as their government subsidies became less enticing. (we were too busy getting rid of those jobs, so we could hire more mortgage brokers. And for god sakes, please do not put us in the same sentence as Japan! We are not Japan! Our people are taller!)
  • Germany’s surging market has lured investors from Canada, Norway and the United States. More than 40,000 people work in the photovoltaic industry, helping to revive blighted regions like this one. (there you go again with the outlandish idea of "making things" - it is far superior to revive blighted areas with tanning salons, nail salons, banks, 7-11s, and Chinese take out joints - get with the program)
Conclusion: Buy stocks. Especially in countries that like to erode their manufacturing base as the service economy is the best economy of all with its lower wages, weaker benefits, and consumption culture - which at its core simply trades the same money from 1 person to another to "create wealth" (works even better when the central bank creates new paper money, so everyone feels even more "wealthier" - especially when it never creates inflation; a fancy magic trick).

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