Wednesday, March 27, 2013

Floating Bubbles and Germany

Germany as well as America have benefited from the deeper problems in other parts of the world. That means many view these two countries as better places to invest then a country "on the brink". This also means an increased probability that a bubble is occurring in these markets. I'm amazed how little attention is being given to this issue. America has seen the dollar strengthen as a result of money flows seeking a safe haven. While being far from trouble free and sitting pretty, America has been described as the least ugly house on the street.

While I have heard concerns about the markets in America, little attention is being paid to cross border money flows inside of Europe and how this benefits Germany. In our shrinking and more crowded world where cross border investments have become more common, it does not take a rocket scientist to realize that Germany will fair better then its bankrupt neighbors if a melt down occurs. It would only follow that this would support and drive up values of Germany equities and bonds, on the flip side this also makes them more vulnerable to becoming overvalued. Why is this not being talked about more?

The problems in Europe are both broad and deep. They will not be solved soon if at all and that means uncertainty and risk. If you invest in a foreign market that also sees its currency rise you get a double whammy. The downside is that it can create a bubble as more money rushes in and expands the move past what it would normally be, at some point it becomes unsustainable. Ask the bankers in Cyprus how much capital and money fled the country, then cast your eyes towards Slovenia, as a crisis approaches it is easy to predict the same, and yes, it is also easy to predict where much of it will go, yes, this helps explains the soaring German market.

Footnote; The post below looks at how little has really been done in addressing the banking problem in Europe. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged. 


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