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Low debt, tight credit, and a genuine terror of money-fed inflation…

IF YOU ARE a U.S. investor, writes Martin Hutchinson for Money Morning, you can’t be happy about the prospects for your portfolio.

After all, you’re mostly trapped in an economy with a gigantic and dangerous financial-services sector, a central bank that can’t stop itself from printing money and a government that overspends wildly.

But there is an answer: You might consider allocating some of that "at-risk" capital to a country that has none of those problems – Germany.

Germany has a banking system, of course, but that banking system is not the overgrown financial-services monster that we have here in the United States (or, for that matter, in Great Britain). It’s impossible to get a subprime mortgage in Germany: Even now – and even after mortgage levels have crept up in recent years – the average down payment for the purchase of a new home in this key Eurozone nation is 50%. As a result, the homeownership rate in Germany is only 43%, the lowest rate in the European Union.

That’s actually healthy; far less of Germany’s capital is tied up in unproductive housing and the savings rate is correspondingly higher. (Let’s face it, most Americans don’t accumulate 50% of the cost of a house in savings over their lifetimes – unless forced to do so in a company pension scheme).

What’s more, this more-modest home-ownership rate reduces the impact of speculative bubbles, since the wealth of most folks isn’t tied up in rapidly escalating house prices.
So while the German banking system had its own real estate problems in the late 1990s, the only parts of it that got in trouble in 2008 were those banks that had rashly ventured overseas and got caught up in the US disaster.

Up until 1999, Germany had the most admirable central bank in the world – the Bundesbank. This was a much better set up than the US Federal Reserve. It was owned by the states instead of by the national government, so political interference was much more difficult. It was a single institution, instead of a collection of regional banks, so it was much easier to manage. And it had the single objective of avoiding inflation (Germany having bad memories of the Weimar hyperinflation of the 1920s) so did not get sidetracked into attempting Keynesian management of employment. As a result, Germany’s currency – the Deutsche Mark – was a beacon of stability during the inflation-ridden 1970s.

In 1999, control of Germany’s monetary policy passed to the European Central Bank (ECB). The ECB is not as solid as the Bundesbank, but it still beats the Fed. The ECB expanded the money supply much less than did the Fed from 2002-07, and it has issued much less monetary stimulus since the crash. Consequently, there is far less danger of inflation in Germany and the Eurozone in general than there is in the United States.

Yes, there’s the possibility that German taxpayers might have to bail out Greece, but the same possibility exists in the United States with respect to California, which is much larger.

However, the most important advantage for Germany over the United States – in fact, over all the other major industrial economies – is its superior fiscal policy. When the talk of "stimulus" first appeared in late 2008, Peer Steinbruck – a Social Democrat who was then serving as Germany’s finance minister – rudely described it as "crass Keynesianism". As a result, Germany did very little stimulus, and so still has a budget deficit of less than 5% of gross domestic product (GDP), in spite of the recession.

Last September, the German electorate decided that even Steinbruck was too socialist, and so elected a coalition between Angela Merkel’s Christian Democrats and the Free Democrats, a free-market party that is even more opposed to public spending than Merkel.

The effect of this has been to push Germany even more firmly into the fiscal-retrenchment camp. The German parliament lopped an extra €5.8 billion ($8 billion) off public spending before finalizing the 2010 budget. No pork barrel waste there!

The result has been a very brisk economic recovery, with no inflation and no significant risk of "crowding out" the private sector. Manufacturing orders were up a strong 4.3% in January, far more than had been expected, and are now 19.6% ahead of where they were a year ago. Unemployment is 8.2%, well below the US level, while Germany’s current-account surplus is a massive 5.2% of GDP.

With competitive manufacturing, a business-friendly government and plenty of domestic capital, Germany is about as healthy an economy as there is in the world today and is thoroughly underrated by US and British analysts. Its stock market is trading at a fairly demanding 19.7 times earnings, according to The Financial Times database. But that’s lower than the US market multiple of 20.0 times earnings. And Germany has better near-term prospects.

You might want to think about owning some of Germany’s promise.

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Source:Sell the US, Buy Germany

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Source:Buy American Eagle gold coins online – Cheapest reputable gold bullion dealers … – Healthy Financial Habits

Gold futures rise, receiving a lift from upbeat manufacturing data from the U.S., Europe and China, and with higher crude-oil prices lifting the appeal of gold as a hedge against inflation.

Source:Metals Stocks: Gold advances on global economic optimism (Market Watch)

Buying Gold and selling stocks was a phenomenal trade this decade. Now what…?

YOU MAY RECALL our Trade of the Decade, writes Bill Bonner in his Daily Reckoning, which marked its 10th anniversary in August 2009…

Buy Gold on dips…sell stocks on rallies. Well, we’ve been very happy with it. But the decade is coming to an end. It’s time to thinking about the NEXT decade.

You may also recall that as gold went up, we became more and more concerned.

When Lehman went down, it seemed obvious that the feds were going to do the wrong thing. We were right. They did. They put up trillions of dollars to ‘rescue’ the economy. Since we knew the ‘rescue’ wouldn’t work, we guessed that they would continue pumping in money they didn’t have in order to keep trying to do what couldn’t be done. Under cover of an ‘emergency’ they were able to siphon off billions of dollars for their friends on Wall Street and for their pet boondoggles. And the voters couldn’t complain…at least they were ‘doing something’ to fix the economy!

This led to a very simple observation – eventually inflation (and Gold Prices) would go up even more. Because the quantity of money would increase faster than the goods and services that it could buy.

What bothered us here at The Daily Reckoning was that this analysis was too easy and too obvious. What’s more, it was an analysis that was widely shared. We don’t like it when our points of view become fashionable. And we don’t like it when the "story" is too easy to tell and too easy to understand. When you have a storyline that everyone picks up, it almost always turns out to be wrong.

Then, the smart money began Buying Gold. John Paulsen made a fortune in the ‘07-’08 period by correctly understanding the bubble in the financial sector and betting against it. A few months ago, he announced his next big bet: gold.

He explained that gold was a "can’t lose" investment. If the economy recovered, inflation would come back and push gold up. If the economy didn’t recover, the feds would continue pushing money and credit into the system, making the eventual inflation worse than ever.

John Williams of ShadowStats came to a similar conclusion. He noted that the recovery wasn’t working…and that the feds had no choice but to continue piling up inflationary tinder. When the spark finally reaches it, he says, the result won’t be inflation, but hyperinflation of the blazing sort.

We don’t disagree. The logic seems right to us. That is what OUGHT to happen. But what bothers us is that Mr. Market is a contrary ol’ coot. He always does what he ought to do. But he rarely does it when and how you expect.

What is he up to now? Darned if we know. The dollar is going up. Is it just a bounce? Or is it a trend?

What would be the most surprising and most mischievous thing Mr. Market could do? Make the Dollar more expensive!

• A strong Dollar would undermine hopes for an export-led recovery in the US (American made goods would be less competitive…)
• It would whack the carry-trade speculators hard. They borrowed cheap dollars. Now they’ll have to pay back expensive ones.
• It would encourage people to save dollars rather than spend them – thus undermining a consumer-led recovery too.
• A rising Dollar would also drop the Gold Price – temporarily – shaking off the fair-weather gold buyers in advance of the next phase of the bull market.

So, ask yourself. If you were as ornery as Mr. Market…what would you do?

On the other side of our trade – "Sell stocks" – it’s been "A nightmare decade for stocks," says a headline in the Wall Street Journal.

"Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade."

The 1990s was the best calendar decade in history for stocks, with an annual gain on average of 17.5%. This decade, by contrast, was the worst calendar decade for stocks going all the way back to the 1820s.

Which gives us a sense of triumph…you know, the very thing that comes before a fall. Ten years ago, we warned readers that the US stock market was going into a bear market that would be like the Japanese market following the stock crash in Tokyo in ‘89. It would be "long, soft and slow" we said.

Then, the market rebounded. Investors thought the promises of the ’90s – "stocks for the long run" or even "Dow 36,000" – were still good. As for The Daily Reckoning, it was obvious that we didn’t know what we were talking about, because the Dow just kept going up…first above the high set in 1999…and then all the way to over 14,000.

Even we had to admit: If this was a bear market, it was a very strange one!

Ten years later, the decade of the ’00s has proven to be the worst ever. Yes, dear reader, the ’00s were the worst for investors ever, even worse than the 1930s.

Now, we are wondering what’s next for the stock market? More of the same is our guess. The bear market that began in January ‘00 still has not fully expressed itself. Stocks have not been beaten down to bargain levels – where they sell at 5 to 8 times earnings. Investors have not given up. There is no widespread sense of disgust and disillusionment with the stock market.

And it still takes about 10 ounces of gold to buy the Dow stocks. At the bottom, you’ll be able to buy the Dow for just 1 or 2 ounces. And then…you’ll think twice. Because everyone around you will be telling you that stocks are ‘finished’.

And who knows? Maybe they’ll be right…

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Source:Buy Gold, Sell Stocks Again?

A report showing a jump in inflation supported gold prices Tuesday, partly offsetting the negative impact of a stronger dollar. Gold pared early losses, closing down just 80 cents at $1,123 an ounce on the New York Mercantile Exchange, after earlier falling… New York Mercantile Exchange – Gold – Inflation – Precious metal – Business

Source:Gold holds steady as inflation jumps, dollar rises (San Francisco Chronicle)