Investing in Germany? Read this first...

Beat Ernie - Tue 11 Jul, 2006

...At first sight, Germany and its stock and real estate markets appear to have an "inexpensive valuation". And certainly, weve seen some fairly astonishing share price increases since the beginning of this year. But I have to say that, as an international investor, I would be cautious and wait for a clearer picture of where Germany is heading...

 
 
The Football World Cup 2006 in Germany has been three weeks of emotional ups and downs...both for the teams and for their fans. I’m sure you felt it yourself.

Now it’s all come to an end as Italy won the World Cup on Sunday. Now it's all just a memory.

A couple of weeks ago I reported on the excessive prices being asked for World Cup tickets. Many fans paid many times the original ticket price through internet portals or even just before the game on the streets outside the stadiums.

But not all tickets kept their high level prices to the quarterfinals. I’ve heard that tickets for several matches – including those for England-Portugal and Argentina-Germany - were traded at or even below the original ticket price.

Investing in Germany: Volatile times in the ticket market

You could say that football ticket price movements are similar to those on the stock market. At first many investors (or football fans) want to enter a fairly tight market, even at quickly rising prices.

Of course, this was - to a certain extent - fuelled by speculative buyers probably less interested in the actual football games – ticket touts. Then the reverse effect pushed down the prices - an oversupply of tickets for games the true fans were no longer that interested in. At a moment’s notice the tickets were nothing but regular goods again, lacking the initial magical flair and outlook for future profits.

As the tickets obviously lose all their value if they're not sold by the time the game starts, the closer the kick-off time is for the ticket, the more ready the speculator becomes to sell it - at almost any price.

The analogy to the investment market is striking - as I’ll show you now, using one of my previous investment stories about the real estate boom - fuelled by German banks.

Investing in Germany: Is the German Eagle losing its wings?

After a headline grabbing speech by German Chancellor Angela Merkel in which she called her country "in serious need of restructuring" (and was heavily criticised for doing so), several of our northern neighbour states have turned a bit sceptical about Germany's financial strength.

Apart from the silly season, or "summer gap" as the Germans call it, there is a more serious gap, big enough for several "summer gaps" to hide within it: The German budgetary deficit.

Luckily for the German politicians, the German Football National Team played excellently - well, up until Tuesday night, I guess - and thus deflected attention from the real issues that Germany is undoubtedly facing.

The biggest post-war tax increase coupled with difficult reformations has been getting lost in endless stadiums and cheerful singing accompanied by an ocean of colours comprising red, yellow and black. Well, until Italy spoilt the party, that is.

As long as the German Football team advanced through the stages of this major world sporting event, everything else was secondary.

And now, in a couple of days, it's back to reality for Germany, while the partying carries on night after night in cities and towns all over Italy.

A new wave of bureaucratic reforms, likely to make things worse than better, is about to make it into the final, and, from the political viewpoint, probably "win". Ordinary Germans will soon wake up to a new scenario, one that might well host unpleasant surprises for them. And by that time, it will be too late to get a substitution in to improve the game already going downhill...

Investing in Germany: "Aus der Traum" - the dream is over - Not just the sports bit

Personally, I was a little shocked by Mrs Merkel’s comments. Is it really THAT bad in Germany? Once the World Cup is over, Germany faces more serious issues than the questions surrounding Messrs Klose and Ballacks’ goal shooting performances.

Germany needs to prove that it can not only play football, but also play in the top league of international business. More pressing questions will be whether Germany keeps to its limits in spending, and comes up with more creative ideas for rectifying the situation other than just raising more money from tax payers. Otherwise, the positive effects of this World Cup will soon (again) give way to the lethargic mood of pre-World-Cup Germany.

At first sight, Germany and its stock and real estate markets appear to have an "inexpensive valuation". And certainly, we’ve seen some fairly astonishing share price increases since the beginning of this year. But I have to say that, as an international investor, I would be cautious and wait for a clearer picture of where Germany is heading.

The grand coalition was formed as a last resort thing. By now it is clear they are struggling to get along and find a common direction. To the people, and to investors, this creates uncertainty, and that, as we all know, is never good for the markets.


Regards,

Beat Erni
for The Daily Reckoning

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