Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Who’s Next to Fall into Recession: Germany, France, or Austria? You Pick

Wednesday, December 12th, 2012
By for Profit Confidential

Newsflash: the central bank of Germany, the Bundesbank, is raising red flags about the growth of the German economy. The bank expects Germany’s gross domestic product (GDP) to only grow at 0.4% in 2013, compared to a previously forecasted 1.6% in only June of this year.

Similarly, another eurozone country, Austria, slashed its forecast for the next year. Austria’s central bank now predicts its economy will only grow at the pace of 0.5% next year, much lower than the bank’s previous forecast of 1.7%.

I really don’t have to go into details about how badly the other debt-infested eurozone countries are performing. These pages are often filled with that. What I want to say today is that the entire region is deteriorating quickly, and the dynamics of the next recession there are going to be much different than in 2008.

The stronger nations in the eurozone are starting to suffer. And it’s not only Germany and Austria slashing their GDP growth targets.

France, the second-biggest economy in the eurozone, narrowly by-passed a recession in the third quarter of 2012, when its GDP growth fell to 0.2%. (Source: Associated Press, November 15, 2012.) Going forward, the French government is skeptical about economic growth prospects.

While the media is fixated in North America on the pending fiscal cliff, the picture developing in the eurozone is alarming. The region’s governments simply have too much debt and do not have enough tax revenue coming in. The European Central Bank (ECB) wants to take the same approach to avert the crisis as the Federal Reserve took here in the U.S.—and we all know how well that’s working.

I, for one, would not be surprised to see the eurozone region fall into a depression. I see Greece in a depression right now; Spain is not far behind. (Anytime you have an unemployment rate of 25%, how can you not be in a depression?) So until the stronger countries like Germany and France decide to either kick the weaker countries out of the eurozone union or leave themselves, the situation will deteriorate.

For us here in the U.S., with the entire eurozone region now teetering on the brink of recession, American companies in key stock indices, like the S&P 500, will suffer. Almost half of the companies in the S&P 500 derive sales from Europe. The year 2013 does not look good for North American stock markets.

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Where the Market Stands; Where It’s Headed:

The stock market is not disappointing us yet. It is delivering its annual Christmas rally like it always does. But, as I have been writing, I expect 2013 to be a poor year for North American equities. My biggest concern is American corporate earnings growth turning negative.

What He Said:

“Prepare for the worst economic period ahead that we have seen in years, my dear reader, as that is what I see coming. I have written over the past three years how, in the late 1920s, real estate prices fell first before the stock market and how I felt the same would happen this time. Home prices in the U.S. peaked in 2005 and started falling in 2006. The stock market is following suit here in 2008. Is a depression coming? No. How about a severe deflationary recession? Yes!” Michael Lombardi in Profit Confidential, January 21, 2008. Michael started talking about and predicting the economic catastrophe we began experiencing in 2008 long before anyone else.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles