The DAX index is near all-time highs, and German stocks are rallying in line with other European
markets. While the economic news has been good, our leading indicators for Germany are
much less rosy than we would expect given stock prices. There is a big divergence, and we
think investors will be disappointed.

First, excess liquidity is rolling over and is close to zero. This tends to lead stock prices by
a year. Secondly, we have seen building permits turn negative, even though Germany is
experiencing rising house prices. This is perplexing, but it doesn’t bode well for economic
growth. And finally, you can see that while the IFO survey is at all-time highs, the spread
between expectations and present conditions has collapsed. This is not positive, as it tends
to lead German industrial production. (Click on image to enlarge.)










Source: Bloomberg, Macrobond and Variant Perception

(This was an excerpt from our Weekly report of June 6th)