Even more inexplicable, has been Germany’s failure to change course as the Soviet Union disintegrated at the end of the 1990s. Germany’s political decision to distance itself from the US (and the UK for that matter) and follow Ostpolitik (German for “new eastern policy”) to build a greater Europe it thought it could shape and then benefit from – has been its greatest post-WWII miscalculation. The Nord Stream pipeline gas supply not coming back on later this week, will push Germany into a very tenuous situation and a deep recession. In a mid-term election year, the SPX bottoms by the end of Q3 and has a real flourish in the last quarter with the index up +6.0% on average, so big year-end rallies are common.Įurope has a tough winter ahead, but it seems the energy problem may start early. Seasonality indicates that the S&P 500 (SPX) could be in for a nice rally as we head into the final quarter of the year. This is also a mid-term election year in the US. Unfortunately, Powell can’t take the most meaningful step to tame inflation – prevent the fiscal authorities from increasing spending by hundreds of billions of dollars in spending programs once every few months.
US Fed Chair Jerome Powell’s comments at the Jackson Hole summit last week, highlighted that the Fed is preparing to shift from a phase of rapid and large interest rate increases, to potentially smaller increases, focusing on slowing demand and then holding the rates instead of cutting them too soon. Energy is responsible for at least half the industrial growth in a modern economy, while representing less than one-tenth of the cost of production. With the EUR/USD exchange rate at parity, Europe’s exports would be so much more competitive only if it had the oil & gas at the reasonable price needed to run manufacturing, industries, agriculture or even its tourism industry. Europe’s delusion of independence was a sand castle, as in reality, it depended on Russia for its energy, China for its trade and the US for its trade and security. Germany’s policy to prioritise “trade” over everything else has come back to bite hard, as Europe faces its winter of discontent. Then Russia invaded Ukraine, and everything changed. EU leaders considered America’s decline as inevitable and started to distance themselves from the US. In September 2018, in a speech at the United Nations General Assembly, when Trump accused Germany of becoming ‘totally dependent’ on Russian energy, German diplomats were caught on camera laughing and German Foreign Minister Heiko Maas could be seen smirking alongside his UN colleagues. Many in Brussels openly questioned the international order led by the United States and ridiculed its then President Donald Trump. Phrases like “terminal decline,” “too divided” and “too dysfunctional” appeared regularly in the European press and diplomatic channels.
Not long ago, Europe (read the European Union) was concerned about the direction in which the US was going. With EUR/USD at parity, Europe’s exports would be so much more competitive only if it had the oil & gas at reasonable price” “Germany’s policy to prioritise “trade” over everything else, has come back to bite hard, as Europe faces its winter of discontent.
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