Friday brainstorming - part 1

1 The Germans are the power house of the Eurozone, just have lost the export crown to China these days. amazing though not surprising is that GDP growth in Q4 was 0,0 which puts the phony 5,7 in the USA into definitely obscure but more importantly shows the trouble the Eurozone is heading for. The understated inflation throughout the Eurozone makes that actually a negative growth - the biggest deception was the introduction of the EURO in Germany as things have at least doubled in price over the last 10 years ( I used to buy a Snickers bar for 50 Pfennig (old currency) now it costs 75 Cent ( matching 150 Pfennig rounded) that is 200% higher just to give one example. A VW Golf cost now the same amount in Euro what it used to cost in DM ( that's 100% more rounded) - well you can argue that the car is much more sophisticated - well the Snickers bar isn2t - but still its the same class of car and the most important thing salaries for regular people did not double the were halved through the conversion rate of 1 / 1.96.
The point is then the strongest part of the chain remains weak imagine what trouble the weaker parts are in and the public with alerted state of mind of the problems in the Eurozone will rather curb consumption going forward as they so far blamed the insane bankers and mostly the US housing situation for the source of the problem. Now they recognize that there is much more to it and its very close.

Update GDP for Eurozone Q4 0,1 hence its negative in real inflation terms.

excerpt

German Recovery Unexpectedly Stalled in 4th Quarter

Feb. 12 (Bloomberg) -- Germany’s economic recovery unexpectedly stalled in the fourth quarter of 2009 as waning consumption and investment offset export growth.

Gross domestic product, adjusted for seasonal effects, was unchanged from the third quarter, when it rose 0.7 percent, the Federal Statistics Office in Wiesbaden said today. The median estimate in a Bloomberg News survey of 33 economists was for growth of 0.2 percent. By contrast, French growth accelerated to 0.6 percent in the fourth quarter from 0.2 percent in the third.

Germany’s economy, Europe’s largest, emerged from its worst recession since World War II in the second quarter of last year and helped drive a recovery in the 16-nation euro area. While a global rebound has fueled demand for European exports, rising unemployment, expiring government stimulus measures and ballooning budget deficits are threatening growth across the region.

“Calling this the end of the upswing would be premature,” said Juergen Michels, chief euro-area economist at Citigroup Inc. in London. “But we’re starting the year at a lower level and growth forecasts will be harder to reach.”

The statistics office said exports made a positive contribution to fourth-quarter German GDP, while consumption and investment declined. The economy contracted 5 percent in 2009. The Bundesbank forecasts growth of 1.6 percent this year.

European Recovery

The euro dropped almost half a cent to $1.3644.

Economists predict euro-area growth slowed to 0.3 percent in the fourth quarter from 0.4 percent in the third. The data will be published by the European Union’s statistics office in Luxembourg at 11 a.m. today. The pace of Italy’s expansion probably slowed to 0.1 percent from 0.6 percent. That report is due at 10 a.m. in Rome.

2. The 'Hammer' formation was confirmed by yesterdays price action in USA and we can expect more upside over the next 2 weeks as indicated in earlier posts. Actually the upside move may rather unfold in a inverted Head and Shoulder pattern as we have almost reached the neckline again for the NDX at 1784 ready to make the right shoulder. We should retreat towards the 1750 area before finally breaking the 1784 resistance and heading for a 70 points higher target around the 1850 area. This also should bring down the VIX sharply once again towards our target at 15/6 before we will shoot through the 30 level later in Q2.