Looking Backwards …
LB #1
As we wrote about on Bygone Relics on Wednesday, the German economy is in dire straits. Furthermore, the government was on the edge of collapse. Well, it took less than a day after we wrote the story. This from Andreas Rogal from EuroNews, “He has broken my trust too many times”, the chancellor said of his Finance Minister Christian Lindner.
The ruling German coalition has collapsed: Social Democrat (SPD) Chancellor Olaf Scholz has sacked Finance Minister Christian Lindner of the liberal FDP party.
The leaders of what is known in Germany as the “traffic light” coalition – SPD, FDP and the Greens – had gathered at the Chancellery in Berlin in the evening.
About an hour after the news was broken by several media outlets, Scholz faced the press and criticized his finance minister in no uncertain terms…In his reaction to Scholz’s scathing remarks, Lindner accused the chancellor of a “calculated break-up of the coalition” and his coalition partners of “not even accepting” the FDP’s proposals for turning the economy around “as a basis for discussion”.
Germany finds itself in between a rock and a hard place. They have promised green energy for years and one party is 100% invested in that as its primary focus. As we have discussed green energy in Germany isn’t economical. The Finance Minister Lindner keeps saying we have laws and budgetary restraints on further spending, but that would mean the end of the green agenda in its present form. That’s almost a deal maker.
Think of this as Nixon with the gold standard as the limiter for government spending. Everyone in the world wanted America to open up more credit but the gold standard kept a limit on government spending. Germany’s fiscal disciplinary laws are acting as a limiter for their spending, and it seems that the government is going to do whatever they need to do to push these limiters aside in the hopes of spending more money to achieve malinvestment aims.
Scholz has announced a new finance minister. This from Sophie Kiderlin at CNBC, “new Finance Minister Kukies is a member is seen as a close advisor to Scholz and until now served as a state secretary in the Federal Chancellery focusing on economic, finance and European affairs…Following the events of Wednesday, Scholz said he would call for a vote of confidence in himself on Jan. 15, which opens the door for an early federal election by the end of March next year. An electoral vote was originally scheduled to be held in the fall of 2025.”
LB #2
So why is this happening in Germany when many hoped that the election of Donald Trump would bring the differing parties closer together, to work harder, to make Germany great again? This from ZeroHedge, “It’s not a good day for the establishment. Just hours after Kamala Harris – and the Democrats – staggering loss which ushered in Trump as president for the third time and gave Republicans a sweep of Congress, Germany’s three-party ruling coalition which had been on the verge of collapse for months, imploded on Wednesday evening after Chancellor Olaf Scholz announced he will fire Finance Minister Christian Lindner over persistent rifts on spending and economic reforms, a move that paves the way for a snap election at the end of March…The collapse of Germany’s government came just hours after Donald Trump’s clear win in the U.S. election, a result that stunned German political leaders, who depend on American military might for their country’s defense and fear Trump’s tariff policies will hobble German industry…But the rifts inside the coalition proved too great to overcome. Caught in the middle of an impossible battle, Lindner and his conservative FDP insisted that the German government stick to strict spending rules and cut taxes, even as his left-wing coalition partners wanted to maintain social spending and boost German industry through economic stimulus.”
But this is what really did Linder in. This is “Lindner’s recent policy paper, leaked to the media last week, called for tax cuts and a scaling back of climate policies in order to stimulate economic growth — both positions that put the party at odds with his coalition partners. Central to the coalition disagreements was the adoption of the 2025 budget by parliament in which a gap of at least €2.4 billion, and potentially far more, needs to be filled, as well as an agreement on measures to revamp the country’s ailing economy. The government crisis comes at the worst possible time: Trump’s victory, which anticipates imposing significant tariffs on German exports, is expected to put heavy pressure on Europe’s largest economy. An analysis from the German Economic Institute (IW) estimates that a new trade war could cost Germany €180 billion over Trump’s four years in office.”
Now what happened at Volkswagen, meaning mass layoffs, is threatening to spread. Now Audi is threatening the same. This from Chris Chilton at Carscoops, “First it was Volkswagen jobs in the firing line, and now the panic has spread to other areas of the VW Group. So says German media, which is reporting that Audi is considering cutting its workforce by 15 percent in a dramatic bid to reduce costs. The news comes from Manager Magazin, which claims Audi will safeguard production line positions and instead focus its axe-swinging on “indirect” jobs such as development. MM says that would mean 2,000 layoffs, but reductions in other parts of the business would eventually result in 4,500 people looking for a new paycheck…Audi’s third-quarter sales figures revealed an alarming 21 percent drop in US deliveries to 46,752 units, almost every model experiencing a slump.”
There is a term for this in German folks, nicht gut.
LB #3
With Olaf Scholz on the verge of calling a snap election in Germany, it would seem his chances of staying in office are poor. Most are saying he would lose. Well, it turns out that is highly likely. This from ZeroHedge, “So with the main events of 2024 now in the rearview mirror we can conclude that this has been a catastrophic year for incumbents at elections.
And not just in the US where Democrats have lost ground relative to four years earlier, but incumbents have also lost ground in the UK, France, India, Japan and South Africa as well this year. It gets worse: an even more amazing stat comes from the FT, which reports that every governing party facing election in a developed country this year lost vote share, the first time this has ever happened! The interesting question is whether this trend will continue. The fact that this is the first time in over 120 years that the US incumbent party has lost three times in a row might hint at a more structural problem where politicians are unable to deliver against expectations in a world of lower growth and fairly regular shocks.
Maybe, as Jim Reid concludes, James Carville’s “It’s the economy, stupid” remains the key going forward. A world where productivity growth remains low doesn’t help any incumbent promising a brighter future. So, if we do get a productivity miracle at some point from AI then maybe promises can be kept. Then again, to assume that a bunch of woke chatbots can revolutionize the way we live and work, may be even more naive than thinking Kamala Harris could defeat Donald Trump.”
This is citizens realizing that their spend spend spend governments aren’t helping their lives yet all basically have the same agenda. I wonder when they will learn.
Looking Forwards…
LF#1
Well, another sign that all is not well, is that real estate prices are starting to move in the opposite direction of the ebullient stock market, more on that in a minute. Tilly Armstrong writes for the DailyMail, “Austin has become ‘ground zero’ for the downturn of the once-booming property market in Texas, a housing expert says.
The value of houses in the city are down a 20 percent since their pandemic peak, Nick Gerli, CEO of real estate data platform Reventure App, said. Meanwhile, he says the number of homes for sale is on the up. When housing supply outweighs demand, prices tend to fall – so values may drop even more. ‘Listings are now over 10,000, compared to 7,000 before the pandemic,’ he wrote in a post on social media site X. ‘Huge supply.’ The property guru has a grim warning for others in the state: Dallas could be next. It comes as Florida faces a catastrophic real estate crisis, which is seeing condo listings skyrocket as desperate owners try to flee.
The number of condos for sale in Florida increased by 53 percent in the year to July, according to Redfin. But the Lone Star State is quickly catching up – with a 42 percent rise in that time. In Fort Worth, listings have increased 65.4 percent and sales have fallen 33.3 percent. Meanwhile in Dallas, the number of condos for sale is up 61.7 percent, and in Austin listings have surged by 28.6 percent.”
Affordability is the issue folks. The PITI payment as it is known is what people use to buy a house and usually all they think of, wrongly. It stands for principal, interest, taxes, and insurance. The housing prices and interest rates have both went up so that’s two. Since home values have risen, the taxes, which are calculated on house values, have gone up, so that’s three. The insurance rates are rising because it is more expensive to replace and to repair, so that’s all four. The PITI payment has become a pity, as the American dream has trapped many people in a payment they can’t afford so they must remain renters or in their old house meaning they can’t take a new job somewhere else, relocate for better schools, or buy a larger house as their families grow.
This is hitting pandemic boomtowns though as the places they left during the pandemic are seeing a rise in prices and a low inventory. If you want to move back to high tax Illinois or New York, life is your oyster. God Bless your soul….
LF#2
In sharp contrast to the real estate market, the stock market rose the highest in history for the day after an inauguration. The Dow Jones rallied 1,300 points and it now trading at a record. Bitcoin is now over 80,000. Small caps rose over 5% on Wednesday alone. The dollar and interest rates also spiked as the threat of tariffs shuddered the world’s currencies. This from ZeroHedge, “From London to Tokyo, investors around the globe grappled with the far-reaching effects of a Trump presidency, which according to Bloomberg “is expected to bring steep tariffs on imported products, worsen trade tensions with China and increase pressure on Europe to ramp up defense spending.” Apparently, it is also sending risk assets soaring. The Mexican peso – viewed as the anti-Trump trade due to his threats to flood Mexico’s economy with tariffs – fell the most in three months and the euro led losses among Group-of-10 currencies.”
Hope is a good thing, maybe the best of things, but in these treacherous seas of global discontent and geopolitical strife, it might be good to remember another quote, hope don’t float.
LF#3
Since we have had 4 years of Don Trump as president before, I am not looking forward to it unless he has some advisers to help him avoid the last term’s mistakes. The first cabinet position will go to Susie Wiles, This from Nancy Cook and Michael Smith at Bloomberg, “Susie Wiles, the no-drama adult in the room who steered Donald Trump’s 2024 revival, quietly achieved a comeback of her own in becoming the first woman tapped to become White House chief of staff.
The Florida Republican operative, who Trump has called “the ice baby” and said “likes to stay in the background,” was the first to get a prized post in the new administration as hordes of party loyalists jockey for cabinet positions in Washington. Wiles, the 67-year-old daughter of famed NFL broadcaster Pat Summerall — heredity that Trump has praised as “good genetics” — has been in politics since 1980 when she worked on Ronald Reagan’s presidential campaign. That lineage and career has given her credibility with Trump, who trusts her as a sounding board and will listen to her warnings when his musings might go too far.”
Well let’s hope that Susie can help make his decisions better than when he last left office $7T in debt deeper than when he entered. I am disappointed to not see that conversation being had anywhere. I live in a deep state of disappointment.
Sincerely Yours,
C Thomas Printer
The Dow Jones finished trading …at 43,988.
The 10-year Treasury bond is at …at 4.306%
The price of Brent Crude is … at $73.87 per barrel.
The price of gold is … at $2,691/oz.
The price of silver is … at $31.43/oz.
I leave you with this from the information superhighway, I was kidnapped by mimes once. They did unspeakable things to me.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.