I encourage you to sign up to receive the video, text and charts from all of the presenters at last month’s Mauldin SIC. I attended most sessions but had a conflict listening to the panel discussion I provide you next. Watching the video is interesting as you can pick up on body language and tone when views are tested. You can sign up at Mauldin Economics here (note – I do not receive any compensation whatsoever).
Here is an intro to the panel discussion with Friedman, Mellon, Zulauf and Gave. Friedman talks geopolitics and he has an inside view. Follow his thinking and watch how it intersects with investment positioning and the forward macro outlook. Zulauf you now have a feel for… Mellon and Gave are brilliant. Here you go:
Moderator: Grant Williams
GRANT: Alright. Thanks very much. A star-studded lineup as you can see to my right here. I won’t bother introducing them. I’m sure you know who everybody is by now. Now, normally, being a “W”, this whole thing would go in alphabetical order. I was going to give you first crack, Felix, because you’ve probably spent a lot of time being the last guy called on alphabetically, but I think I want to start with a general view of Europe, and then I’m going to get down into some of the countries, so let’s go to George at the end. George, can you give us an overview. The European project, where do you see it in macro terms right now?
GEORGE: Well, when you look at Europe in 2008, 2007, and you look at Europe today, it is a wholly different dynamic. Brussels is in tense relationships, obviously, with Britain, with Poland, with Hungary, with Italy, with Switzerland as we were talking about it. The center is battling to hold on, and the periphery is basically wanting more room for maneuver. The essential problem of the EU is that it is merely a treaty. Embedded in that treaty is a concept of European identity, which isn’t there. I am Hungarian by birth. If I were in Germany, I don’t see my fellow citizens; I see German and history. NAFTA is an entity that is slightly larger than the EU in terms of GDP and population. And NAFTA doesn’t tell other countries… we don’t tell the Canadians how their courts should run. The Mexicans don’t tell us how we should drive our cars. It’s simply a prudential relationship and it works, and if it doesn’t work, we leave. Europe is now facing the fact that it has tried to bring together peoples who have warred with each other for generations, for centuries, and it worked beautifully during prosperity, but the first financial crisis… and there are always financial crises… started ripping it apart, and the Brussels bureaucracy has the subtlety of a hammer. Rather than trying to manage the situation in a win-win situation, it is trying to convince anybody of the catastrophe of redefining the relationship, and now this is the problem. It is, at the moment, a somewhat stable position; it hasn’t improved. But the underlying issue really is, what is not the economic benefit for belonging to the EU? There are some. But what is a political one… because a nation is a political entity, and there are good reasons for political interests, and the EU doesn’t want to recognize the vast diversity of what’s there.
GRANT: What do you think is the biggest stress point? What do you think is the most likely threat to come under the most pressure because there’s so many?
GEORGE: What’s going to become…?
GRANT: What’s the most crucial point for people to watch? Is it Italy? Is it Germany? Is it Eastern Europe? Where’s the biggest threat going to come to the people?
GEORGE: It will vary. At the moment, it’s the UK. The issue in the UK, the very serious issue, is the fact that the Scottish nation is between 44% and 51% in favor of leaving the British Union. And the IRA is back in small but deadly form. And the pressure that is built on Britain is insoluble because almost half the people want Brexit, almost half the people don’t want it, and however you leave it, it will be deeply dissatisfied. That’s this week’s problem. Next week’s problem may well be the deepest problem of Europe, which is that Germany exports 50% of its GDP. It is the fourth-largest economy in the world, and that is not sustainable. Half, you know, a drop of 10% in exports is 5% of GDP, roughly. When will that happen? Never, if Germany has any control over it, and Germany is desperate to keep the EU together. But what is the point that I see that is the most fragile point? It’s Germany. Germany because it is the most dependent on the EU, but it is also dependent on the United States, its largest export partner. How does it survive an American recession? So when we start looking at Europe, we look at the periphery and the problems that are there, but the center itself is not unstable at the moment but can be rapidly destabilized, and I think that’s the problem with Germany.
GRANT: We’ll come back to Germany because there’s a lot to talk about with Germany. It’s kind of misunderstood. But you brought up Britain. Obviously, Brexit is something that everybody has a view on, an opinion of it, the closer you get to it. Jim, you do business in the UK. Just talk a little bit about how you see Brexit, the chances of it actually happening, and what might happen to Britain if it doesn’t happen for some reason.
JIM: We are all suffering from what’s known as Brexaustion in the UK. That’s all that’s been going on for three years since the vote, and secondly, no one actually knows what’s going to happen, and whatever I say is probably going to be superseded by events tomorrow. But what I will say is that despite a barrage of leading economists and artists and all other sorts of people, the full referendum warning that the United Kingdom will be plunged into depression, that house prices will fall by 50%, and that half the population would leave, the UK has actually been a remarkably resilient economy. And this year, it will be the strongest growing of all the major economies in Europe again. And the public finances are now in reasonably good health. And the reason is that the UK is a flexible economy with a dynamic labor force. We also have extremely low unemployment, and the city of London, as far as I can see, is not being impaired at all by all this Brexit talk. However, we have a political impasse, as you said, George, and it’s one that has probably distracted people, probably caused the growth rate to be lower that it otherwise would be. I don’t know how it’s going to get resolved. I suspect that the way that Brexit gets resolved is that there’s a bigger European crisis in the offing that puts Brexit to one side. And that bigger crisis comes from the fact that we, I think, all agree, the “one size fits all” monetary policy. The move to constant federalization in Europe is both against the democratic will of most European people—and that will be seen in the European elections which are coming up next Thursday—and some fracture point will emerge. George was saying Germany. I do a lot of business in Germany. I think Germany is more resilient than probably most people think, but it has deep problems at the moment. I still think the fracture point is going to be Italy, and when we see what the Lega does next week in the elections, you’ll see just the terrible issues in Italy—which is youth unemployment still extremely high, general unemployment still extremely high, 20 years with no economic growth whatsoever, a sense of despair, terrible public finances, the highest GDP to debt ratio in the European Union… more than 130%, unsustainable public finances. That is the fracture point. And so that, in a way, will dwarf anything that Brexit and its woes can cause at the moment. But for the moment, the UK is at an impasse, but it’s not doing it any economic harm as far as I can see, or any significant economic harm.
GRANT: You guys are doing all the heavy lifting for me. You bring up Italy there, which is something obviously that’s been on a lot of people’s minds lately, like, a lot of reasons for the banking crisis, which is what people have been looking at, but the politics there is a real problem. You’ve got this fractional divisive group of people who have taken over the Parliament. It’s caused tremors to go through the European project. They’ve got Nigel Farage now, with this new Brexit Party. You’re leapfrogging the Tories. This populist uprising across Europe. You know when you talk about those numbers in Italy, it’s hard to imagine that a country could be 20 years in that kind of situation and we haven’t seen this happen sooner. The fact that this is happening now, does that mean it’s on a very fast road to something major happening in the political sphere that’s going to force Europe’s hand? This is to you, Jim. I’m sorry. I’m going to stay on you for now because you brought it up—whoever opens that can of worms gets to deal with it. JIM: Well, you say its populist but it’s the reflection of the people, isn’t it? It’s their frustration and their democratic right to have a view that, you know, the elites, as they’re called, may not agree with. And you know, the old way in the European Union, was to get people to vote and vote and vote again until the right answer was achieved. It’s not going to work in the United Kingdom, I don’t think. And it probably won’t work in Italy because they know… the people aren’t stupid, they know that the reason that Italy has been beggared is because the euro straight-jacket that the Italians had imposed on them was at the wrong price, and as a result the Italian industry was deeply uncompetitive, and they’ve had to have this internal devaluation, which the Spanish have managed much better than the Italians actually. And it’s just caused this horrible stagnation. And when you get into Italy, you can just see that it’s a country in quasi-economic despair and that’s very, very sad. So why wouldn’t they vote for what you call a populist party? And, what is the point at which they leave the euro? What is the point at which they might leave the European Union? We will not know that because they are not going to announce that in advance. The Greeks made the foolish error of announcing they were going to leave the euro in advance, and look what happened to them. So the Italians, if they do so, will do it overnight, and that would cause, by the way, the destruction of the European banking system.
GRANT: Yeah, yeah, Louis.
LOUIS: On this, I think, if you stick with the Marxist ideas that, you know, policy makers reflect an economic superstructure and that basically your political class serves the interest of the economic dominating class. Italy really stands out in Europe as being the one country where, you know, if you go to a dinner party with respectable people, and you talk about the end of the euro, and how you should leave the euro, it’s the one country in Europe where people don’t look at you like you’ve sprouted a second head. Everywhere else in Europe, the elites are fully embedded and fully bought in to the European project. In Spain, the elite is the old aristocracy that owns all the lands, and they have so much subsidies coming in from Brussels that, you know, they’ll never give up on the euro. And Germany, the elite is all the small and medium companies, the Mittelstand, et cetera, and they’ve loved the euro because they’ve basically stopped Italy and France from devaluing every ten years and undercutting their margins, so they’ve loved it. In France, the elites are the guys who went to Leynaud, and you know, the politicians who then go on to look for the jobs in Brussels, so they’re definitely not going to spit in the soup they’re eating. So Italy is the one country where the elite is basically all the northern industrialists who have been killed by euro. It’s also a very decentralized country, just like Germany. And, you know, if you run a factory in Bologna or outside of Milan or something, you’re the local… you’re the… employing the local guy… and now all of sudden, you know, now, over the past 20 years you have to fire people. It’s something that you live very strongly. And the reality is Italy, as a political construction, worked for 50 years by basically the north subsidizing the south. And the only way for that to work, for the north to subsidize the south, was to subsidize them with monkey money. You know, you just print, and devalue, and you add one zero to the lira, and you devalue every ten years. But now, if the north has to subsidized the south in deutsch marks, then it doesn’t work. And so Italy is the one place, the only place in Europe where you can talk to, you know, the elite of the country and you’ll find a number of people that are anti-euro.
GRANT: Well, you brought up the elite in France. Now there’s an upheaval down in France that… I’m astonished at how little reporting it seems to get, you know, the gilets jaunes protest. You had mentioned in your speech earlier on that it emanated from an imposition of further tax on petrol gas. Talk a little bit about what this means, because, I don’t know about anyone else in the audience, but I’ve read very little. You have to go looking for it, which I find remarkable given how long running it’s been and how serious it seems to be.
LOUIS: So you have a left wing geographer in France called Christophe Guilluy who wrote a very good book about basically what’s unfolding in France, five or six years ago, called La France [inaudible]. In his book, his thesis was very simple. It’s that in France— but also in Britain, and you saw that with Brexit; or in America, you saw that with Trump; et cetera—you now really have three classes of population. You have the population that lives inside the big cities, and they might work in finance or they might work in media or they might work in lobbying and in government, et cetera. And they’ve actually done very well with globalization, and they’ve benefitted tremendously from the zero interest rates because the real estate they own has gone through the roof, et cetera. And Guilluy calls these the type A people. Then you’ve got the type B people, who literally… who live usually 10 to 20 miles from the city center and are typically immigrants and they basically work in service for the type A people. And they might be your Uber driver, or your nanny, or your waiter at the restaurant. And then beyond that, you have basically the type C people who live in the countryside and who increasingly have been forgotten about by the type A people. And the point Guilluy made six years ago was he said, look, we keep cutting the services for the type C people. Fewer schools, fewer hospitals, fewer policemen in the countryside, et cetera, and it’s going to lead to a rebellion at some point. Now, I think the breaking point was basically what Macron did with his increase in taxes on gasoline. It was a direct increase on type C people, because they are the ones who need the cars to get around. People who live in the city, they don’t need the car. They go around on Boris Bikes. So you had an attempt, in essence, by Macron, to increase taxes on type C people to basically pay for the benefits of the type B people. And so the gilets jaunes, at its heart, was really a revolt of the type C people. They said, enough is enough. And you know, it’s understandable. In France, we have today the highest taxes in Europe, by far. We are 17th… out of all the European countries, we are 17th in terms of spending on public security on police and justice. We are 13th on healthcare, and we are 18th on education. So increasingly, people are thinking, hold on, I’m paying all this money, but the services that are provided to me keep slipping. So initially the gilets jaunes was a revolt from the type C people, and then about a month in, the type B people joined in. That’s when you had the riots in Paris, et cetera. And basically, the type C people said, alright, I’m out. I’m not going to participate in this. And since then, the gilets jaunes thing has been dwindling, but it’s evolved from a revolt of type C to type B. But make no mistake, it shows that France, as a nation today, is probably more divided than it’s ever been in any of our lifetimes.
GRANT: That would never work in New York because everyone is a type A person in New York. Felix, we’ve left you to the last. Sorry about that, but tell me, let’s get back to Germany, because, you know, when you talk about the stresses in Germany, optically, people look at it as the strength, the lynchpin of Europe, the strongest part, but as George pointed out, it perhaps could be the weakest part. Do you think that’s right, and if so, how do you think that plays out in the next sort of six to nine months?
FELIX: No, I think Germany is economically the strongest part, but it is very vulnerable. You know, the European Union, actually, was a great idea, and it was on the right path until they introduced the euro. This was one step too far, because the euro forced centralization, because the euro creates imbalances and those imbalances have to be rebalanced, and that forces a center through which the rebalances have to be done. That was a step too far. And the Germans probably originally didn’t do the euro because of their export industry because they did it out of their historic guilt that they have to do something… sacrifice something for Europe. As it turned out, it turned out completely different. The German industry was taking advantage of the euro because they were so much more competitive than all the others. And there is a misconstruction, actually, when you are the hegemon and the elephant in the room, of a trade breech. You should actually run deficits, then all your satellites can prosper with you. That’s what the US has done for decades for the rest of the world. Now, Germany did exactly the opposite. That is highly deflationary. It is actually a time bomb until it explodes because the others cannot live with that sort of construction. So there is a complete misconstruction with the euro, and the authorities now understand that there is a misconstruction, but they do not understand what the reason for the misconstruction is. I think some understand. Today, the politicians and those guys in the ECB would not vote for the euro as it is constructed. But they cannot go back, they do not know how to go back, and they are very much afraid of stepping back and the chaos it would create, et cetera, et cetera. So they just keep on… you know, and they just muddle through, sort of, and that’s where the problem is. And then you have the different philosophies. The French are centralists, you know. The Italians are creative chaotic. The Germans are very strict, and it just doesn’t work. And actually, Switzerland, where I’m from, would be the ideal role model, because we have four different cultures in one nation and it works. And it works because we have the only direct democracy in the world, and the people are above the government. The EU is just the other way around. They have now a strong Brussels and they want to dictate, and the message doesn’t arrive very well in the different nations. So it’s a messy construction, and I think we only get out of it in a crisis where something breaks, so I think the next recession will give us an answer.
GRANT: Now does it have to be a recession across Europe or is it just a recession in Germany?
FELIX: No, I think it will be across Europe when it happens. You know, there are interesting things going on, right now, in Germany. In Germany, the savings rate is rising pretty strongly, and the export orientation of the German economy, of course, creates the slowdown in Germany that we are seeing. And 30% of the work force will retire within the next 10 years. They are realizing that with the current interest rate situation—negative interest rates, zero interest rates—they cannot achieve the necessary actuarial capital for their retirement. So the savings rate is going up and actually beginning to weaken the domestic economy. So everything I see in Europe is moving in the wrong direction, in a way.
GRANT: Jim, you do a lot of business in Germany. This idea the world has that the Germans are efficient and great manufacturers. Is that really the case?
JIM: It’s definitely the case that they are the best manufacturers on the planet probably, along with the Japanese probably. But in services and in Grands Projets… I don’t know what the German word for “Grands Projets” is… but they’re not very good, and I’ll give you an example. The Brandenburg Airport in Berlin has been in the planning for 20 years. It was supposed to have opened 10 years ago. It is 10 times over budget. It is still not open, and they can’t find the light switch to switch the lights off. So, from the air at night, you can see the airport lit up and unusable. And the same thing applies, for instance, to Hamburg Symphony Hall.
FELIX: And the railroads.
JIM: And the railroads, same thing, yeah.
GRANT: Somebody show them the electricity bill and it will get switched off. JIM: But I also want to point out that I did have business in Germany, and I’ve just sold one third of it a couple of months ago, partly because there is an increased communization going on in Germany. This is populism but in a different form. You’ve heard of the AFD. That’s one element of it, but the other element is that people are resentful of rising rents by landlords, which is what I am in Germany, and there is a move by the Berlin city government, in parts of the Berlin city government, to basically expropriate property from large landlords and to freeze rents at lower levels and current levels. Now that makes Jeremy Corbyn look like a follower of Margaret Thatcher, and that sort of move is not well reflected in popular media.
FELIX: And that comes from a city that is already bankrupt.
JIM: Already bankrupt. And just one final point: the Germans have been running huge project surpluses—9% of GDP, I believe it was last year—against all the European rules. They’re supposed to be fined for that, and they’ve never had a fine imposed on them. The French, the same in terms of deficits. But those surpluses are beginning to melt away because economic growth slowed to a trickle, and they will have a hundred billion euro hole this year in their deficit.
So my view, if you want to look at it economically, is that German bunds are the greatest short we’ve ever had since the Second World War. You can, with impunity, short German bunds. There are serious stresses on the German economy, but the bond market is saying it’s still the strongest in Europe and it’s not. I completely agree with you.
FELIX: But the point is, if the ECB continues with the negative interest rate policy, which they probably will, you know… you can wait for a long time until those shorts work for you. JIM: Well, because I’m in the longevity business, I intend to.
GRANT: George, a question for you from the audience. It’s a great question. If the eurozone does fail, which clearly the panel on balance believes it will, what replaces it? What steps into the void?
GEORGE: If the eurozone fails, what emerges is 700 years of European history, and the nations that are still there will reassert themselves. Here’s the basic fact: the EU has tried to appropriate liberalism, but the foundation of liberalism is the right to national self-determination. Without the right to self-determination, nothing else works. Now the Hungarians have elected Orbán. He’s very popular. The Hungarians like what he’s doing. The European bureaucracy doesn’t. The same in Poland. And you see this phenomenon, which is crucial, most heavily in Eastern Europe. Europe tried to create this European sensibility. But the history of Eastern Europe is radically different than the rest of Europe. They suffered under the Communists; they suffered under Nazism. Their history for the past 70 years is utterly different, and they’ve responded differently. And now, the EU is trying to suppress that, making threats against the Poles, against the Hungarians… the Romanians are okay, so they’ll let them in. But that also repeats itself in other parts of Europe, against political parties that they don’t approve of. This sense of what I call the “Financial Times” sensibility, they approve and disapprove of certain things. But the one thing they don’t approve of is democracy. They do not approve of the fact that many parts of Europe will be voting for governments that see the world differently. The lack of respect for diversity in a region that is fundamentally diverse, whose very definition is diversity, simply will destroy the EU. How it destroys it? You can speculate a number of ways. Eastern Europe, Northeastern Europe is on the edge of saying: To hell with you. The British, well, they’re in chaos. But the chaos is over whether they say: The hell with you. The EU takes no responsibility for this diffusion. They take no responsibility for the manner in which they negotiated Brexit. There were many ways in which they could be flexible. There could be many ways in which they could be thoughtful. They were as destructive as they could be because they didn’t want the second-largest economy in Europe to leave. Germany certainly didn’t want the second-largest economy to leave. They don’t want Poland to be this way. They don’t want Hungary to be this way. You can’t have a political system from a diverse region in which the center is making war on the periphery… and that’s what you have right now. Where does it end? Somebody will tell them to go to hell. It may be the Italians because they’re suicidal. They’ll enjoy it. But whoever makes the move, it will devolve quickly. This is why they had to crush the Greeks. They didn’t merely have to make a deal with the Greeks. They had to crush the Greeks. They are continually trying to show the consequences of not behaving, very German.
FELIX: The problem of the European leaders is such that they see the different problems, but they cannot go to the decentralization structure they should, because they do not know how to do that, and they feel that it’s all falling apart when they do that. But that would be the ideal solution. A decentralized European Union, where you have sovereign nations cooperating in several things but not the center that dictates to all the others. Now, how do we come there? Maybe at some point, in a crisis, we will get there. My theory is that the result will exactly just be the opposite. They will move to more centralization, more dictation, more socialism, et cetera, et cetera.
GRANT: They’ll try.
FELIX: That’s my fear. They will try, and they will continue on that course until something breaks. Maybe it takes two or three recessions.
LOUIS: You know, an old saying is, how do you know a central bank policy has failed? And the answer is, you do it for twice as much and twice as long. And it’s a bit the same with European unification. You know, how do we know, how do we know it’s failed? Well, if you don’t like this, here’s twice as much. Back in the days of the Greek crisis, what people were saying was that Germany was torturing Greece, that Italy would hear the screams next door. And this, indeed, has been the modus operandi of Brussels. When we say: Okay, how’s it going to change? One way is we keep doing it more and more, and at some point, indeed, there’s a breaking point… whether it’s Italy or Hungary, or somebody slams the door. That’s one option. But perhaps… let’s try to be optimistic. I’m just going to throw an optimistic idea here because we could each like bear each other up all day long. We have the European elections coming. And these European elections, you know… forever what you had was the center right and the center left that would basically control 80% of the European Parliament, and then, you know, they’d get together, and they’d basically believe in more or less the same thing. And they’d say: Okay, you can have the head of the commission for agriculture; and our friend from Portugal can have foreign affairs; and jobs for the boys… and dish it out amongst ourselves et cetera. This time around, the European elections are going to be much more disruptive because you are going to have entering both a much bigger far-left contingent and a much bigger far-right contingent… and this from a whole bunch of countries. It used to be that France would always send a far-right contingent. That pretty much was the only one. But now you’re going to have a big far-right contingent from Italy, a big far-right contingent from Germany. And so, the old days, where basically the European Commission would arrange the jobs between themselves and put that up for approval by the European Parliament, it might not be that easy this time around. The horse trading that will have to take place for the building up of the European Commission could be very, very challenging this time. And, in fact, they are already preempting this. They are changing the rules where it had to be countries would vote for the top three jobs, it had to be by unanimity. Now they are saying: Okay, let’s do it by majority vote because otherwise we’ll never get it done. So we’re going to have, after these European Parliamentary elections, we’re going to have a much more unruly European Parliament, which perhaps, will keep in check the power of the European Commission.
GRANT: Well, I hope so. Well, we’ve spent a lot of time talking about macro issues. We’ve got seven minutes left. The time is just flying by. So, I want to get into a few specifics. Jim, you brought up Germany. You spoke about bund as being one of the great trade opportunities. What about German equities? Is it time to short them yet, or are we a little bit further away from that?
JIM: I think it depends. I mean, I do think that the German, old industrial guard has been messing up severely recently. So the problems with Bayer and the Monsanto issue and something… I was watching TV in my room before I came down here, and every second advert now is for, you know, if you’ve used Roundup and you think you might be sick as a result. And yesterday was a two-billion dollar award against Bayer. It was a very big mistake. Deutsche Bank is another example of that in the aborted merger talks with Commerzbank. You know, trying to put two weak banks together just doesn’t work. But there’s a lot of problems in the old… not the Mittelstand, which is the middle-sized companies in Germany, which are incredibly well run and generally extremely prosperous. Volkswagen is another example.
FELIX: And most of what they have messed up is their takeovers in the US. Even Deutsche Bank’s major problems are Banker’s Trust, and Daimler with Chrysler, and things like that, and they have really messed up. And Bayer now is destroying itself with the takeover of Monsanto.
JIM: So you can’t say: Is Germany a short? I think the better question is: Is the United States market a short? And that’s probably better for Louis to answer. There’s lots of monetary issues at stake there, but I think that Germany overall, as a market, is not particularly expensive. I don’t think it’s… nor is the euro expensive, by the way. The euro is not overvalued. It’s just… pockets of it are severely overvalued and pockets of it are severely undervalued. That’s the problem with the euro. I think the UK, by the way, is an outright buy, and I think it’s one of the cheapest markets in the world. And also the FTSE100, it’s… 70% of its revenues come from overseas, so it’s very well internationally exposed. And the pound, unless you think Jeremy Corbyn’s going to get in… and I would give you very long odds that he’s going to get in… he’s not going to get in. The pound is very undervalued, so I think that the UK is a market that you could buy now for the long term.
LOUIS: The difference between the dividend yield between the FTSE and the S&P is at an all-time high today. So now, UK, of all the major markets, UK is the one that is screaming bargain. To answer your question: Is Germany a short? Well, if you do think… and it seems like the voice in this panel is that Europe, basically the euro, will have some problems. The one that’s holding the bag will be Germany. It’s the German insurance companies, it’s the German banks, it’s the German pension funds. It’s the old story, you know, if you owe the bank a million dollars the bank owns you; if you owe the bank a hundred billion dollars, you own the bank. And the big problem today… you look at Germany, they’ve been lending money to Italy, to Greece, to Spain, so that these countries would buy their Mercedes cars. They could have just put the Mercedes cars on a boat in Hamburg and sunk the boat, and it would have been the same thing at the end of the day.
FELIX: The German market is very cheap. It appears very cheap, but the German index, if you look at the composition of the index, it’s old, old industries. It’s old and cyclical industries. And cyclical industries are cheap at the top, you know, and they are expensive at the bottom. My view is that this general decline in global equities into the second half, for a good low, will then find some bottom, and a rally that will depend on the degree of the stimulation that will be put on because if the world economy surprises on the downside first, as I expect, then I think there will be stimulus coming through that may not help the economy much, but it will stabilize it. The L-shape type of recovery. But it will do wonders for the stock market because all the extra money that comes, needs to find a place.
GRANT: Sure. Look, we’ve got two and a half minutes left. We [inaudible]. We were going to talk about the EU, but we’ve gone through all this stuff now, so we have to just get a few opinions on what happens to the euro. Obviously, we’re all pretty bearish on the European project. It is certainly under pressure. Louis, I’ll start with you. The euro, what’s your take on it? Is it a short here?
LOUIS: I don’t think it’s a short. I think it’s very cheap. I think in fairness, most countries now run trade surpluses. You’ve had 10 years of pretty much every country tightening its belt. I’m not rip-roaring to deploy capital in Europe, but, you know, to be honest, I think the euro is cheap enough here that I wouldn’t want to short it. I’m not rushing to buy it either. To me, it’s not an obvious trade one way or another.
GRANT: George, your views on the euro, does it go away, is it here to stay?
GEORGE: Well, since I was the one who said Apple will never fly, I won’t push the issue, but I will go back to this. We learned in China and learned in Japan that export-dependent economies live and die by their customers. They don’t determine their future. Their customers do. Germany is heavily involved in every other European country, and the United States, and other places. The willingness and the ability of these countries to buy German goods determines Germany’s future. So the problem that China had and Japan had was they did not control their future. Their customers did. Germany is in the same position. Inevitably the problem is that Europe is filled with irresponsible countries from an economic point of view, and at a certain point, this irresponsibility will be reflected in German exports to them. The United States is likely to have a recession. I don’t want to get into a religious argument, but it’s likely to have a recession, and we are the largest customer. So the question is not what Germany wants or Germany plans to do. They sell to foreigners. If the foreigners don’t buy, they’ve got to really scramble, and I have to say that when I look at the world’s ability to purchase German goods in the next few years and the goods that Germany has to offer, then I look at this and I say, I don’t see how the center holds. They may manage for a year or two, but at a certain point, as with China, as with Japan, it simply comes home to roost, and I think that’s what we’re looking at.
GRANT: Well, perfect. You finished exactly as the clock turned to zero, so George, Louis, Jim, Felix, thank you so much. If you could give them a round of applause.