And with some justification, for China and the two Asian “tigers” share some alluring characteristics like:

• A highly competitive and innovative manufacturing industry.
• Excellent government and workforce discipline.
• Modest fiscal and monetary stimulus (or, like China, they started from a position of budget surplus).
• And an export orientation that seems likely to benefit quickly as order is restored in the global trading economy.

But there’s another country that shares those characteristics. It’s nowhere near East Asia. But investors can expect this particular economy to also bounce back from this recession with considerable vigor.

I’m talking about the center of supposedly sclerotic Old Europe itself: Germany.

Germany lacks the huge financial sector that has been the bane of the United States and British economies, but it has manufacturing industry that is the envy of the world. Its balance of payments surplus was $205.8 billion in the 12 months through April, and is expected to be 4.4% of gross domestic product (GDP) for all of 2009.

The German government resisted the urge to splurge on “stimulus” packages, and consequently is expected to run a budget deficit of only 4.4% of GDP in 2009 – a ratio that’s far smaller than those of other “advanced” economies, and one that should be easy to finance. Furthermore, the European Central Bank (ECB) has been the most conservative of all major central banks outside Brazil, and German Chancellor Angela Merkel has indicated pretty strongly that it had better stay that way, as she is worried about inflation.

German labor discipline is world-famous, partly because of its sophisticated system of “mitbestimmung” (co-determination) between industry and labor unions. Thus, Germany loses only four days to strikes per 1,000 employees in an average year, an average that’s well below the same statistic for each of its European neighbors. Skill levels are also excellent, because of the superior German education system, much of which is run in partnership with industry.

Because of its more conservative fiscal stance – with less stimulus – Germany has suffered through a much-deeper recession than many other countries, with first-quarter GDP down 6.9% from the previous year.

By comparison, economic output declined 2.5% in the United States and 4.2% in Korea, but 8.8% in Japan and 10.2% in Taiwan.  However, manufacturing orders stabilized in April and it seems likely that Germany will experience a return to growth in the second half of 2009. The ZEW indicator of German economic sentiment for June came in at 44.8 – up more than 13 points from the previous month, and a three-year high. When Germany starts to recover, its economic rebound is likely to be healthy, without resurgent inflation or bond market turmoil, because of Germany’s cautious fiscal and monetary policies.

What to buy? Well, for a start there’s the German exchange-traded fund (ETF), the iShares MSCI Germany Index (NYSE:EWG). At $489 million, it’s surprisingly small, but it has a Price/Earnings (P/E) ratio of 12 and a yield of 6.4%, meaning it provides shareholders with a decent income. It also provides a much-broader exposure to the German market than do the American Depository Receipt (ADR) shares, which relate only to very large companies, and not to the highly successful “mittelstand” medium-sized enterprises.

There are eight German companies whose ADRs have a sponsored full listing on the New York Stock Exchange (several others have moved to the Pink Sheets recently because of the costs of Sarbanes-Oxley compliance). Of these, Infineon Technologies AG (OTC ADR: IFNNY), a semiconductor manufacturer, is making a loss, while Qimonda AG (OTC ADR: QMNDQ), a maker of computer memory devices, is in bankruptcy.
That leaves six possible profit plays:

• Allianz SE: (NYSE ADR: AZ): This huge insurance company sold its shares in Dresdner Bank AG and is now a shareholder in Commerzbank AG (OTC ADR: CRZBY). Allianz lost money in 2008 because of investment losses, but is trading on only nine times projected 2009 earnings, with a 5% dividend yield.

• Daimler AG (NYSE ADR: DAI): A major automaker, and producer of the upscale Mercedes Benz brand (including the fashionable “Smart” small car), Daimler is now thankfully devoid of Chrysler LLCinvolvement. Daimler gratuitously tossed away a considerable amount of shareholder value with two foolish diversifications – into aerospace in the 1980s and into Chrysler in the 1990s. If management can keep its eyes on the road (stay on the black stuff between the trees), this stock could be quite attractive. Daimler’s shares are trading at 20 times recession-year earnings. The dividend yield is only 1.7%, but overall there’s a lot of upside in an economic recovery.

• Deutsche Bank AG (NYSE ADR: DB): This is Germany’s premier bank and investment bank, but it is currently losing money and the stock yields only 1%. For a play on a German financial sector recovery, I prefer Allianz.

• Deutsche Telekom AG (NYSE ADR: DT): Germany’s traditional fixed-line telephone service, Deutsche Telekom also has mobile-phone operations and has increased its revenue by also offering high-speed Internet access. Currently operating at a loss, DT also cut its dividend. Avoid – there are better telecom plays out there.

• SAP AG (NYSE ADR: SAP):  A globally known provider of so-called “enterprise resource planning” (ERP) software, SAP shares have a dividend yield of only 1.2%, and are trading at 19 times prospective earnings. The stock looks a bit pricey to me: I like the sector, but not SAP’s bureaucracy-friendly product line.

• Siemens AG (NYSE ADR: SI): With its wide array of product offerings, Siemens is operationally akin to General Electric Co. (NYSE: GE). Indeed, with  heavy-equipment offerings that range from locomotives to electric power plants, Siemens is selling the kinds of products that are likely to benefit from heavy “stimulus” spending worldwide. The company has recovered from losses in 2006. But the shares are trading at only 11 times estimated earnings for the 12 months that end in September. That low valuation, coupled with a nice dividend yield of 2.9%, makes the stock appear fairly attractive.

Source: Germany: Emerging Market Profit Potential, With (Only) Developed Market Risk

GM’s Swedish unit Saab is filing for protection from creditors, so that it can reorganize into a business independent of GM… Hmmm… Everyone is jumping the GM ship…

Well, it’s Friday, and that means yesterday we saw the print of the Weekly Initial Jobless Claims… And once again, the rot on labor’s vine was exposed… The total Claims files last week was 627K, the experts had forecast 600K… But here’s the thing that really hits home… The number of Americans collecting unemployment benefits has jumped to 4.99 Million, and each week and new record number is established… It certainly tells me that the labor market is still deteriorating…

At this rate… Obama’s hope that his $787 Stimulus would create 3.5 million jobs, might fall well short even if it’s a Smashing Success!

There was a boat-load of other data yesterday, of which none of it was good, except the Leading Indicators, which again will be goosed up by stuff that ends up being no good to the economy!

Today, we end the week with the “stupid” CPI data for January… Long Time readers know my dislike for CPI and what it does to people who depend on checks each month, and to our pocketbooks… WE all Know inflation is higher than CPI says it is, but the Gov’t, and the markets go with CPI as the “official” inflation gauge… Dolts… All of them!

Well… The euro had a day in the sun, and today the clouds are forming over the single unit once again. Yesterday, I left you with a rallying euro, based on a rumor that Germany would step in to ease the financial turmoil in Europe (Eastern & Western)… Well, Germany’s Chancellor Angela Merkel left the markets “wanting” more… She acknowledged that Germany “could” help… But didn’t have a plan, didn’t have an idea of what to do, didn’t do squat! Why have the stupid press conference if that’s all you’re going to do! Get up there, have your plan, and act like you know what you’re doing… People will follow! Geez Louise! Now I have to rip on the dolts overseas too? I’m getting too old for this stuff!

So… The euro is back to 1.26 and change this morning, and the other currencies are following along… Risk Aversion has plopped right down, smack dab in the middle of what appeared to be a Risk Takers “sighting”…

Gold even saw selling as the day went along and the Risk Aversion crowd won the battle… That is until the overnight markets saw the lower prices in Gold, and you should have seen the “rush” into buy Gold! The shiny metal is up $13 this morning to $988.30… I heard one our sales people talking to a prospective buyer on the phone… The prospective buyer admitted wanting to buy Gold below $900, and was very upset to learn it had leaped over $900 a couple of weeks ago, and not looked back. Shoot Rudy! You never know, it could fall back there again… But the view from the cheap seats, where I sit, is a changing landscape, where fiat currencies are traded in for hard assets, like Gold… I’ve mentioned this for the past couple of weeks now, so this shouldn’t come as any shock to you dear reader… That is unless… You just “delete” the Pfennig each day! OH! The Shock! The Horror! The Humanity!

On a sidebar… I mention that, because one day about 4 years ago, Chris Gaffney and I were meeting with some investment advisors that we knew from Mark Twain Bank days… And I told them they should sign up for the Pfennig… Chris, then said, “if you don’t want to read it you can always just delete it”… Of course he didn’t mean it the way it sounded, but I give him a very difficult time still today… As evidenced by the above!

One currency that had moved stealth-like to higher ground VS the dollar since the beginning of 2009, was Indian rupees… Notice, I said “was”… As all that stealth-like move to higher ground VS the dollar was wiped out this week… I saw a headline last night that said this was the worst performance week by the rupee… OUCH! Time for the Central Bank to get back on the intervention horse, and repair this damage…

While I wrote those last two paragraphs, Gold has moved up another $2!

There was more selling in stocks yesterday as the Dow fell 1.2% to a new five-and-a-half year low, breaking through the previous bear-market closing low of 7552.29 hit on November 20, 2008.

And during my radio interview yesterday, I was asked about the comments from former Fed Chairman, Greenspan, that he “favored nationalization of banks”… I had seen that comment a day earlier and even commented to the Big Boss, Frank Trotter, that he sure didn’t make comments like that when he was the Fed Chairman… And referred to as the “Maestro” and “Mr. Free Markets” But now that he is retired and looking at the mess he created, and yes folks, he wasn’t the sole culprit, but he was the “provider”… And now that he’s looking at the mess he created, he thinks we’re in a huge pile of dookie, and had better do something, fast!

My friend, Bill Bonner, of the Daily Reckoning, (www.dailyreckoning) had this to say about Greenspan’s comments… “Greenspan backs nationalization,” says a headline.

Well, that does it for us here at The Daily Reckoning. If Greenspan is in favor of it, we’re against it. No one man bears more responsibility for the present worldwide financial crisis and coming depression that Alan Greenspan.

The Fed’s job is to take the punchbowl away when the party gets too wild, said former Fed chairman William McChesney Martin. Greenspan did no such thing. As soon as the party began to quiet down and people began fumbling for their car keys, Greenspan added more rum to the punch and turned up the music. By the time the credit cops finally shut it down, people were dancing on tabletops all over the world.”

This “nationalization” cry is a very bad idea folks… Very bad… How bad? Very Bad! Did I say that it was a Very Bad idea? OK… Is that clear? … Crystal… I hope!

Ty Keough sent me a note on something he saw while watching Jay Leno the other night. So, let me set the stage for this note… It’s Monday night, the country had celebrated President’s Day… And President Obama celebrated Past President’s Day by signing the $787 Billion Stimulus Bill… OK.. Here’s what Jay Leno had to say…

“Today was Presidents Day. Congress commemorated George Washington’s throwing a dollar across the Potomac by throwing $780 billion down a rat hole.”

I see where the New York State Attorney is taking a run at the Bank of America / Merrill Lynch merger that took place last year… NY State Attorney, Mr. Cuomo’s office is trying to determine if investors were misled about the depth of Merrill’s losses in late 2008 and whether details of the bonuses to Merrill employees, contained in a nonpublic document, should have been disclosed to investors. Now… I’m not saying that there was anything misleading or scandalous here… But it reminds me of about 8 years ago… Remember?

Remember about 8 years ago, when the tech-bubble burst, and we had one Corporate Scandal after another? Well, we’re not doing too well these days either… Madoff… Stanford… And there will be more… I shake my head in disgust…

Time to head to the Big Finish…

Currencies today 2/20/09: A$ .6415, kiwi .5075, C$ .7950, euro 1.2640, sterling 1.4350, Swiss .8450, rand 10.1650, krone 6.9125, SEK 8.7365, forint 241.50, zloty 3.76, koruna 22.8825, yen 94, sing 1.5360, HKD 7.7540, INR 49.77, China 6.8370, pesos 14.77, BRL 2.3850, dollar index 87.63, Oil $37.75, Silver $14.36, and Gold… $993.65 (still moving higher this morning!)

Source: Labor Market Continues To Deteriorate