I think that’s wrong. It’s an erroneous viewpoint that’s symptomatic of the short memories of the chattering media. It’s also one that could cause investors to miss out on one of the best profit plays in the global marketplace today.

I’m talking about Germany – the real powerhouse of Europe.

The “New” Germany

From the 1950s to the 1980s, West Germany consistently delivered high growth rates and low inflation. West German engineering proved superior to any other on the planet. And West German living standards rose far above anywhere else in Europe.

Then came 1990.

East and West Germany were reunited and an economic malaise set in. Instead of unifying the two currencies at a ratio of two Ostmarks to one Deutsche Mark, which would have kept East German labor cheap and competitive, the politicians unified the currencies at a rate of one to one.

That meant that East German labor was instantly priced out of the world market. And with good reason: It now offered Soviet-sector efficiency and skill – but at West German costs levels. Consequently, East Germany went through more than a decade of very high unemployment. German taxpayers went through more than a decade of huge subsidies to the former East Germany to prop up that region’s living standards and retrain its labor.

However, since the excellent German high school education system was quickly established throughout the country, the burden of reunification was a problem that did not last forever. What ultimately happened was that younger, fully trained workers in East Germany replaced their inferior Communist-era parents.

From about 2005 onward, the financial cloud of reunification costs began to lift. During the last few years, Germany’s economic performance has been notably better than its European competitors. Against Italy alone, for example, Germany’s competitiveness has improved by more than 20% since Europe’s currencies were unified in 1999.

The German economy has been held down by a tax burden that’s high by global standards. Its tax system suffers from excessive complexity and from draconian enforcement. Small businesses, for example must pay a 14% trade tax – on top of the standard corporate income tax that all businesses must pay. The trade tax goes to the “lander” (the states), rather than to the federal government.

Despite such problems, Germany has played it smart in several key areas. Unlike the United States and many other countries, Germany did not engage in fiscal stimulus. Indeed, the Social Democrat Finance Minister Peer Steinbruck last winter referred to Britain’s huge fiscal stimulus plans as “crass Keynesianism.” That showed that Germany has a true consensus against the stimulus foolishness. Germany’s budget deficit is expected by The Economist panel of forecasters to be only 4.6% of gross domestic product (GDP) in 2009, far below its rich-country competitors. Thus, even though Germany’s taxes are high, they will not be forced further upwards by zooming budget deficits.

The Angela Merkel Era Begins

Merkel’s election as German Chancellor is important, because it enables her to govern in coalition with the most free-market party, the Free Democrats, who are committed to lowering taxes and freeing up some of Germany’s restrictive labor laws.

This should not be taken too far. The Free Democrat leader Guido Westerwelle, flushed with victory, pledged Sunday night that the new government would act “responsibly” – not exactly “Hope and Change” as a slogan! Nevertheless, the Frankfurt market rose on the election result, as it should have done.

Germany is sometimes knocked for its export orientation. Its balance-of-payments surplus was $179.4 billion for the fiscal year that ended June 30, and is expected to be 4.0% of GDP this year.

Rest assured, however, that this is strength, and not a weakness. With world trade recovering, the German economy can be expected to benefit. Just look at Germany’s auto sector, which may be the most well rounded in the world. It boasts such strong luxury brands as Mercedes (NYSE ADR: DAI), Porsche and Audi. And it includes such high-volume – but innovative – manufacturers as Volkswagen AG (OTC ADR: VLKAY). German automakers are likely to gain market share against faltering U.S. competitors in the coming global recovery.

Another plus: Germany’s savings rate rose to 12.8% of GDP in the first half of 2009, a 16-year record. That compares with the feeble rate of only 4% in the United States, up from close to zero in the preceding three years. In a competitive world with the financial sector in difficulty, it’s better to be a capital-rich country running a trade surplus than the opposite, like the United States.

The economic recovery is a mixed bag from one market to another. But in Germany, it seems in Germany to be proceeding briskly. GDP, which fell sharply in the first quarter, rose at a 1.3% annual rate in the second quarter. Manufacturing orders rose by 3.5% in July, after a 3.8% rise in June. The ZEW index of economic sentiment has risen in each of the last six months, reaching a healthy 57.7 (50 is neutral) in September.

With competitive manufacturing, a business-friendly government and plenty of domestic capital, Germany is about as healthy an economy as there is in the world today. You should think about staking a claim to this outlook, even if it’s only the MSCI Germany Exchange-Traded Fund (NYSE: EWG).

Source: Why You Should Invest in the ‘New’ Germany

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

• Abu Dhabi’s state-controlled International Petroleum Investment Company (IPIC) said it would buy a 9.1% stake in the German automaker Daimler AG (DAI) for almost $2.72 billion (2 billion euros). It also pumped $1.41 billion into Aabar Investment PJSC, giving the Middle East emirate majority control in the IPIC, Reuters reported.

• Tata Motors Ltd. (ADR: TTM) announced it will begin sales of the Nano, the world’s cheapest car. It will accept bookings for the new car from April 9 and April 25, and customers will have to pay full price (about $2,000) as a deposit, Bloomberg reported.

• Walgreen Co. (WAG) took reconstruction charges and spent more promoting nonprescription items in its second-fiscal quarter ended Feb. 28, leading to a profit of $640 million, or 65 cents per share. The earnings beat expectations, and Morningstar Senior Analyst Mitch Corwin told Reuters that he believes the company will “emerge from this downturn a better firm.”

• U.S. banks now face increasing loan delinquencies from owners of skyscrapers and shopping malls, as commercial property prices plummet. Commercial property prices are down almost 20% in the past year, and with the global recession worsening, there’s “significant stress” in the market, William Schwartz, a credit analyst at DBRS Inc. in New York, told Bloomberg. The country’s 10 biggest banks have $327.6 billion in commercial mortgages, which face a wave of defaults as office vacancies grow and retailers and casinos go bankrupt.

• Gannett Co Inc. (GCI) will force employees to take a new round of furloughs in April, May and June to save money as newspaper advertising revenue slides. Gannett was among the first U.S. newspaper publishers to furlough workers to cut costs as ad revenue sinks and people forsake printed papers to get free news on the Internet. The furloughs come after a one-week unpaid leave saved the company $20 million, according to a memo from a company executive obtained by Reuters.

• Oil prices hit their highest level in nearly three months yesterday (Monday) as a U.S. plan to purge banks of toxic assets triggered a rally on Wall Street, Reuters reported. U.S. crude rose $1.73 to settle at $53.80 a barrel on the New York Mercantile Exchange, after climbing as high as $54.05, its highest price since December 1. London Brent crude rose $2.25 to $53.47. Dealers said the bank plan could brighten the outlook for global business and consumer energy demand.

• TreeHouse Foods Inc. (THS), whose largest customer is Wal-Mart Stores Inc. (WMT), said the recession hasn’t stalled plans to make “substantial” acquisitions and reach $2 billion in sales in a consolidating private-label food industry, Bloomberg reported. The recession has spurred growth in  private-label goods from name brands as consumers look for ways to save money. Treehouse, whose roots trace back to Keebler elves, has gained 24% in the past 12 months, compared with a 39% drop in the Standard & Poor’s Smallcap 600 Index (IJR).

Source: Global Investment News Briefs Tuesday March 24, 2009

Instead of direct financing assistance, it looks like the Bush Administration will speed up a $25 billion loan program that was approved by Congress in September and that’s aimed at helping automakers develop more-fuel-efficient vehicles. The program is administered by the U.S. Department of Energy. The administration is also believed to have asked the U.S. Commerce Department to explore other ways that aid could be brought to the automakers – without expanding the scope of the bailout package.

The so-called “Big Three” automakers – GM, Chrysler, and Ford Motor Co. (F) – are in need of government assistance after being pushed to the brink of bankruptcy: Foreign competition and a slumping economy have combined to push vehicle sales down to their lowest level in 15 years.

GM has been in talks with Cerberus Capital Management LP about buying Chrysler since September. But potential investors in the deal have been hesitant to back the merger without the safety net of federal assistance, or a government guarantee of some sort. GM’s inability to secure financing at a time when credit is hard to come by and auto sales are in decline has left the No. 1 U.S. automaker with few options other than appealing to the government.

GM spokesman Greg Martin said in late October that the company had asked the Treasury Department to broaden recently passed legislation, intended to bolster banks and financial institutions, to include auto companies.

In fact, General Motors Chairman G. Richard “Rick” Wagoner Jr. reportedly went right to Treasury Secretary Henry M. “Hank” Paulson Jr. and lobbied for the government to provide emergency financial aid to the Big Three via the $700 billion bailout plan.

Badly in Need of a Bailout

GM desperately needs some sort of outside funding, as the company lost $18.8 billion in the first six months of the year, and is hemorrhaging about $1 billion in cash each month. That has raised the prospect of bankruptcy for the company. GM had $21 billion as of June, but a merger with Chrysler would give the company access to another $12 billion in cash.

Cerberus bought Chrysler from former parent Daimler AG (DAI) last year for an estimated $7.4 billion. But the new owner hasn’t proven anymore adept at arresting Chrysler’s financial and market-share declines. Chrysler, perennially the smallest of the Big Three, has seen its sales fall by 25% — almost double the 12.8% overall decline in U.S. auto sales. Chrysler has been hurt because its fleet of pickup trucks, minivans, sport utility vehicles and high-performance cars include a number of gas guzzlers – popular for their performance when fuel prices are low, but an albatross to market when oil prices were at record highs.

Cerberus had buyout discussions with the Japanese automaker Nissan Motor Co. Ltd. (ADR: NSANY) – and Nissan’s French partner, Renault SA – about recruiting Chrysler into its international auto alliance. But Chrysler has apparently decided to focus exclusively on the potential for a deal with General Motors.

Just how deep the Big Three’s problems actually are will become very clear this week: Sales figures for October will be released this week as part of the third-quarter earnings reports that Ford and GM are scheduled to release.

Industry sales fell 26.6%, but many analysts believe that October could be even worse. Edmunds.com, a well-known auto-industry researcher, is predicting a sales decline of roughly 30%, The Times reported.

Should any of Detroit’s Big Three go bankrupt the consequences for the U.S. economy would be both deep and long lasting. Together, the companies employ more than 200,000 Americans, and support millions more U.S. workers indirectly through suppliers and dealerships. And that doesn’t count the estimated 1 million Americans – including many retired autoworkers – who rely upon the U.S. auto companies for pension and healthcare benefits. Many of those retirees already saw their benefits suffer severe cutbacks as the carmakers struggled to find cost-savings. Any new cutbacks would undoubtedly affect them, too.

The unemployment rate hit 6.1% in September and continues to rise. Some analysts anticipate the jobless rate could climb as high as 8.5% to 10% next year. With a jobless rate that reached 8.7% in September, the state of Michigan has the highest unemployment rate in the country.

Alternative Energy is No Longer an Alternative

If bailout money isn’t an option, the first step for automakers is to get the Energy Department to expedite the release of the $25 billion in low-interest loans for GM, Chrysler and the Ford Motor Co.

The loan program is viewed as key to the U.S. auto industry’s future – allowing the three U.S. carmakers to use government money to develop fleets of new, more-fuel-efficient cars and trucks, new hybrid technologies, and new powerplants to run these new vehicles. By doing that, the automakers could then take the money from the corporate coffers that would otherwise have been used for this hybrid research and development and redirect it for use modernizing plants and developing new, more-competitive production techniques.

“The auto companies are clearly running out of cash, and badly in need of more liquidity,” David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., told The Times. “Releasing the $25 billion in loans is a necessary first step.”

Getting Political

Like the U.S. defense industry, the U.S. auto industry has always enjoyed strong political support. And the current period is no exception. Elected officials in states with a heavy automotive employment base are rallying around the Big Three. Just last week, the governors of Michigan, Ohio, New York, Kentucky, Delaware and South Dakota wrote a letter to Treasury Secretary Paulson and U.S. Federal Reserve Chairman Ben S. Bernanke, urging “immediate action” to assist the foundering industry.

“While all sectors of the economy are experiencing difficult times, the automotive industry is particularly challenged,” the letter said. “As a result, the financial well-being of other major industries and millions of American citizens are at risk.”

But with the presidential election set for today (Tuesday), it’s unclear if some of the Bush Administration’s reluctance to add the auto industry to the bailout plan is part of a concern about setting a precedent that could open the door to other industries – further boosting the rescue plan’s ultimate cost – or if the administration is seeking to avoid making any decisions that could subsequently conflict with the goals of the incoming president. For instance, the Democratic nominee, U.S. Sen. Barack Obama, D-Ill., has said in recent days that he supports increasing aid to the troubled auto companies, while Republican hopeful John McCain, R-Ariz., has not said whether he would support auto-sector aid beyond the $25 billion, The Times reported.
And, as Money Morning has reported, President George Bush realizes that some decisions about how the bailout will be administered will have to be left to the next president.

Source: Government Won’t Extend $700 Billion Bailout Plan to U.S. “Big Three”

• Visa Inc. (V) and MasterCard Inc. (MA) have settled an antitrust suit with Discover Financial Services Inc. (DFS) rather than go to trial, sending Discover shares up almost 13% yesterday (Tuesday). Discover had filed a lawsuit against the two credit card processors seeking $6 billion in damages. The suit alleged that MasterCard and Visa prevented member banks from issuing Discover cards, Reuters reported.

• Daimler AG (DAI) yesterday (Tuesday) announced it would cut 3,500 jobs and close two North American plants in response to declining sales growth. The German automaker also plans to discontinue its Sterling-brand truck line, MarketWatch reported. The plant closures will affect Daimler’s St. Thomas, Ontario and Portland, Oregon plants.

• Apple Inc. (AAPL) will for the first time sell a MacBook for less than $1,000 during the coming holiday season, Chief Executive Officer Steve Jobs announced yesterday (Tuesday). “Demand is going to be good,” Jobs said of the MacBooks, Bloomberg News reported. “We’re making a lot of them.”

• Johnson Controls Inc. (JCI) yesterday (Tuesday) projected a 16% decline in earnings over the next fiscal year. The Milwaukee-based company manufactures car batteries and seats and has suffered as auto sales declined in the United States and abroad. “While we believe recent economic weakness was clearly partly priced in, our sense from management is that automotive on both sides of the Atlantic is proving much tougher than expected,” JPMorgan Chase & Co. (JPM) analyst Himanshu Patel said in a research note Tuesday, The Wall Street Journal reported.

• Light, sweet crude for November delivery yesterday (Tuesday) fell $2.56 to settle at $78.63 on the New York Mercantile Exchange, amid signs of dwindling world energy demand. Gasoline prices have followed oil’s precipitous decline, falling 23% from the record average of $4.14 a gallon reached July 17 to $3.163, according to auto club AAA.

• The Bush administration said yesterday (Tuesday) that the deficit for the budget year ended Sept. 30 was $454.8 billion – more than double the $161.5 billion recorded in 2007. It surpassed the previous record of $413 billion set in 2004. Some analysts believe that next year’s deficit could easily top $700 billion, according to The Associated Press.

• PepsiCo Inc. (PEP) said yesterday (Tuesday) that it would eliminate 3,300 jobs and close down six plants in an effort to save $1.2 billion over the next three years, The Associated Press reported. The announcement came as the company reported a 9.5% drop in third-quarter profit. The job cuts equate to roughly 1.8% of Pepsi’s global work force of about 185,000 employees.

SOurce: Global Investing Roundups Wednesday, October 15th, 2008

• Oil prices slid back below $106 a barrel yesterday (Wednesday) after the Energy Information Administration said demand for gasoline over the four weeks ended Sept. 19 was 3.5% lower than a year earlier, averaging 9 million barrels a day. Light, sweet crude for November delivery fell 88 cents to settle at $105.73 a barrel on the New York Mercantile Exchange after having risen about $15 in the past week.

• Prices of existing homes fell by record amounts in August and the rate of sales tumbled the National Association of Realtors said yesterday (Wednesday). The pace of existing home sales decreased 2.2% to an annual pace of 4.91 million units while the median national home price declined a record 9.5% to $203,100, the group said.

• Nike Inc. (NKE) said yesterday (Wednesday) that it posted a 10% rise in adjusted first-quarter earnings. First-quarter net profit was $510.5 million, or $1.03 per share, down from $569.7 million, or $1.12 per share, a year earlier. But that was largely due to a $105.4 million tax benefit in 2007. Revenue rose 17% to $5.4 billion in the quarter.

• General Motors Corp. (GM) is looking to sell a plant in Strasbourg, France, and will entertain possible buyers next month when it goes to sell its Hummer SUV brand, Reuters reported. The company previously outlined a plan to raise up to $4 billion by next year, but it did not mention the Stasbourg plant. GM said it would make further announcements about its asset sales program in the fourth quarter.

• Digg Inc., the Web site that allows users to vote on news stories, yesterday (Wednesday) raised another $28.7 million from venture-capital investors. Digg’s Chief Executive Jay Adelson says the company will use the funds to expand the size of its current staff and to create regional versions of the site, The New York Times reported.

• Overall ad spending was down 1.6% in the first-half of 2008, according to a recent study from TNS, a division of Taylor Nelson Sofres PLC (PINK: TYNLF) that tracks ad spending across 20 media segments, Forbes reported. Second-half results could be higher due to the media blitz surrounding the Summer Olympics.

• Yahoo! Inc. (YHOO) yesterday (Wednesday) introduced an upgrade to its online advertising platform. The new service known as APT is targeted at winning back display ad market share from rivals, The Wall Street Journal reported.

• Daimler AG (DAI) is in talks with Cerberus Capital Management LP to sell its remaining 19.9% stake in domestic automaker. “We are currently in discussions,” Cerberus spokesman Peter Duda said, Bloomberg News reported. “In the event of a successful transaction, all existing industrial relationships between Daimler and Chrysler would continue.”

Source: Global Investing Roundups Thursday, September 25th, 2008

“We have been approached by third parties who are interested in exploring future possibilities for Viper,” Chief Executive Bob Nardelli said in a memo to employees, Reuters reported.

“As [Chrysler] evaluates strategic options to maximize core operations and leverage its assets, we have agreed to listen to these parties,” he added.

The Dodge Viper, one of Chrysler’s flashiest models, is a 600-horse power sports car with a starting price of around $90,000. Its V10 engine gets a dismal 13 miles per gallon in the city at a time when cost-conscious consumers are trying to avoid high prices at the pumps.

“My bet will be they will definitely be able to unload it,” for a price of “maybe $100 million,” James Gillette, an automotive consultant at CSM Worldwide Inc. in Grand Rapids, Michigan, told Bloomberg News. Gillette does asset valuations for customers.

Interested parties could include custom-vehicle builders such as Panoz Auto Development Co. or Shelby Automobiles Inc., both of whom would be logical buyers, Gillette said.

Chrysler is the third-largest U.S. automaker behind rivals General Motors Corp. (GM) and Ford Motor Co. (F). All three have been struggling to adapt to changing consumer preferences, as soaring oil prices shift the focus away from larger models of pick-ups and sport-utility vehicles.

Chrysler has released limited information since its purchase from Daimler AG (DAI) by private equity firm Cerberus Capital Management LP. But with 90% of its sales coming from the hard-hit U.S. market, its safe to assume Chrysler has suffered worse than its more internationally focused competitors.

U.S. automakers were late to adapt to changing industry dynamics as demand for smaller, more fuel-efficient cars has grown. Foreign rivals Toyota Motor Corp. (ADR: TM) and Honda Motor Co. Ltd. (ADR: HMC) have been quicker to market with gas-sipping hybrid models such as Toyota’s Prius that have proven popular with U.S. consumers sick of frequent stops at high-priced gas stations.

Being at the leading edge of hybrid technology helped boost Toyota into the top spot as the world’s leading auto manufacturer, supplanting longtime leader General Motors.

Source: Chrysler Considers Sale of Gas-Guzzling Viper

The positive news for the dollar comes despite bleak economic news on the day, as a report by the National Association of Realtors showed that financial woes in the housing sector are far from over.

Resales of single-family homes and condos fell 2.6% last month to an adjusted annual rate of 4.86 million, the lowest figure in ten years and well below economists’ expectations for a drop to 4.95 million. Meanwhile, the number of unsold homes on the market rose 0.2% in June, to an 11.1-month supply.

News from the US equities market was also decidedly bearish, as the DOW posted its largest loss in a month, led by automakers Ford (NYSE:F), Daimler AG (NYSE:DAI), and General Motors (NYSE:GM), who all reported worse than expected quarterly results. Ford posted $8.7 billion in losses for the second quarter.

As a result, the dollar’s gains against the euro were not so much a function of the currency’s strength, as it was an indication of even worse financial turmoil in the euro-zone, where economic growth is expected to slow significantly.

According to Ashraf Laidi of CMC Markets, “Thursday’s currency trading looks like a contest of which currency has the worst economic fundamentals, as the euro, sterling and kiwi are all falling against the U.S. dollar and the Japanese yen due to fresh evidence of deteriorating economic data.”

Source: Dollar Strong vs Euro

It figures. Last week I argued in IDE’s Unplugged that Americans have been slow in making fundamental changes in their energy consumption habits. “In other words,” I said, “high oil prices haven’t really changed the way we live. We haven’t turned into Europeans – riding our bikes to work and/or squeezing ourselves into little Smart cars.”

GM is making me look like a liar. According to news reports last Thursday, GM is thinking about introducing the Chevrolet Beat to the U.S. market. The car had originally been planned to be sold in the Asia and Latin America markets only.  

It’s not quite as tidy as Daimler’s (DAI) Smart car, but it’s close. It’s about 138 inches long. The Smart car is 32 inches shorter. The Beat gets 40 mpg. The Smart car gets 36.

Will the Beat catch on? If gasoline prices keep rising, it will. It always comes down to price, doesn’t it?

High gas prices are making an impact. They’re doing exactly what they’re supposed to do. They’re changing the way we use energy – slowly, but maybe not quite as slowly as I’ve been thinking.

That’s the way the market is supposed to work. And yet the government still feels compelled to act. Of course, it’s an election year and the political parties would rather be seen as part of the solution – God bless them – than part of the problem.

Should they listen to the oil companies? They want rights to open up drilling off our continental shelf and in Alaska. More oil production from the U.S. means less oil dependency on others. How is that a bad thing, they ask.

Should they listen to the Fed? They think oil prices will drop in a slowing economy. It did in past recessions. Could we be looking at the tipping point of energy prices? Does it make sense for consumers to pile into Beat and other small cars with no effect on gas prices?

Should they look to the past? When we were whammed with soaring oil prices in the 1970’s, oil conservation and development of alternative energies was the policy of choice inside the Washington beltway.

By the way, it didn’t work. A sparkling new and naive Department of Energy tried to subsidize alternative energy development. But the program wasn’t ambitious enough nor did it have enough funding behind it. My take? The technologies were too rudimentary at the time to make a difference (especially when you compare them to todays).

But the other energy policy of the 1970s was working just fine. I’m talking about nuclear energy. Until the Three-Mile Island incident in 1979, nuclear power was the future. And it still can be (if one of our presidential candidates is elected).

But in any Republican (or Democratic) scenario, nuclear energy will have to share the energy stage.

Unlike the 1970’s, we now have pretty good alt-energy technology. We have the price incentives (high oil and gas). And people are generally more environmentally sensitive than 30 years ago.  

So perhaps the government should listen to the conventional view that the West can and should lead the world in adopting new energy-efficient consumption patterns. If it started here, the thinking goes, it would quickly travel east and south. And it would be instrumental in bringing oil prices down.

Of all the “conventional wisdom” scenarios, the above is the most seductive. And the most wrong-headed. Yes, most technology will come from the West. (But not all: Witness all those solar start-ups in China, for example.)

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I suspect developing countries will give the tree-hugging consumers of the West a run for their money as early adapters.

1. Developing countries can much less afford high-priced oil than the West.

2. Infrastructure, unlike in the West, has the opportunity to develop with energy-use concerns in the forefront. Commercial buildings, houses, and transportation infrastructure will be more energy-efficient from the get-go. For example, neighborhoods will be built closer to factory estates. There will be much less of the great suburban sprawl we have in the U.S.

3. You can’t miss what you never had. We have to relearn our energy habits. Some things – like leaving the porch light on at night – we’ll never stop doing. Developing countries start out with a cleaner slate. It won’t even feel like “adapting” to them.

4. The “alt-energy” they’re already gearing up to use extensively? Nuclear power. Solar, wind, thermal, wave power will all grow by leaps and bounds. But none of them comes close to the scale-up power of nuclear.

Nuclear energy is the future again.

And the best news? Junior uranium explorers haven’t been this cheap for a long time. Cameco (CCJ) is one of the larger uranium producers in the world and it’s traded on the New York Stock Exchange. It’s a fairly safe way to play this trend.

The juniors have higher risk and higher upside. My esteemed colleague, Rusty McDougal, though, has a couple in his portfolio where the upside dwarfs the risk. If I were investing for 2009 and beyond, they’d be some of the first companies I would look at.

Invest well,
Andrew Gordon

P.S.  To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

[Ed. Note: With a bear market looming, it’s more important than ever to select safe investments that produce monthly dividend income. Click here to learn about Andy Gordon's INCOME service that selects the best dividend-paying stocks available.]

Source: And the Beat Goes On