Weaker-than-expected U.S. housing sales and durable goods orders on Friday drove U.S. stocks lower, and world and European stocks followed that trend on Monday.

Leaders of the Group of 20 rich and developing nations pledged on Friday to bring the global economy back into balance but their statement contained few surprises and investors are already looking ahead to U.S. employment data at the end of this week.

Global equities and other higher risk assets have risen sharply in the last six months on growing optimism about the economic outlook, but markets are starting to run out of impetus, analysts say.

“Investors are a little bit reluctant to add to their risk positions,” said Koen De Leus, economist at KBC Securities.

“The market is going to have a very good look at macroeconomic numbers this week. If some of these figures disappoint, then the market is going to go down further.”

Analysts are starting to question whether the global recovery is V-shaped, or if it could be W-shaped, with a second dip to come.

The MSCI world equity index <.MIWD00000PUS> was down 0.52 percent at 282.94, bringing losses since Sept 22 to 3 percent.

U.S. stock index futures , however, were indicating a slightly stronger open on Wall Street after the market scored a third consecutive day of losses on Friday.

The FTSEurofirst 300 index <.FTEU3> hit its lowest in nearly three weeks before trimming losses to 982.53, down 0.14 percent from the U.S. close.

GERMAN STOCKS UP

German stocks <.GDAXI>, however, rose 1.3 percent with particularly strong gains in utilities E.ON and RWE , on expectations of longer lifetimes for German nuclear power plants as a result of the German election.

German Chancellor Angela Merkel’s conservatives won a weekend parliamentary election with the pro-business Free Democrats (FDPP), enabling her to end her awkward four-year-old partnership with the Social Democrats (SPD).

“(This) government provides the greatest opportunities for equity market-friendly reforms compared to other party combinations,” said Tammo Greetfeld, equity strategist at Unicredit, in a client note.

The yen, typically regarded as a safe-haven currency, surged to an eight-month high against the dollar as Japanese officials waved off any plans to stem the currency’s rise.

The yen later gave up some gains as Finance Minister Hirohisa Fujii changed gear on his comments during the course of the day, saying yen gains were becoming one-sided just hours after saying the rise was “not abnormal”.

The dollar fell as far as 88.26 yen before trimming losses to 89.35, down 0.31 percent.

However, the dollar hit a 2-1/2 week high against an index of currencies <.DXY> and a 13-day high against the euro as the U.S. currency also attracted safe-haven flows.

Funds are starting to shift money home ahead of the quarter-end later this week, analysts say.

Crude oil dipped 20 cents to $65.82 a barrel .

Euro zone government bonds also benefited from safety trades, with 10-year yields briefly hitting a one-month low.

December Bund futures were up 5 ticks, trimming earlier gains.

Sept 28 (Reuters)

The dollar gave up most of its earlier gain against a basket of currencies, boosting the appeal of oil and commodities to investors. European stocks firmed and U.S. equity futures pointed to a higher opening.

“It’s making some progress back up, largely due to the dollar,” said Rob Montefusco of Sucden Financial. “At the same time, we haven’t seen demand pick up and we need that to draw strength back into this sector at the moment.”

U.S crude was up 8 cents to $66.10 a barrel by 1308 GMT, after earlier falling as far as $65.41. London Brentwas down 11 cents to $65.00.

Iran test-fired a type of missile on Monday which defence analysts have said could hit Israel and U.S. bases in the Gulf region, state television reported.

The drills coincide with increased tension in Iran’s nuclear dispute with the West, after last week’s disclosure by Tehran that it is building a second uranium enrichment plant.

Tensions over Tehran’s nuclear programme have supported oil prices in recent years. The country is the second-largest oil producer in the Middle East.

In late 2008, Iran threatened to block the Strait of Hormuz, through which about 40 percent of the world’s globally traded oil passes, when tensions rose in another row with the United States around the nuclear work.

Even so, sluggish oil demand, reinforced by some lacklustre economic data from the United States last week, continued to command investors’ attention.

“The Iranian situation is not having much influence. If it was, we’d be back towards $70 again,” said Christopher Bellew, a broker at Bache Commodities in London.

Oil prices posted their largest weekly decline in around 2-3 months last week, pressured by government data showing U.S. crude oil inventories had risen, suggesting demand remains weak.

U.S. durable goods orders dropped by the largest amount in seven months while a rise in new home sales was less than forecast, according to data from the U.S. Commerce Department on Friday.

Sept 28 (Reuters)

The U.S. jobless rate reached a 26-year high and Euro zone unemployment is at the highest in a decade, reports showed last week. Oil fell even after militants attacked oil installations in major African exporter Nigeria.

“There’s a general retreat caused by lack of risk appetite,” said Mike Wittner, oil analyst at Societe Generale. “For a couple of months, we perhaps got a bit too optimistic and several markets got ahead of themselves.”

U.S. crude fell $2.24 from Thursday’s close to $64.49 a barrel by 1412 GMT. It traded as low as $63.40, the lowest intraday price since May 28. Brent crude fell $1.30 from Friday’s close to $64.31.

NYMEX floor trading was closed on Friday because of the U.S. Independence Day holiday and, although oil traded electronically, the exchange did not issue an official closing price.

Oil pared earlier losses after a report showed the U.S. service sector contracted in June, but at a slower pace than in May. The Institute for Supply Management’s services index rose to 47.0 last month from 44.0 in May.

European stocks <.EU> weakened on Monday following on from losses in Asia. U.S. stocks edged lower. The dollar <.DXY> rose against a basket of other major currencies.

“It’s a definite break to the downside, probably sparked by the poor economic data and stalling stock markets,” said Christopher Bellew, a broker at Bache Commodities in London.

“It’s completely broken through its support at around $68.00-$68.50 and technically and probably fundamentally, heading lower now,” he added, referring to Brent crude.

Investors will focus later this week on a meeting of the Group of Eight industrial nations on July 8-10.

The G8 should not presume a global economic recovery is near, World Bank President Robert Zoellick said in a letter to G8 host Italian Prime Minister Silvio Berlusconi obtained by Reuters on Monday.

In a research note, Societe Generale said the correction in oil prices, which surged 42 percent in the last quarter, was long anticipated. It predicted oil prices would continue falling and average around $60 a barrel in July.

Even after its latest losses, oil has still almost doubled from a low of $32.40 reached in December. Attacks on oil installations in Nigeria, traditionally Africa’s top oil producer, could limit losses.

Chevron , Royal Dutch Shell and Italian energy firm Agip have cut oil output by around 273,000 barrels per day in the last six weeks following the latest campaign of militant violence.

LONDON, July 6 (Reuters)

Gold was at $919/921 an ounce at 1242 GMT, down from $937.15 late in New York on Monday, when it fell more than 1 percent as investors moved away from safe-haven investments.

World stocks hit five-week highs on Monday as investors pocketed riskier assets on growing optimism that a U.S. plan to purge toxic assets from the balance sheet of banks could ease the misery of the financial sector.

“Sentiment (on gold) is a bit weaker off a perceived improvement in other forms of asset classes,” said Michael Khosrowpour, an analyst at Triland Metals, pointing to overnight gains in stock markets and gains in the dollar.

The U.S. plan helped boost Japan’s Nikkei average to a 2-1/2 month closing high on Tuesday. But European stocks dipped, breaking a three-day winning streak after euro zone and UK macro data showed job losses and higher inflation.

Traders said markets were watching out for testimony before Congress by Fed Chairman Ben Bernanke and U.S. Treasury Secretary Geithner at 1400 GMT.

Analysts said fears of inflation fanned by the Federal Reserve’s plans to buy long-dated U.S. Treasuries still lingered even if they had eased a little.

“Gold will probably continue to follow inflation expectations in the near term although remains vulnerable to improved risk asset sentiment,” UBS said in a note.

Analysts also said a higher dollar was putting pressure on gold prices.

Gold is often viewed as an alternative to holding the dollar, and often falls when the dollar rises because it makes metals priced in the U.S. currency more expensive for holders of other currencies.

Bullion has recovered ground from a six-week low of $882.90 marked on March 18 but still has some way to go before approaching the 11-month high above $1,000 reached in February.

It soared to an all-time peak of $1,030.80 in March 2008.

Receding interest in gold was also evident in the holdings of gold-backed exchange traded funds.

The world’s largest gold-backed ETF, the SPDR Gold Trust , said its holdings nudged down about a third of a tonne to 1,114.29 tonnes on March 23 from a record high 1,114.60 tonnes.

Silver was at $13.36/13.42 from $13.63, platinum was at $1,109/1,119 from $1,121, and palladium was at $203/208 versus $207.5.

March 24 (Reuters)

The market was also supported by China’s optimism that its domestic economy was recovering and official promises of more swift stimulus action when required. China is the world’s second-largest oil consumer.

U.S. crude was up 98 cents at $44.57 a barrel by 1205 GMT after rising as high as $44.76, while London Brent crude advanced 56 cents to $44.20 a barrel.

Brent has lost its rare premium to U.S. crude because of a decline in U.S. inventories. High U.S. stocks, particularly at the Cushing oil hub, had been keeping the American marker at a discount to Brent.

Markets will be watching for the February U.S. non-farm payrolls data due later in the session, which will probably show unemployment surging to a 25-year high in the world’s top oil consumer.

“Today, traders will turn their attention to the non-farm payroll report which in case of a negative surprise may pose an obstacle to further gains,” said Marius Paun, commodities analyst at ODL Securities.

UNEMPLOYMENT

Friday’s key non-farm payrolls report is expected to show the economy shed 648,000 jobs in February, while the unemployment rate is expected to rise to a 25-year high of 7.9 percent, according to a Reuters poll.

The U.S. dollar weakened before the Labor Department’s release of the payrolls report at 1330 GMT. Weakness in the U.S. currency can boost investor demand for oil and other commodities.

Asian stocks slid following losses on Wall Street due to a warning from General Motors it could go bankrupt and uncertainty about the fate of the banking sector. European stocks made early losses.

Top Chinese officials said on Friday substantial fiscal and monetary stimulus was breathing life back into the world’s third-biggest economy hit by crumbling exports, suggesting Beijing saw no need to boost the existing investment plan of nearly $600 billion.

Oil has traded in a band from around $33 to $50 since mid-December, pressured by slumping demand due to the economic downturn. Expectations OPEC might cut production again when it meets on March 15 have added support.

OPEC has agreed to cut production by 4.2 million barrels per day since September, and a Reuters survey found that members have met 81 percent of their output reductions as of last month.

Angola, which holds the presidency of the 12-member group, will not advocate further production cuts when the group meets, oil sources said, but Venezuela, Algeria and Libya have raised the possibility of a further cut.

“We expect the cartel to put through a modest cut when it gets together and judging by how well the market is holding up, participants seem to be expecting the same,” said MF Global.

March 6 (Reuters)

Crude’s advance on Tuesday stemmed from Wall Street gains sparked by reassuring comments from Fed Chief Ben Bernanke, while President Barack Obama said the United States would emerge stronger from the economic slump.

“The equities rally is supporting the market,” said Tony Machacek, a broker at Bache Commodities Ltd.

U.S. crude was up 20 cents to $40.16 by 0948 GMT. Brent , trading at an atypical premium to U.S. crude because high U.S. inventories are weighing on the U.S. benchmark, was up 1 cent to $42.51.

Oil has fallen from a record high near $150 reached last summer, battered by the recession and weakening global fuel demand which forecasters such as the International Energy Agency predict will contract in 2009.

The price of oil has become closely intertwined with equities, a barometer of economic sentiment, in recent months. European stocks were up more than 1 percent on Wednesday, following gains in Asia.

Bernanke signaled on Tuesday that U.S. banks should be able to weather the downturn without being nationalized. But Obama tempered his message of hope with a warning that America faces a “day of reckoning” for its past excesses.

Attention will focus later in the session on the latest snapshot of oil supplies in the United States.

The U.S. Energy Information Administration releases its weekly inventory report at 1530 GMT, which is expected to show that crude stocks probably rose 1.4 million barrels last week.

American Petroleum Institute data on Tuesday showed crude stocks rose 341,000 barrels last week. Oil traders consider the EIA data gives a fuller picture because energy firms are required to respond to its weekly survey.

Also supporting oil were figures earlier this week showing higher-than-expected compliance by the Organization of the Petroleum Exporting Countries to agreed production cuts.

OPEC oil ministers meet to set policy on March 15, and the group is expected to consider deepening its output cuts.

LONDON, Feb 25 (Reuters)

European shares hit a one-week trough on Thursday, led lower by banks, as poor corporate results and fresh signs of deteriorating global economic outlook overshadowed a compromise deal on a massive U.S. stimulus plan.

By 0949 GMT, the FTSEurofirst 300 index of top European shares was down 1.5 percent to 791.78 points after falling as low as 787.14. The index is down 4.8 percent this year after plunging 45 percent in 2008.

Banks were among the top fallers on the index, with Commerzbank falling 5.4 percent, Credit Agricole down 3.5 percent and Societe Generale declining 3.4 percent.

Energy shares were also under pressure as crude prices eased to trade below $36 a barrel — down 75 percent from a record high near $150 just seven months ago. BP , Royal Dutch Shell , Repsol and Tullow Oil shed between 0.3 and 1.3 percent.

Governments are using “historically strong medicines to try to revive a patient that is looking very weak at the moment and so far almost everything that has been used has failed to work,” said Henk Potts, strategist at Barclays Stockbrokers.

Investors hoped the measures would support in the long term, but there was a lot of nervousness before they saw the results of the U.S. government’s efforts on the economy, he added.

The pessimism over a compromise deal on a $789 billion U.S. package, which helped Wall Street shares to gain overnight, evaporated after investors scrutinised a raft of disappointing corporate results and macroeconomic data.

Figures showed Japanese wholesale prices dropped in the year to January, the first drop in five years, bringing the world’s second-largest economy closer to its second bout of deflation in a decade as the economy slipped deeper into recession.

Earnings results also hurt sentiment.

Swiss engineering group ABB posted an 88 percent fall in fourth-quarter net profit, oil major Total reported an 8 percent drop in profits due to lower oil prices and output, while banking group KBC booked a $3.4 billion loss due to writedowns.

RIO TINTO STAKE

“Asides from the stimulus package, the big news has been the large stake in Rio Tinto (RIO) being sold to Chinalco,” said Andrew Turnbull, senior sales manager at ODL Securities.

“The deal is said to be the largest overseas deal by the Chinese and really does show how desperate for cash Rio Tinto has become,” he said.

Rio Tinto will sell $12.3 billion in asset stakes to Chinalco and raise a further $7.2 billion by issuing China’s top aluminium maker convertible notes to cut debt, the global miner said. Rio shares were up 1.2 percent.

The negative market sentiment spread to other sectors such as mining, electricity, telecommunications and retail.

Miners, struggling due to falling prices and slowing demand of metals, fell again. BHP Billiton , Anglo American (AAL), Xstrata (AXTA) and Antofagasta (ANTO) fell between 0.8 percent and 3.3 percent.

Among electricity companies, Enel dropped 2 percent and Renewable Energy slipped 1.4 percent.

France’s EDF fell 7 percent after it posted a dip in 2008 core earnings, hit by a larger-than-expected 1.2 billion euro ($1.55 billion) charge related to French regulated tariffs.

Britain’s BT Group dropped more than 5 percent after its core earnings slumped 9 percent in the third quarter and pre-tax profits slumped 81 percent.

Among gainers, French carmaker Renault rose 5.9 percent after it dropped its once sacrosanct 2009 profit targets and said it would focus on cutting inventories this year.

Across Europe, the FTSE 100 index, Germany’s DAX and France’s CAC 40 were down 1.1-1.9 percent.

LONDON, Feb 12 (Reuters)

This from Money Morning:

Although ABB Ltd. (ADR:ABB) has been around for 120 years, it’s one of those rare companies that’s kept current with the times. It continues to do so and those efforts are generating tangible results.

Indeed, as Money Morning noted in its July 7 overview of ABB, the Zurich-based industrial giant is a virtual lock to benefit from the many billions in stimulus money governments around the globe will be directing into such infrastructure-related areas as highway, construction and power-generation.

These promising opportunities remain.  In fact – with the $586 billion stimulus China unveiled in early November, and the $825 billion stimulus plan that President-elect Barack Obama is kicking around, ABB’s growth opportunities have probably actually been enhanced, because infrastructure projects and job-creation are at the core of both packages.

In late October, ABB reported strong earnings for its third quarter, beating analysts’ estimates, while reaffirming its strong growth guidance for the firm’s still-to-be-reported fourth-quarter results.

In its third-quarter report, for instance, ABB reported strong (23%) year-over-year revenue growth, as well as a hefty increase in operating-profit margins (as measured by EBIT, or earnings before interest and taxes) to a healthy 14.5%.

So why are we revisiting our earlier report? What’s changed since we last looked at ABB? No surprise here: It’s the increasing uncertainty over the timing of these opportunities, given the ongoing – and, at times, escalating – global financial crisis. ABB took special note of this in the management report that accompanied its third-quarter financial statement.

“It’s too early to say how the recent financial-market turmoil will impact our markets in the short term, but our operational strength and flexibility, leading technology, competitive cost base and solid balance sheet put us in a good position to meet a tougher market. We are on target to deliver on our 2008 growth guidance,” ABB said in a statement that day.

After I published my cautious “Buy” recommendation, ABB shares rallied about 4%, a move that peaked near the end of July – which is right about the time that the Lehman Brothers Holdings Inc. (LEHMQ) saga began exerting pressure on the stock market. That saga – which culminated with the brokerage firm’s Sept. 15 bankruptcy filing – precipitated an entire chain of events, which included the rescue of insurer American International Group Inc. (AIG), and widespread de-leveraging in the hedge-fund sector, all of which we’ve covered closely here in Money Morning.

By October, this financial collapse had evolved into a credit squeeze that paralyzed the world’s key economies – including the United States – in October. As the U.S. financial system ground to a halt, and as the effects reverberated across the world, growth projections for almost every country were revised downward and international-bank financing all but disappeared.  Financing is a key issue in long-term infrastructure projects, since many of those big-ticket jobs could get delayed if financing is not readily available.

Thus, the financial crisis, has affected ABB’s stock price, both because of the forced de-leveraging and because of the downward revisions to estimated earnings per share. The stock came down from about $27 to a double-bottom low of $10 in October and November, and then rallied 50% to close the year at $15.01.

So what’s next for ABB’s shares?

For starters, the company is seeing a slowdown in large contracts: “Large project orders declined significantly, reflecting in part a comparison with a very strong quarter a year ago,” ABB stated when it reported its third-quarter results. “In addition, customers’ decisions on a number of industrial and infrastructure investments have been delayed as a result of the recent market uncertainty.”

ABB will be reporting its fourth quarter results on Feb. 12.  In late December, when it set the date for that report, ABB announced it would be taking a fourth-quarter provision of $850 million for anti-competitive price-fixing, for a legal provision for suspicious payments in the United States, as well as for a tax dispute, restructuring charges and asset impairment.  At the same time, however, the company announced it has found more than $1 billion in cost savings. That latter revelation is consistent with expected continued margin improvements, a conclusion reached in our earlier “Buy, Sell or Hold” column.

Although some issues of concern have arisen, there are a number of mitigating factors. These positive factors might even turn the story completely around in short order and will definitely be a huge plus in years to come.

As the company stated above, ABB has a number of very strong positives working in its favor. Sales in emerging economies outpaced sales in advanced economies for the first time in the company’s history in 2008. The afore-mentioned $586 billion China stimulus is heavily focused on infrastructure projects, as well as consumer spending (For an excellent overview of the overall investment opportunities China presents, take a look at my colleague Don Miller’s recent “Money Morning Outlook 2009 Series” installment on China. To read that report, which is free of charge, please click here).

But this infrastructure theme is not limited only to China. It’s a common threat that runs through virtually all the stimulus plans announced by countries all around the world in recent months. Even President-elect Barack Obama, in unveiling his own stimulus plan, made it clear that infrastructure will be a central component of his job-creating stimulus plan. One key goal: The modernization of the aging-and-inefficient U.S. energy grid.

Europe’s infrastructure is likewise old and in dire need of a major makeover. And emerging economies such as India, Brazil and Chile will continue to use their new-found wealth to stimulate their economies by staying on course with their ambitious infrastructure plans.

There’s an important point to understand here. Anytime major infrastructure investments are planned, investors can be assured that major investments in power-generation and power-transmission will be a central element of the billions in economic infusions. It has to be that way. You see, investments in power generation (and transmission) have a direct correlation with gross domestic product (GDP) growth. What’s more, as much as 90% of the world’s growth this year will come from emerging economies around the world – markets that are already driving sales for ABB.

For example, Chile’s stabilization fund has reached some $24 billion dollars, or 14% of GDP.  This type of savings by countries that pursued sound economic policies during healthy periods is now enabling those same countries to mitigate the effects of the worldwide financial crisis, even as they continue to grow.

There are relatively few emerging markets to totally steer clear of, although Argentina is certainly one to be avoided.

In sum, while the financial disruptions have slowed down the pace of infrastructure spending, stimulus packages are keeping those projects from disappearing completely – and are perhaps even serving to stretch them out.

ABB may be one of the few companies positioned to benefit from all these trends. The company has a bullet-proof balance sheet, strong margins and solid cash flow. These strengths will mitigate the fallout from the financial crisis and over the long haul will keep propelling this giant to higher profits.  The market has already discounted the slowdown, but has not discounted the cost-cutting efforts, whose details have been sketchy so far.  We continue to be very upbeat about ABB’s prospects and will look at any market weakness in the year’s first half as a buying opportunity.

Action to take:  Buy shares of ABB Ltd. (ADR: ABB). The stock has been buoyed in anticipation of the so-called “January Effect,” although the U.S. stock market has badly misbehaved since then.

Given the uncertainty, if you haven’t already established a position in ABB shares – as I urged in my prior column – then I would split my purchases so that they are made before and after the mid-February earnings report. But I would not “chase” it, and I would save some cash in order to possibly add the last 20% towards the end of the first quarter, as visibility about the U.S. and Chinese infrastructure plans improves, and as the company’s legal hassles become more clear.

Source: Buy, Sell or Hold: A New Look at ABB Spotlights a Company That’s Poised to Benefit From Global Bailout Plans

This from Money Morning:

Commentators are tripping over one another to declare this country or that country’s stimulus package as a primary reason to pour money into its stock market. Yet if you look at the highly damaging long-term effects of such loose monetary and fiscal policies, an investor can come to only one conclusion: You should invest in the country with the smallest stimulus package.

Stimulus packages are all the rage right now. President-elect Barack Obama has promised an $800 billion package for the United States, which equates to nearly 7% of U.S. gross domestic product (GDP). And there are plenty of others:

• Japan has a stimulus package of $720 billion – roughly 14% of GDP.
• South Korea plans two stimulus packages – the larger of them “green” – totaling about $50 billion, or about 6% of GDP.
• Great Britain is expected to inject about $177 billion into its economy, the equivalent of 8% of GDP.
• France has a modest $40 billion stimulus package in place but that’s on top of a $300 billion European Union (EU) stimulus package, so the total’s about 3% of GDP.
• China has announced a $586 billion stimulus – almost 20% of GDP – and now appears to have decided even that is too little.

Then there’s Germany. When the British stimulus was announced, Germany’s finance minister, Peer Steinbruck, described it as “crass Keynesianism.” Since then, he’s been forced to back off that stance a bit: On Jan. 12, Germany announced a stimulus plan totaling $70 billion over two years.

Still, even that is only is a relatively modest 2% of GDP, and Germany’s 2009 budget deficit – even with the stimulus – is projected to come in at less than 3% of GDP. That’s far less of a deficit than the country faced during the 2001-2003 recession, and means that Germany enjoys one of the soundest fiscal positions of any country in the world.

Germany’s short-term economic outlook is unexciting, as is currently the case for most countries. According to The Economist, the country’s GDP is forecast to shrink by 1.4% in 2009, after actually advancing 1.0% in 2008. That’s equal to the Euro zone average and equal to Japan, a bit less than the United States (projected at minus 1.2%), but better than Britain (minus 1.7%). But at a projected 1.0%, at least inflation at 1% is expected to be satisfactorily low.

Where Germany stands out, however, is when you look at its balance of payments, which is in surplus by $265 billion in the year to November 2008 – the equivalent of 6.6% of GDP. That immediately distinguishes it from the finance-based economies of the United States and Britain, both of which have perennial balance-of-payment deficits.

The most impressive thing about the German payments surplus is that it is achieved against a background of some of the highest wage rates in the world, very heavy tax and Social Security costs and a strong euro exchange rate. Even though it has among the world’s highest labor costs, Germany also has among the world’s highest labor skill levels, and those are more concentrated in manufacturing than in finance or business services, making the German economy less vulnerable to this finance-based recession or to erosion through globalization.

Like other countries, Germany will see its exports hit by this global recession, but it has the ability to grow domestic demand to compensate without affecting its budget or payments position.

For a decade and a half, the German economy and its budget were bedeviled by the huge costs of integrating the former communist East Germany into the West. However, that was a one-off cost; anyone who graduated high school in East Germany under Communism before 1989 is now nearing 40, so younger workers have been given the education and training common to their splendidly productive West German counterparts. From about 2005 on, the drag on the budget and on productivity from East German integration costs has begun to decline, and it will continue declining in the years ahead.

With its low budget deficit and large payments surplus, Germany is the strongest economy in the EU. It is potentially the strongest economy in the world; while the United States, Japan and Britain will struggle for years with the nasty side-effects of their massive government-stimulus spending, Germany will remain in sound shape.

It is thus likely that over the next few years, the huge flows of “safe haven” money that for decades helped prop up the U.S. Treasuries market will flow instead into the German bund and equities markets: After all, where the hell else is there? That will reduce German interest rates and increase multiples on German stocks. For an international investor, it thus becomes essential to have a significant part of your portfolio in German stocks.

What to buy? Well, for a start there’s the German exchange-traded fund (ETF), the iShares MSCI Germany Index (NYSE:EWG). At $334 million, it’s surprisingly small, but it has a Price/Earnings (P/E) ratio of 9.6, and a yield of 6.6%, so this ETF provides decent income as well as a broad exposure to the German market.

There are eight German companies whose American Depository Receipts (ADRs) have a full sponsored 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, Allianz SE (ADR:AZ) and Deutsche Bank AG (DB) are both caught up in the travails of the global financial-services sector, while financial services industry’s travails, while Daimler AG (DAI) offers the limited prospects of the automotive industry (though Daimler’s a good bet once economic recovery is clearly in sight). Infineon Technologies AG (ADR: IFX), a semiconductor manufacturer, and Qimonda AG (ADR: QI), a maker of computer memory devices, are each currently making losses.

That means there are only three other possible recommendations, which is why, if you want a broad exposure to the German market, you should also consider a mutual fund or an ETF like EWG.

Deutsche Telekom AG (ADR:DT) is Germany’s traditional fixed-line telephone service, which has mobile operations and that also has increased revenue by providing high-speed Internet access services. Based on both 2008 and 2009 earnings, the P/E ratio of its shares is a somewhat high 15. On the other hand, however, the stock’s dividend yield is better than 8%. A dividend cut must be possible, but the company in general seems fairly recession-proof.

SAP AG (ADR:SAP), the well-known international maker and marketer of enterprise software, has a lower dividend yield of only 2.1%, but much better earnings-growth prospects: 2009 is currently projected ahead of 2008. At 14 times earnings, the stock currently looks cheap for this sector.

Siemens AG (ADR:SI) is active in a broad range of heavy equipment, including items such as locomotives and electric power plants – the very kinds of businesses that are likely to benefit from heavy “stimulus” spending worldwide, especially infusions aimed at infrastructure development, which is very much the case in China.

With Siemens having recovered from losses in 2006, the company’s shares are now trading on only 8 times estimated earnings for the year to September 2009, with a dividend yield of 3.7%. They seem attractively priced.

Source: Four Ways to Profit From the Country With the Smallest Stimulus Package

U.S. stocks fell sharply on Friday in response to a grim U.S. jobs report that sent bond prices higher in Europe and pushed the price of crude down to $42 a barrel as prospects for the world’s economies darkened.

European shares extended losses in afternoon trade as investors reeled at U.S. government data showing a loss of 533,000 jobs in November, the weakest performance in 34 years.

Oils and bank stocks led the decline in Europe, while oil and defense stocks pushed the Dow down in the United States.

The dollar fell to a seven-week low against the yen but rose against the euro as investors once again sought shelter in the U.S. currency.

“When you see such a shocking employment number, you realize the devastating effect that can have on household demand,” said Henk Potts, equity strategist at Barclays Stockbrokers in London.

Shortly after opening, the Dow Jones industrial average was down 67.30 points, or 0.80 percent, at 8,308.94. The Standard & Poor’s 500 Index was down 6.59 points, or 0.78 percent, at 838.63. The Nasdaq Composite Index  was down 10.73 points, or 0.74 percent, at 1,434.83.

The pan-European FTSEurofirst 300 index was down 3 percent at 797.26 points.

Euro zone government bond futures extended gains to a fresh session high, pushing the 10-year cash yield below 3 percent after the worse-than-expected U.S. jobs report.

The 10-year Bund yield fell to the session low of 2.988 percent, down 9 basis points on the day.

However, U.S. government debt prices fell after the dismal labor report in a sign investors are reluctant to buy government debt with yields at the lowest in over 50 years.

The benchmark 10-year U.S. Treasury note was down 19/32 in price to yield 2.62 percent. The 2-year U.S. Treasury note fell 3/32 in price to yield 0.86 percent.

“We’re already at (yield) levels we’ve never seen before. It’s just difficult to continue buying Treasuries at these prices,” said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.

November’s job losses were the steepest since December 1974, when 602,000 jobs were shed, Labor Department data showed, and were much worse than forecast by analysts polled by Reuters who had predicted a reduction of 340,000 jobs.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index up 0.61 percent at 87.142. Against the yen, the dollar fell 0.01 percent at 92.16.

The euro fell 0.66 percent at $1.2686.

U.S. light sweet crude oil was off 54 cents at $43.13 a barrel, after earlier touching $42 at one point.

Many dealers and analysts expect oil to test the psychologically important $40 a barrel level fairly soon as evidence mounts of a significant decline in oil demand in all the major developed economies.

Spot gold prices fell $13.85 to $751.80 an ounce.

Asian shares edged higher overnight, with the MSCI index of Asian shares outside Japan  rose 0.2 percent, but trimmed gains after the U.S. employment report. The Nikkei average slightly lower, down 0.1 percent.

By Herbert Lash
NEW YORK, Dec 5 (Reuters)