Short fix: The German economy gets a lot of beatdown from the press on both sides of the Atlantic.
But that's just it...controlling for the value of the underlying currencies, you'd do better investing in the German stock market than in George Bush's economy.
Allow me to demonstrate. :)
You, the international portfolio manager
Let's say it's the beginning of the year 2001 you have a whopping $1,000 (whew! boy, wouldn't that be awesome!) to invest.
Your choices: Either invest in an exchange-traded fund (ETF) that tracks the German DAX market in Frankfurt, or one that tracks the S&P500 index stocks in the good ole US of A.
Can I invest in gold and survivalist paraphernalia instead?
No...
Say you love your country and you just looooove Dubya.....
So you invest in America, and buy into the S&P500 on 1/2/2001, when it closed at 1283.27.
Say the very idea of that squinty-eyed goob running the country frightens you
So you invest in Europe, and buy shares of the DAX on 1/2/2001, when it closed at 6289.82
First year performance for the Amurrica Fund: 2001
Dum de dum dum...a year later, on 1/02/2002, the S&P closes at 1154.67; you're down 10.02%, so your $1,000 initial stake (tax free with no transactions costs! You get all the perks today!) is now $899.79.
Now, you hear in all the papers and on Fox TV that it's only down because of a combination of 9/11 and the Clinton bubble and now Bush, the MBA president, and his colleagues in the corporate world are going to turn the marzipan economy into something real that real Americans can count on.
How the Cheese Eating Surrender Monkey Fund did in 2001
You're all for it...but just to be sure, you check out the German DAX's performance on the year...down 17.84%. Pah! What losers, those Eurotrash. You're all in for America, baby!
But that's not quite everything you need to know....
and it's even better than you thought. The exchange rate went from 1.0618 Euros to the dollar to 1.1247; had you invested in the DAX, you'd have lost 22.43% in dollar terms, and your $1K would now be $775.68 after you changed it back.
Nodding your head in satisfaction, you stick it out in the S&P for another, and toast both your good fortune and savvy business acumen.
Two days later...
...the peak of the Bush years is attained, and the very next day, the Enron story breaks, and the Bush economy begins in earnest.
Oops.
Second year performance for the Amurrica Fund: 2002
Well, not so great. You're down 21.27% -- your balance is now $708.37.
Second year performance for the C.E.S.M. Fund: 2002
Hey, but you're better off than those America-hatin' international investors, who have lost -29.11% in dollar terms, with a $549.85 balance
That $84 of that balance is attributable to a significant strengthening of the Euro versus the dollar (from 1.1247 to 0.9533) doesn't worry you in the least.
Yep. It's America for a whole 'nother year. And once Iraq is liberated and its support for 9/11 terrorists and nuclear weapons are dealt with, the markets going to shake of its doldrums, the dollar's going to roar back, stronger than ever, and then the real money will come pouring in!
Why, this whole liberation thing will be over by May...you just know it's going to go Dubya's way, every way...it always does.
Third year for the Amurrica Fund: 2003
Yee....hah! Up 21.94%, to $863.79! What a home run! Take that cheese-eaters! Sure, Iraq didn't go so well, but you're cool; spreading democracy is like money in the bank. Those big contracts going to American companies are going to spark a true recovery any day now.
As for those America-hating war opponents in Europe...
The Euro has appreciated mightily against the greenback, going from .9533 to .7973; even without this advantage, the DAX has advanced 29.42%...with the currency impact, the Cheese Eating Surrender Monkey Fund has increased a whopping 54.74% in dollar terms, to a balance of $850.84.
Just glomming their free ride off of American valor at arms, you hear your friends at Fox say.
It'll never keep. You're stickin' it out with America.
Fourth year for Amurrica Fund: 2004
You're up +8.44%, to $936.73.
And the Cheese Eaters?
They're up +15.28%, to a $980.86 balance.
No big difference?
Sure...that is, if losing -6.3% over four bad years in the global economy versus losing only -1.9% doesn't bother you.
A 4.4% spread...it's not like you could fit a 5-year ARM mortgage loan into that space or anything.
Alright....let's say you went Italian instead of German
In that case, you'd have made 13.8% in dollar terms, instead of losing 6.3% -- not great for four years in equities, not by half, but it beats losing.
Wrap
It speaks volumes that Germany, of all places, can but the Bush economy.
As for the dynamics -- the Enron-sparked introduction to what Bushnomics really looked like harmed investors overseas, as well, but the depreciation of the dollar hurt Americans the most, creating an incentive for wealthy U.S. citizens to park their funds overseas -- and in other currencies, which made the economy that much softer.
War spending did what war spending does -- act like sugar on the metabolism of a child, a huge cash stimulus, so long as one was not too close to the damage. However, akin to sugar, the long-term effect was the same -- a subsequent crash in vitality and corrosive effects on the fundamentals in the form of command allocation of values and runaway deficit dependency.
Both US and European markets are down in dollar terms since the onset of 2005, the Europeans more so since the greenback was at an all-time low versus the Euro at the very end of 2004 and has been gaining ground since.
The last time both sides of the Atlantic were in free fall was 2002 -- and you know what a splendid year that was.
Just in case you were curious
In dollar terms, the best places to be parked, by year, were
2001 - the US (-10.02%)
2002 - Italy ( -5.99%)
2003 - Germany (+54.74%)
2004 - Italy (+25.96%)
2005 - the US ( -0.33%)
How you'd do
Your original $1,000 would now be $1,643.35.
As opposed to $1,000 going to $933.64 (as of yesterday), stickin' it out with the Bush economy.
Decent, huh? :)
