German Stocks Crush Dream of Central-Bank Omnipotence…”American investors are on the hook.”
by Wolf Richter
WolfStreet.com
September 18, 2015
The German DAX stock index plunged 3.1% today. It’s now in a bear market, down 20% from its all-time high of 12,391 in mid-April. It fell from five digits to four digits: 9,916. A level it had first encountered in May 2014.
Germans aren’t exactly big stock-market investors. Only 7% of their wealth is tied up in stocks, globally. And only a portion of that is in German stocks. So the movement of German stocks doesn’t impact Germans much.
Despite zero interest rates at the bank, and in some cases negative interest rates, Germans hang on to their beloved idea of cash-in-bank. They might not make any money, but at least they don’t have to deal with a rigged market, pay unknown amounts in fees out the back of their brokerage accounts and mutual funds, and then get whacked by a 20% loss, watching 10 years’ worth of savings dissolve into the ether in five months. And Germans with more money pour it into real estate.
But foreign investors are on the hook, particularly American investors via hedge funds, stock mutual funds, and ETFs. Over the past couple of years, brokers and financial advisors have been pushing Americans to diversify into European stocks. And some of the biggest European stocks are German stocks.
The German economy wasn’t exactly roaring ahead in the second half of 2014 and in the first half of 2015, with GDP growth bouncing between 1.2% and 1.6% annualized. Even the US did better than that.
But German stocks soared, starting in mid-October, 2014. Well-placed rumors started to circulate that the omnipotent ECB would launch a big round of QE in 2015. These rumors were supported by more rumors and a combination of official non-denials and vague indications that a big round of QE would indeed be forthcoming. Details emerged over time. American investors, having gotten richer and richer with each round of the Fed’s QE, piled into the German miracle market, and it simply soared and soared. Bonds soared too, and yields became more and more negative. Those were amazing times.
Then the omnipotent ECB actually announced QE: it would be huge. More details trickled out later. It would be an even huger €60 billion a month. But it wouldn’t start until March. The buying frenzy kicked off in earnest, and eventually even the German 10-year yield approached zero, and the DAX hit 12,391, having skyrocketed 48% in six months.
The Rest…HERE
