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All right, here we go. Here's the headline.
German Parliament clears the way for early election in February. So then it does imply that Olaf Schultz did lose the snap election and will excuse me, did lose the vote of no confidence and then we'll have the snap election in late February. So to that point, expenditures on machinery, for example, are more than nine percent below pre pandemic levels. And it's those family owned companies that's saying they're not even planning to replace what breaks, and they're blaming breocracy
and unpredictable policies. I mean, yikes, that's a tough one.
It really is. And then again, and I'm just looking at some reporting from Bloomberg and just you know, saying, like Germany, in many parts of the world, Germany's politics has shifted to the right and it is fragmented, so making getting a coalition government together perhaps even more difficult than in past times. And we're seeing something similar in France as well, with their left and right. It kind of makes what we do here seem a little bit more a little better than maybe we sometimes think.
All right, Oliver Krook joins us now All Bloomberg europe correspondent for more on this. I mean again that headline is German parliament clears the way for the early.
Election in February. All right, Oliver, give us the details.
Quite a day for all Off Schultz before the parliament. This all began basically a one pm local time here with a twenty five minute speech by Olof Schultz where he was really sort of putting out his sort of stakes in terms of what he would like to have to do with another term as chancellor. Then a two hour debate by all the lawmakers in the Bundestag. This is a pretty spirited, i would say, campaign event, in a campaign generally speaking by German standards, it's been fairly personal.
It's been quite vicious at points. I mean, Olaf Schultz was talking about the FDP, that is the party that had the finance ministry. He fired as Finance minister because of disagreement over the budget. He's saying that basically they're morally unfit to govern. Mertz, for his part, the head of the CDU, Angela Markles, Merkel's traditional party, so that
you know Schultz is a failed chancellor. And then on the other side of things, on the far right, you have the Alternative for Deutschland, the far right group that has twenty percent of the vote going into this election, saying that basically Germany is on the brink of collapse. In a vote for Frederic Mertz and the CDU is a vote for war with Russia. So that's some of
the flavor of what we had today. And after that, we had these lawmakers going forward and putting forward and voting against Ola Schultz government as it turns out of the end, and this is the last step to basically Ola Schultz to go to the President of Germany to basically dissolve the government and basically pave the way for that election that is slated for February the twenty third.
All right, feb s fast forward to February twenty third. Is any expectation of how this may go. To talk to us about what are some of the options for the German people.
Yeah, so what you have right now is the CDU, the again the conservative center right party of Germany that is basically leading the polls really since the beginning and for you know, a couple of years. Now I have
about thirty one percent of the vote. What is interesting, what makes this election quite a bit different from ones in the past, is that you have the Alternative for Deutschland again, the really quite far right party in Germany with number two spot with twenty percent, basically a fifth of the German vote. That has not happened in really post war Germany at all. So that is sort of one of these sort of clear issues there. And the thing is that nobody will work with them. Basically, no
coalition is possible with the AfD. This has been made clear even by you know, the conservative parties within Germany. They just won't basically touch it. Then Olaf Schultz has been closing the gap a little bit on third place, and that basically sets us off for a grand coalition CDU SPD. This is something that has happened a lot in history. Merkel, you know, had this this arrangement. In fact, Olof Schultz was the finance minister under Merkel under that coalition.
The issue that that brings is that that may bring some of the same problems that we had with this government, which is massive disagreements on how to spend money at a time when the German economy is really limping, there is zero growth, and as a consequence, as we're learning in France as well, when you have zero growth, you don't have as much money to play with, you have budgets that bring down the government.
Here's my totally unfair question to you, Oliver. I'm just wondering in what capacity in Europe is snap elections ever worked. I'm like genuinely trying to think back, and it seems like a lot of times the individual and power things that it will help cement a mandate at some point, and that's why this sort of eventually evolves, but it never seems to work well.
So listen, that's what makes it. That's the sort of distinction between the German snap election and the French one.
Right.
The German one is basically forced because they basically fired one part of their coalition government and basically kicked them out of government and no longer had a mandate to govern, so they just basically had to do it. This is not going to go well for Olof Schultz, that is clear.
The mac Hoole one was a bit more of a wild card, really a kind of you know, really a skydive into sort of political uncertainty, and really I think seen by most as a real miscalculation because it did not go at all his way, and we're seeing the sort of consequences of that. To say when it has worked, I mean I only because I was reading about this today. If we have to go back to the nineteen seventies, I can give you an example of Willie Brandt in the sort of west of Germany. So that was one
to sort of consolidate some power. But yeah, I have to say the last few, certainly this year, have not really gone that way for these leaders.
And Oliver, you're mentioning about the AfD, the far right party now roughly twenty percent of the votes. I'm not sure you can ignore them anymore. I mean, how can a couplation go from ignore one in five voters.
Well, this is a very interesting part of the debate, and I think it's something that we've seen across the political spectrum in a number of different countries. I mean you arguably, you know you've had this happen In Italy. You have Georgia Maloney, who was once really considered a sort of pariah, this sort of Brothers of Italy. She is now Minister Vidley and in some ways the European leader with the most powerful mandate in all of Europe.
You're seeing the same thing happening in France with Marine Lepenn who you know, for a very long time was basically totally ignored by the political establishment in France and that is no longer an option. The question is when does that come to Germany. Of course, the issue with Germany that comes fraught in Leyden with much more political charged issues from the past and basically with the far right and the sort of history of fascism that has
occurred in Germany. This is a very sensitive topic for the Germans and for many people in Germany, which is why you see a lot of protesting in the streets against this party. But again increasingly something that just cannot be ignored.
And my real question is does any outcome lead the German government to spend more money? Period, That's the only thing that's going to make a big difference.
Yeah, and the answer no likely outcome will basically lead to that. Because there was some debate about this going into the election that we were seeing from the CDU, the center right party, basically saying that they were, hey, maybe going to think about, you know, releasing the debt break. There would be some conditions. But we actually saw a copy of their early draft of their platform which they haven't yet released, that says that basically, you know, dead
of today is the tax of tomorrow. We are not going to touch the debt break. And this is the fundamental point here in Germany, right, what is the point and this is what many critics think of having really really low borrowing costs if you don't borrow any money when you're in a crisis situation. And what is interesting is that Angela Merkel has actually just released her memoir and she is the one who actually brought in the
debt break in two thousand and nine. And just to remind people, this is part of the constitution, This is not just the law. This takes two thirds of the parliament to change the debt break. She is advocating now that they do something about the debt break and they change it. So this is going to be at the very center of things, but at the moment not looking like it's going to change.
Is there any expectation that there could be a very a challenge to this change in power, that there may be some I don't know, just something around this election that could get even worse here for the German people.
I mean, I think that the problem with this election and this sort of again another coalition government and you know a bit of disagreement, is that it's just basically not going to solve Germany's fundamental problems. And I think that even when you look at the platforms of what a lot of these politicians are offering, the business community that I speak to, the lobby groups that I speak to, is basically, you know, everyone seems to be coming to
the sick man of Europe with cyclical medicines. What we have is a structural illness.
Right.
There are problems with the energy sector, there are problems with labor costs, and there's a problem with a business model that was basically very export oriented, where you have all of your inputs that are much more expensive in journey. Also at a time when you have just much less globalization and everyone turning inwards and you're competing against the United States with the Inflation Reduction Act, you're competing with China with huge amounts of state support, and the Germans
are just not seemingly sort of realizing the situation. You can cut tax, you can cut bureaucracy. That will help, but the question will still remain, what is going to drive growth in Germany. They don't have a sprawling tech sector. They have huge amounts of engineering sort of prowess, but they really need to get this economy moving, and that is the sort of big problem for politicians here really don't have an answer to that question.
I'm going to steal that from you.
So it's structural issues, but everything has a cyclical solution. I'm going to totally paraphrase it and steal it. But before I let you go, do we've the investors that you speak to feel like this situation is adequately reflected in the stock market and the bond market.
Well, this is what's interesting, right, The sort of guarantee in the bond market is the fact that basically Germany has very very little debt and they're not going to that's not going to change any time anytime soon. Right, So that is sort of puts a cap and that sort of you know, keeps the vigilantes sort of away from the bond market, and everything's sort of more or
less tidy there. Right In terms of the stock market, I mean, we have been hitting sort of all time highs on the decks, you know, this year periodically, which again is a little bit confounding. I mean, part of that story is that, you know, Ryan Mettal, the biggest defense company in Europe, is listed in Germany, and you know they've had like a you know, almost six hundred percent rally since the war in Ukraine. So you do
have some bright spots. Actually, sort of interesting conversation I had last week with the CEO of a defense company, Hensol. So they make sort of satellites and sensors, sorry, not satellite sensors and radars. They are actually taking a lot of workers that are being laid off from the auto sector and incorporating full teams from the auto sector moving
from auto to defense. So that is sort of an interesting silver lining, though admittedly a very thin silver lining, because the auto industry is worth just hundreds of thousands of jobs in this country. But some of the way that the sort of job market is evolving in Germany.
All right, Oliver, thank you so much. We really appreciate Oliver Crook Bloomberg News giving us the latest on Germany again. A no vote has taken place today and then they are now setting elections for February. So we will stay on top of that with continued reporting.
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What do you do if breadth is not great? We're headed into the FED.
We should be in a Santa Claus rally, but it's only being led by a handful of stocks.
What does that mean then for your portfolio for next year?
Phil Orlando one of the best out there, chief equity market strategists and head of client portfolio management and federator Armies is joining us.
Hey, Phil, what do you make of this?
Every day in December there's been a weak breath in a month that's supposed to be relatively positive with the Santa Claus rally for most assets.
What do you think of that?
First of all, good morning, Alex. Thank you very much for having me back on the program. Let's not discount the fact that since the first week or so in August, the S and P five hundred and nineteen percent, so what you would normally have expected, you know, during the month of December Santa Claus rally, and on top of that a post election rally. Normally the stock market November and December post and election is up about five to
ten percent. We got a tremendous amount of that in August and September and October, which historically are are you know, sort of choppy months, so I wouldn't lose a lot of sleep over it. Our full year target to this year is sixty two hundred. We're at sixty one one hundred change, so I think we've done okay. The market's doing fine.
So twenty twenty five, Phil, what are the drivers of this market? Is it the FED, is a good old fashioned earnings What do you think is going to move this market one way or the other in twenty five The.
Short answers yesah, okay. So our SMP five hundred target for next year is seven thousand, So we're going to go from sixty two hundred we think to seven thousand. What will largely drive that is continued improvement in economic growth and corporate earnings growth. The stock market will continue to grind higher, and with the change in administration, we believe that we are likely to see a reduction in regulations, perhaps later in the year, an extension and a making
permanence of the corporate and individual tax rates. All of that is boosting animal spirits. Right now. Business and consumer confidence are soaring, and we think that's going to continue to drive strong economic growth, strong corporate corporate earnings growth, and ultimately the stock market is going to reflect that improvement in earnings.
Many strategists are coming out and saying like something similar, but that it's really going to be in the growth trade. You really need to see stronger earnings and stronger economic data for the value trade to take over.
What do you.
Think, Well, the growth trade has had a pretty good couple of years, I mean, driven largely by the mag sevens. You know, You've got some terrific companies there. I'm not going to argue against that, but the reality is that we do expect that this rally to broaden out the valuation in balance, if you will. With the mag seven's, we think there's going to be a reversion to the mean that to some degree has started in the back
half of this year. We think that continues over the course of next year, and we play significant catch up with the small caps, both growth and value and the large cap value. And we think that the large cap growth you know, continues to do well because they're they're growing fine. I'll throw one additional wrinkle into this. We think that the surprise next year might be how well emerging markets. Do you know? China has been you know, flat on its back to the better part of the
last couple of years. We think that they're starting to get the memo in terms of we need some aggressive fiscal and monetary policy stimulus to get their economies and their financial markets going. Valuations extraordinarily attractive, and from a stock market standpoint, we think em ought to be a pretty good performer next year as well.
Hey Phil, did your outlook and a look of your colleagues at Federated? Did it change materially the day after the presidential election?
The short answers know, because you know, we had forecasts that that Trump would win, that that we would run the table with the with the seven key swing states, that the Senate would flip to Republican control regardless of who won the election, and the down ballid impact on the House. Whoever won the presidency was likely to win the House. So that suggested that we thought that there would be a red wave and we positioned for that
ahead of time. So, you know, we've we've had a pretty good year in terms of performance and the confluence of politics and economics and and you know, the financial markets have all sort of come together beautifully for us this year.
So when you look at your target for next year, does the sequencing of Trump's agenda matter in terms of how you position in terms of say, immigration, tax cuts, tariffs, deregulation.
Yeah. So, so our expectation is that we're likely to get immigration and tariff stuff early, let's say the first half of this year, we think that the tax stuff, the extension of the individual and corporate rates, is likely to be a post Labor Day kind of an event.
And then we think right at the back end of the year, about this time next year, we're likely to get some news on Trump's ideas about the transition of the leadership of AT or reserve that Powell's term as the Chairman of the FED will expire in May of twenty six, so it would be completely appropriate for the President to announce that he's either going to recommit for a third term for Powell or go to another candidate, such as Kevin Walsh, for example, right around Christmas of twenty five.
All right, Phil, thank you so much for joining us. Really appreciate it.
Phil Orlando.
He's a chief equity market strategist and head of the client portfolio management team at Federator Hermes. Joining us from NYC.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Cardplay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Dean Paul Swiney live here in our Bloomberg Interactive Broker Studio and streaming live on YouTube as well, So head over to YouTube dot com and search Bloomberg a podcast Susanne Willie joins us here. She's kind of starts getting a lot of readership on the Bloomberg Terminal. Is a personal finance reporter for Bloomberg News, joining us here in our Bloomberg Interactive Brookers Studio. Need to grind retirement
crunch haunts Americans nearing sixty. So we get some of these gen X folks starting to think about retirement and they're looking at their four one K and they're like, I'm not sure this is going to cover. So what's your reporting find.
Yeah, there's a lot of stress about it because, you know, as the oldest exers become sixty, I mean they were
sort of the guinea pigs for four one ks. The boomers had pensions, you know, and the four one K on top of that, and now the exers are sort of looking at their balances and looking at the news about maybe Social Security having to be reformed within the next decade, and looking at the money that they're spending supporting their adult children and possibly also their parents aging parents, and it's just leading to a lot of concern about how the heck are you going to be able to
retire in comfort anytime soon.
I was struck by it, was it forty three percent say they can't afford to retire at sixty five.
That is staggering.
It is staggering, you know. It's it's just a combination of a lot of things. I mean, housing affordability has been an issue, you know, the high cost of living is an issue. These are sort of the peak earning years for a lot of exers, and they're hit with the pandemic, which a lot of them say was a big blow to their savings, you know, and then just
the cost of groceries, the cost of housing. Everything has been going up and up and up, and it's harder to save and it's harder to see, you know, how you eke more out of an already stretched budget to put away more for retirement.
So is the expectation that since we're living longer, we're just going to have to work longer.
I think that's part of it, Yes, because exers are obviously going to live longer, you know, the truth is really that a lot of people, at least boomers, have a lot of challenges when they retire.
You know, they feel sort of rootless.
So in a way, maybe it's not so bad if we can work longer. There's this epidemic of loneliness in America. It gives people a sense of purpose. But the fact is, you want to have the option to retire when you want to.
Or to work differently.
Right, so maybe you're working part time, or maybe you're working at a job that you work maybe eight hours a day versus like fourteen hours, you know, like it's a different kind of environment and pace.
Like Paul wants to be a Walmart greeter in his third career.
Like I'm not entirely kidding about that, but we don't support that part.
No, no, I mean, but that is, you know, that is sort of the reality. You know, in your later years, you may not want to grind away at the same job even doing for you know, the past couple of decades, but you might do consulting in your area, or you know, at least you'll make some money later in life. It's not just like you'll turn the switch at sixty two or sixty five. And then all income coming into you
is over. But I mean, social security makes people a lot of nervous because that's something it's sort of the one thing in our society we can sort of depend on, and something's going to have to happen.
What is it?
What is the feeling in with your reporting here about social Security? I mean, do we I'm not.
Yeah, it's not good. It's not good, Paul.
People are really not feeling that social Security is going to be there for them in the way they need it, and you know, unsurprisingly they place a lot of flame on that in politicians.
I mean, I'm gen X and I'm assuming I'm not getting Social Security. If I do, that's super like benefit go me. But that would be like extra stuff. So like, my whole life is revolved around how do I put my money in a way that will make me money later in in some kind of tax free way, because that I've seen with my parents how difficult it is to pay taxes when you don't have any income except for like atensional or Social Security.
Yes, and for most people, you know, eighty five percent of the Social Security benefits are taxed, which.
Is bananas exactly. Yeah, that's just my personal feeling. Yes, yes, I.
Like that formal assessment that the bananas.
Yeah, so what's a solution. We have about thirty seconds left for your solution?
Oh my gosh, the solution.
I mean, there are a lot of ways you can sort of, I mean, obviously you can if you're over fifty, you can contribute more to your four to one K. You can contribute next with seventy five hundred dollars a year if you have it this this coming year. There are ways to you know, increase your savings. There are you know, side hustles. It's really hard to come up with an answer to that question because it's different for every person.
You know, what they can do.
I guess just like smarter savings and making sure you're doing everything you can to optimize your tax advantage savings with your four one K and maybe I mean roths are something I think younger people should really look into. Yeah, because that's you put in the money after tax and you don't want to pay taxes retirement.
All right, Sam, I got to leave there. Thank you so much, really appreciated. Susannai Lee, Bloomberg Personal finance reporter.
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