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10 October 2012 Written by

Last week’s FX trade of the week to sell the Australian dollar at 1.0450 for a 1.2000 target worked out exactly as I expected as the RBA cut its policy rate, contrary to Street consensus. Sterling has not lost its sizzle yet but Rome was not built in a day and Athens was not built without marble. The September jobs number has boosted risk appetites (strong economy means lower dollar in the surreal world of Wall Street!) and it is hardly possible to get riskier than emerging/frontier market equities (once known as the Third World, now hailed as growth markets!). The Indian rupee is definitely on a roll now that the UPA government has embraced pro-market reforms with a vengeance. Time for 50 INR before reality hits?   My faith in Southeast Asian currencies has been vindicated last week. After all, the Philippines peso, Thai baht and South Korean won were all up almost one per cent last week. If Asia is a growth warrant on the US economy, growth in ISM manufacturing/services/payrolls is positive for Asia’s hot money inflows and local debt/FX markets. Notice that the Aussie dollar has been unable to rally even though risk appetite was on fire all week, making it a natural short against both Canada and the Kiwi. If Singapore’s MAS reduces the slope of its currency NEER band to hedge economic/export slowdown risk at its October conclave, the Sing dollar will depreciate against the Thai baht or Malaysian ringgit. However, I believe the MAS will retain its current 2 – 2.5% band, a de facto (default) tightening bias that will boost the Sing against the US dollar. My Christmas wish for 2012? Santa, let me go long Sing at 1.24! The Mexican peso has proved a superlative investment since I highlighted it as a must own currency before the PRI candidate Enrique Pena Nieto won the Presidential election. Since I recommended buying the Mexican peso at 14.5 in May, it has been the world’s best performing currency against the dollar, though I believe we see 12.5 before Christmas. Rising GDP growth, the Hacienda’s stellar public debt metrics, exposure to a US manufacturing renaissance, potential labour market and judicial reforms under the new PBI regime, the prospect of foreign investment in Pemex, above $100 Brent, falling sovereign credit risk and CDS, the stablest banking system in Latin America have all been catalysts for Mexico. The biggest risks this winter? Extreme positioning and the politics of the PRI reform agenda. There are no shortage of event risks that could unnerve the currency markets. Catalonia could opt to secede from Spain in a fiscal revolt (remember 1776?). The German electorate may well reject Frau Merkel’s vision of “mehr Europe” if it means a daisy chain of bailouts. Turkey-Syria and the Iran rial crisis could well escalate into a new supply shock in crude oil. The US fiscal cliff and Chinese politics are both tangible sources of fiscal risk that could well ignite spasms of risk aversion and a dollar rally. Gold at $1800 is an indictment of the Bernanke Fed’s $40 billion per month QE3 (monetary policy will find jobs for jobless steel workers in Pittsburgh or property agents in Florida? Dream on), the trillion dollar Federal budget deficits, the sheer scale of financial repression against savers/creditors and fickle, reactive polarized politics in the White House, Congress and Federal Reserve. Trade ideas? Privatization will be a key Putin III theme and the Kremlin will attract at least $50 billion in offshore capital back to Russia at a time when the 4Q current account surplus could well top $30 billion and inflation risk force Bank Rossiya to turn hawkish. This is a formula for a stronger Russian ruble as high as 29 against the dollar by year end. I believe rising political risk (AKP-military, PKK violence, Syria), a dovish central bank and renewed current account deficit widening means the Turkish lira is toast this autumn. This means the lira alls to 1.95 against the dollar. Macro Ideas - Equities ideas in Jakarta, Seoul and Moscow Indonesia is one of the most exciting  high growth economies in Southeast Asia, with successive 6% GDP growth rates due to vast domestic markets and the export of commodities (global leader in palm oil and coal exports). In the past eight years, Indonesian corporate earnings have risen sixfold, far above the ASEAN and Asian rates. Yet Indonesian shares do not trade at a significant valuation premium relative to its ASEAN peers. In fact, Indonesia has been a bit of a Cinderella in Asian equities as investors fear cyclical overheating and a rupiah hit, though inflation is now a mere 4%, one third the pre-crisis 12% CPI rates. The Indonesian rupiah has depreciated thanks to a current account deficit that is now more than 3% GDP. Yet lower inflation, structural reforms, lower government bond yields and a U-turn in the balance of payments could well mean that the Rip Van Winkle bull market in Jakarta reawakens. I await a 10-15% correction to initiate a strategic position in Indonesian equities since corporate EPS growth of 14-15% next year will only be exceeded by South Korea, Taiwan and Thailand. The rupiah is also at risk at current levels, at least down to 9700. I believe the secular investment case in Indonesia is compelling but the entry points in Jakarta equities do not yet exist. Itsy bitsy short on the rupiah as the Asian Halloween trade is the month of trading dangerously. South Korea trades at 9 times earnings and foreign funds have been clear buyer of South Korean techs, financials, chaebol infrastructure. The KOPSI was an buy just below 1900, a level we could well revisit if there is a correction on NASDAQ (a $45 hit on Apple in three sessions? Has it begun?) or if Viva Espana bailouts disappoint the markets or Moodys downgrades the Spanish banking system. EPS growth in EPS is a stellar 16 – 18%. So South Korean shares now trade at 8 times forward earnings and 1.2 times book value, historically a high probability money making level in my experience in Hermit Kingdom. The V KOPSI, the volatility index in Seoul, worries me since it is a mere 12 now, down from 45 in August 2011. Still, I use any spasm of risk aversion in global markets to sell KOPSI index puts as I believe Seoul could deliver a Gangnam Style bull market in EM next year as the KOPSI rises to 2400 while the won appreciates to 1070 against the dollar. Apart from Samsung Electronics below 1.2 million won. I love the Chosun financials, Samsung Life, Hyundai Marine and Fire, Industiral Bank of Korea) as the central bank is on the eve of a historic easing to boost growth. Russia is the cheapest emerging market in the world, thanks to the spectacular valuation derating (with good reason, to be sure!) of Gazprom, Lukoil, Rosneft, Norilsk and VTB. Yet Russia is also one of the most vibrant consumer economies in Europe (not burdened with hundreds of millions of illiterate peasant farmers like China and India), as any observer of the jeunesse-dorée in Moscow and St. Petersburg will attest). Russian GDP growth will actually surprise on the upside (5% in 2013?), the rouble is undervalued, the Kremlin’s public debt is a mere 9% of GDP and the Bank Rossiya has $600 billion in hard currency reserves. Russian valuations never recovered from the twin shocks of the Georgian war and the oligarch debt shocks in 2008 but current valuations at 5 times earnings mean some of EM’s great bargains can be bought at 1996 valuations. Sberbank, Magnit, MTS, Yandex way to go?
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08 October 2012 Written by
The Sydney's central business district with its lights on is seen from east Sydney in this June 15, 2011 file photo. Australia faces a gathering threat to its 21-year run of recession-free growth that will likely require the central bank to cut interest rates to record lows and keep them there for some time, if the winning streak is to stretch to 22. REUTERS-Daniel Munoz-Files
By Wayne Cole SYDNEY | Sun Oct 7, 2012 5:04pm EDT
(Reuters)Upload/Insert       Australia faces a gathering threat to its 21-year run of recession-free growth that will likely require the central bank to cut interest rates to record lows and keep them there for some time, if the winning streak is to stretch to 22. The slowdown in China has deflated prices for Australia's key resource exports while forcing miners to scale back on their most ambitious expansion plans. When the country reported its widest trade deficit in three years for August, it seemed just a taste of what was to come. "It's like we're watching a slow motion train wreck," said Su-Lin Ong, a senior economist at RBC Capital Markets. "The decline in export earnings will take toll on wealth, incomes and consumption right across the economy," she explained. "And it's happening when fiscal policy is being tightened and the Australian dollar is restrictively high." As a result, she expected the economy's strength would bleed away into 2013, leaving it dangerously exposed should a seven-year old boom in mining investment also top out that year. The government and central bank still forecast growth of around 3 percent for the next couple of years. But when the mining splurge turns, as it must, there will likely be significant quarterly falls in investment even as the level of spending stays high. And since investment is set to reach a heady 9 percent of Australia's A$1.5 trillion ($1.53 trillion) in annual gross domestic product (GDP), such falls could easily cause a couple of quarters of contraction, the textbook definition of recession. PAST THE PEAK The danger was hinted at by the Reserve Bank of Australia (RBA) last week when it surprised most economists by cutting interest rates a quarter point to 3.25 percent. That was the lowest in three years and only a whisker from the nadir of 3 percent touched in the global financial crisis. "The peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected," wrote RBA Governor Glenn Stevens in explaining the latest easing. Previously the bank had thought spending would crest as late as 2014. "As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur," said Stevens. The central bank has been hoping that as the investment stage of the mining boom topped out, other sectors such as home building, retailing and tourism would take up the slack. So far, however, the transition has been glacial. Growth in mortgage credit, for instance, was the slowest on record in August, while sales of new homes hit a 15-year trough. Consumer borrowing has been going backwards with Australians preferring to squirrel cash away in banks rather than risk investing in homes or shares. Since 2008, bank deposits have climbed by a cool A$260 billion, or almost 60 percent. Household debt also remains high, at around 149 percent of disposable income. Any foot dragging by the rest of the economy could have serious implications for unemployment as mining has been a big hirer in the last couple of years, helping keep the jobless rate down near 5 percent. But while a lot of workers are needed to construct mines or liquefied natural gas projects, it takes far fewer to actually run them. This was a point highlighted recently by the head of the RBA's economics department, Christopher Kent. He estimated that, for iron ore mines, four times more people were employed in the construction phase than needed to dig the steel-making mineral. For LNG projects, the difference was more like 15-20 to one. "So while employment and wage growth in the resource sector is presently robust, it is possible that this may start to reverse in the next couple of years," Kent cautioned last month. When cutting rates this week, it was notable that the RBA was already sounding more downbeat on the jobs front by saying the labor market had generally softened. NOT PLAYING ITS PART Policymakers have long assumed the Australian dollar would ease the transition by falling sharply and so make life easier for sectors such as manufacturing and tourism. But for investors to dump the local dollar they have to buy some other currency, and attractive alternatives are few and far between these days. Central banks in the United States, Japan, the UK and Switzerland are all adding to the supply of their currencies either through quantitative easing or outright intervention. The European Central Bank has not gone quite as far as yet, but grinding recession and endless political risk are not exactly a recommendation for holding euros. Australia's triple-A rated debt also remains a big draw for sovereign funds and long-term investors wary of the risk of downgrades elsewhere. Thus while the Aussie dollar has eased in recent weeks, it remains high historically. Weighted against a basket of major currencies, its current level of 75.8 is not that far from 27-year peaks and a world away from the lows of 51.0 touched in the aftermath of the global financial crisis. That puts the onus on the RBA to do more, particularly as Australia's Labor government is politically shackled to a painful fiscal tightening aimed at delivering a promised budget surplus years before most other developed nations. Unlike past downturns, inflation is still low, giving the central bank more room to reduce borrowing costs. "The end of the commodity price and associated capex boom means more will probably have to be done to stimulate domestic demand," said Adam Donaldson, head of debt research at Commonwealth Bank of Australia. He thinks 10-year government bond yields could get down to all-time lows of 2.5 percent in coming months, from a current 2.93 percent, with the RBA's cash rate not too far behind. "The strength in the Aussie against this backdrop is inherently disinflationary - so we look for interest rates to remain low for an extended period as the economy navigates this difficult path." (Editing by Kim Coghill)
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08 October 2012 Written by


What gives one man the winning edge over another of equal – even greater – talent? It’s all about winning the mind game and the same  lessons apply whether you’re on a sports field or in the boardroom. Here’s how… What makes one man successful over another man? Particularly when the two men have equal levels of the relevant talent or skill? It comes down to the mind game, says Kris Morton of Gazing Arabia, a human performance management company. The winner on the sports field or in the board room is the man who does not lose his head under pressure and stress, says Morton, someone who can recognise and process his emotions. Easily said but how can someone master mind control? Even the world’s best athletes can succumb to the intense pressure-cooker stress of a championship final. Like Mike Tyson who, in the heat of the moment, ruined his life and career comeback in a ‘red mist rage’ moment that saw him bite Evander Holyfield’s ear. Or when Michael Schumacher almost killed himself and Damon Hill on the Formula 1 track as Hill went to overtake him and potentially take the championship. Then there was the ongoing All Blacks World Cup choking curse… finally broken in 2011 but not without a great deal of effort. Morton should know; the All Blacks team hired his company to train them in mental strength to overcome the ‘choke’ curse. It paid off. That final game against France was probably the worst show of rugby from the All Blacks throughout the whole tournament but still they won and this came down to their dogged, steely-focused, ‘never say die, just grind out the basics and keep a cool head’ mental attitude. Such mental strength under such extreme pressure doesn’t happen by chance, you need to train yourself in this, says Morton. THE QUIET MIND When it comes to success, what separates two people of equal talent, or two sportspeople of equal physical strength, is the mind game – knowing how to quiet the brain chatter that stops you performing, says Morton “When you’re executing a gold shot on the final green on the final day of the tournament, your mind is either going back and forth with negative and positive self talk or there is complete trust. The back and forth self talk is, ‘oh heck, I missed one of these the other day… no, come on you can do it, you know what you’re doing…’ but if you have complete trust in the process based on countless hours of practice, you’re in that space of intuition, trust and quiet mind that allows you to execute under pressure as opposed to the guy who’s trying to talk himself into it or talk himself out of it.” Morton says. “In a sportsperson, the effect of the mind on the body is much more obvious. For example, in putting it’s called the Yips when the golfer can’t control the putter head. You’ll either see the putter shaking or he’s got a stiff elbow so he can’t naturalise the movement, it becomes mechanical or jittery. The impact of stress is clear and immediate but it works in a similar way in business. “If you look at people like Tiger Woods, certainly for the majority of his career, what differentiates him from the rest of his field is not so much having more talent or a better swing, but his mental strength. His ability to perform under pressure, trust his intuition and shut out the distractions to focus on the execution. His ability to do that has meant that he can make more of his talent that most of his competitors.” ALPHA BRAINWAVE MALES It’s all about brainwave patterns, says Morton. As we’re going about our day, our brains are active and in beta wave state. This refers to the frequency range of human brain activity between 12 and 30 hertz per second, in other words 12 to 30 cycles per second. Compare this to delta brain wave, which the brain is in during deep sleep or coma where it’s cycling at zero to four hertz per second. “Beta is where most of us are, most of the time while we’re awake,” Morton says, “but if you’re a high performance sportsman on that final putt, you want to be in the alpha state, one level below beta at eight to 12 hertz per second. When your brain is in alpha, your mind is quiet. “It’s like when you first learn to drive a car and you’re concentrating hard and thinking, ‘ok, now I have to signal, now I have to look in the side mirror…’ but when you’ve driven for years, you don’t need to think about it, you rely on your intuition so you can free up your mind and think about other things on your drive, you can be in that intuitive alpha state and other perceptive doorways open up. “What’s misleading for a lot of people is the belief it’s all about trying really hard. Yes, you must put in the effort and the hard yards and the training but when it comes to executing in the moment, you can try too hard.” At the crucial moment, you need to be in the zone or flow, says Morton. However, in order to execute something automatically in a flowing way, you need to have it repeated it countless times to carve those neural pathways deep into the brain. STRESS AND PERFORMANCE The biggest killer of a man’s presence of mind, says Morton, is stress. Men’s brains are not genetically wired up to deal well with the long, ongoing levels of stress that modern life can bring. Their hunter-gatherer cavemen brains are more suited to short, sharp bursts of the ‘oh no, a dinosaur is chasing me’ variety aka the ‘fight or flight’ stress response. From an evolutionary perspective, there was a good reason for this, says Morton. “If you electromagnetically scan a man’s brain and a woman’s brain, the piece in the middle that joins the right and the left hemispheres is much larger and more lit up, more active on a female. In men, the left hemisphere tends to be more dominant and that’s where you’ve got analysis and pure language. The right brain is more to do with pattern, perception, perspective and language from an emotional perspective. That’s where your emotional centres are; your amygdalas. One of the reasons women appear better at communication and talking about their emotions is because the left brain deals with language and the right brain deals with emotions. A woman can link those two, tap into her emotions, process them and understand them in a logical way using language in her left brain. Men find that more difficult and we think it’s down to our evolutionary path. When a man’s going out hunting and his life is in danger, his emotions are going to be ones like fear and desperation. What he needs to be able to do is cut those off, focus on analysing the situation and be task orientated.” The modern man though needs to be able to process their emotions, says Morton. “It’s not about denying your feelings because that just builds up,” Morton says. “It’s about recognising them, acknowledging them then letting them go so you can get back to focusing on the task at hand. “I think most men, when they’re being honest and taking their CEO armour off, would admit they don’t process emotions well. With men you get more of a biological response, this aggressive, ape behaviour. Anger is a very easy emotion to understand and process, it doesn’t make us feel vulnerable. Although what’s behind anger is usually a very vulnerable emotion, someone’s said something that’s made me feel like I’m not good enough, or not worthy and all this goes back to childhood conditioning.” Part of the problem, says Morton, is that most men don’t even realise they’re not coping with stress. This is due to the ‘normalisation’ of ongoing, low grade stress that’s often part and parcel of modern life but the results eventually manifest as physical issues. “An ongoing stressful work situation will impact your physiology. Your energy, clarity and posture will suffer, your heartbeat will raise, your digestive system won’t function properly, you’ll suffer insomnia and so on. “If you look at the proliferation of chronic fatigue, of bowel and digestive illnesses, Crohn’s disease, Irritable Bowel Syndrome, high blood pressure… these things are often the result of a mentally stressful lifestyle.” MIND CONTROL So the million dollar question is, how can a man best deal with stress that is impacting his performance? The answer is loads of things but is there an all encompassing, integrated solution? No. One size does not fit all. While one man might be open to ‘touchy feely’ practices like meditation or psychoanalysis to talk through childhood traumas, other men shudder at the thought and prefer behavioural modification techniques. Others might find daily exercise helps. “Meditation is a great thing to do. For someone like me who can find it hard to switch off, I find meditation great for getting into those alpha and theta brainwave states. The question is, how do you integrate that into your daily life? Yeah, I can meditate every day and feel calmer but when I’m back in my office, or on the sports field, but how do I integrate that into my job?” It’s about focusing on the process and the bigger picture – not focusing on the outcome, says Morton. “By focusing more on the process and being better at what you’re trying to do, rather than being overly fixated on the outcome. Instead of ‘how much money did I make?’ the focus is ‘how can we serve our customers better, or make better products this year, or engage our employees better this year?” “That, I would suggest, is going to lead to higher performance than being overly focused on outcomes that we can’t always control. What we can control is the input, the things that we do to get there. Higher performers have much more focus on the things they can control, the processes, the skills, the behaviours, the mindsets, the feelings... Those people who have equal talent but are more stressed and very outcome focused are less successful than those who process their emotions and enjoy the journey, not just the destination. “A good question for a man to ask himself is, ‘am I enjoying the journey?’ if the answer is no, something needs to change.”  
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03 October 2012 Written by
 Hi I have started this new unique live trading mentorship program for my students who have taken either the long term course or the short term course. This is a FREE 6 Months daily Live Trading Mentorship; together we apply the weekly planning we do together every Sunday, and re-evaluate the markets before every trading session, select our trades, and pinpoint our entries and exits and work as a team to identify opportunities for each other. I have to admit, we've to called out some great trades. We trade together 2 hours in the morning (UK time), and then 2 hours New York time. The core of everything I do or did, both with Training Traders and with the Turtles stems from my firm belief that trading is a teachable skill . I have proven this with the Turtles; even though I had to end the journey a few months earlier, they are all now trading on their own today. This is my passion and it remains in my  heart. I love waking up every morning to trade with them. I will continue to help people and train them to trade. "All of life is an experiment. The more experiments you make, the better"    ~Ralph Waldo Emerson. I realized that my students are passionate about trading, even more so than the Turtles. They came to me and actually paid money to be taught how to trade. I had not given them the same opportunity that I gave to the Turtles, which was the daily  mentoring and support; discussing every trade, doing our portfolio selections and planning our entries and exits. My Students deserve to get at least as much as the Turtles. So, I decided to offer every student of mine the opportunity to get FREE mentoring for 6 months, this is the same mentoring that I gave to the Turtles. Many of my students took me up on the challenge and it has been a resounding success; beyond my wildest dreams, and even better than the Turtles. Simply because the setup and the structure are different. In the mentoring room we are all talking with each other and communicating our trades. Everyone hears every question that is being asked and listens to every answer, in a live, real money  environment. This is a Live Trading Desk and not a teaching room; all they needed was this guidance, the hand holding and they are now on their way to making money on a daily basis. We are very excited, and having a lot of fun in the trading sessions, this is the result of feeling great about ourselves and our trades. One thing we did was to chose a theme song for this elite club, its a song that we all relate to, the excitement and the challenge we take everyday, think of it in  a trading context. We even came up with a song for the slow day and a song to end our great trading days. Let me share them with you... All of my Alumni are Winners! http://www.youtube.com/watch?v=kGcOe6zMDLY   This is our favorite song to close the week every Friday http://www.youtube.com/watch?v=Ur6L_-TYy7U I believe its like God whispers in our ears, we take the trades and  then  we   GOOOOOOOOOOOOO!!   This song is for the slow day is ... http://www.youtube.com/watch?v=ns1exm8Y5r4
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03 October 2012 Written by

Germany's prized AAA credit rating was put under threat on Monday night after a day of turmoil across the global markets.

Moody’s warned the outlook for the ratings of Germany, Luxembourg and the Netherlands is negative because the threat of a Greek exit from the eurozone and the need for greater financial support for struggling eurozone countries from the strongest members of the bloc.
In a statement, issued after the close of the US markets, it added: “The level of uncertainty about the outlook for the area and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks.”
After the move, Germany's finance minister said his country would continue to play the role of the "eurozone's anchor of stability".
"Germany will do all it can with its partners to overcome the European debt crisis as quickly as possible," Wolfgang Schaeuble said.
Earlier in the day, global markets fell sharply. The FTSE 100 closed down 2.1pc at 5,533.87 as fears about an escalation of the debt crisis engulfed markets. Spain’s borrowing costs soared to fresh euro-era highs and the imminent arrival in Athens of European officials put a spotlight back on Greece’s ability to meet the terms of its bail-out package.
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03 October 2012 Written by
Three days before East and West Germany reunited in 1990, Angela Merkel made an acquaintance that was to put her on the path to power.     An East German scientist propelled into politics by the fall of the Berlin Wall and the communist regime’s collapse, Merkel wangled an audience with Helmut Kohl at a party event in Hamburg. Within four months, Kohl had ridden German reunification to a landslide third election victory and Merkel secured a post in his Cabinet. Just as Kohl knew what Germans on both sides of the border wanted when they united 22 years ago today, Merkel is tuned in to voters who balk at paying the price of the united Europe Kohl brought about. While her peers in FranceItaly and Spain have been voted out in the three years since the debt crisis emerged in Greece, Merkel’s ability to channel domestic public opinion paired with a still-expanding economy led polling company Forsa to conclude that she looks unbeatable before 2013 elections. “The crisis makes people rally behind Merkel,” Gerd Languth, a historian and professor of politics at the University of Bonn whose 2005 biography of the chancellor documents her meeting with Kohl, said by phone. “People see her as being on top of the issues and the only one who can solve the problems.”

Sarkozy Unseated

Bucking the crisis that has unseated contemporaries including her ally French President Nicolas Sarkozy is shaping up to be the theme of Merkel’s campaign for the election due next fall. Its resonance with voters will determine whether she emulates Kohl and serves a third term. Outside the 17-nation euro area, U.K. Prime Minister David Cameron’s Conservatives trail the opposition Labour Party by as many as 10 percentage points as he pushes the deepest budget cuts since World War II. Voters credit Merkel for ensuring Germany is “the only economic safe haven in Europe,” Horst Teltschik, Kohl’s deputy chief of staff and a key adviser on German reunification, said in a telephone interview. “There are no other strong leaders in Europe.” Merkel is “the rock at the center of the euro-crisis storm.” Merkel’s speeches channel Germans’ historical aversion to debt and profligacy forged in the aftermath of two world wars and marry them to Kohl’s legacy of a more integrated Europe. She’s seen to be “holding the line on debt mutualization” while finding a “middle way” on Europe, said Langguth. Vilification of Merkel with headlines and placards comparing her with Hitler only makes Germans swing behind her, he said.

Robots to China

Merkel, 58, the key political player in nearly three years of crisis-fighting, is aided by an economy that has yet to bear the scars of the turmoil dealt to fellow euro members. Buoyed by growth in China and the U.S., Volkswagen AG, Daimler AG, and Bayerische Motoren Werke AG (BMW) have so far proved resilient to the plunge in sales that has plagued European rivals such as PSA Peugeot Citroen of France and Italy’s Fiat SpA. Kuka AG of Augsburg, Europe’s biggest maker of assembly- line robots, raised its outlook for 2012 as it expands in China. Germany’s 30-member benchmark DAX index is up almost 25 percent this year compared with a near 11 percent rise in the Dow Jones Industrial Average. In Spain and Greece, the crisis front line, unemployment is touching 25 percent; even across the Rhine in France joblessness is at a 13-year high. In Germany, Europe’s biggest economy, it is at a two-decade low. While all Europe tightens its belt in fear of the future, Germans’ satisfaction with their economic situation was at an 11-year high in July, FG Wahlen found.

Steinbrueck’s Challenge

Merkel’s edge over three opposition leaders is now so wide in a Forsa poll that she “appears unbeatable” a year from the election, Stern magazine said Sept. 19. Peer Steinbrueck, Merkel’s first-term finance minister who was nominated on Oct. 1 as her main challenger, trails her approval rating by 22 percentage points. She is Germany’s most popular politician and her approval rating is hovering near the highest since November 2009, a separate FG Wahlen poll released Sept. 28 showed. The chancellor hasn’t offered her political foes much space to land blows as she preaches budget cuts for the euro area, refuses to underwrite the region’s debt with German economic might and barely acknowledges anti-austerity protests from Greece to Spain. Instead she tells weaker euro countries there’s no prosperity without pain. “We remain true to our philosophy of no help without something in return,” she said in Brussels in June. That followed an all-night European Union summit at which Merkel fended off pressure from Italy and Spain for direct bank bailouts and government-backed buying of sovereign bonds.

More Kohl

Polls indicate that German voters like it when Merkel lays down her doctrine and holds the line against the euro area’s southern tier. Merkel is now getting higher approval ratings than Kohl ever did, said Matthias Jung, Mannheim-based FG Wahlen’s director. “A growing part of the population realizes that there is no shining solution and that the crisis requires constantly defending German interests,” Jung said in an interview. Merkel is successfully defining herself in voters’ eyes as guardian of “the politics of common sense.” The crisis has not always worked to her advantage. Re- elected in September 2009, Merkel’s personal and party popularity plunged after the first bailout for Greece in May 2010, leading to a run of state vote defeats. She took months to craft a policy meshing national interest with Germans’ desire after wartime devastation to be good Europeans.

Tipping Point

The turning point came in December 2011 as she persuaded all but two of the EU’s members to sign up to her fiscal pact locking in common budget rules. From a low of 29 percent in a Forsa poll in 2010, her Christian Democratic bloc soared to a four-year high of 39 percent in August. Her bloc won 33.8 percent in the last national election on Sept. 27, 2009. That trajectory brings Merkel closer to Kohl, who was first elected West German chancellor 30 years ago this week. In 1989, seven years into office, his popularity was languishing when he seized the opportunity provided by the fall of the Berlin Wall to push for a reunited Germany, winning a landslide victory in the first post-unification German elections in December 1990. Merkel sought out Kohl two months previously at a party convention organized to formally unite Christian Democratic organizations in the two parts of Germany before Unification Day on Oct. 3, Langguth said in his biography, which comprises interviews with Merkel and her contemporaries. Merkel and Kohl met at the press party on the eve of the convention and had “a relatively long talk that evidently impressed Kohl,” he wrote.

Law Breaker

Germans voted Kohl out in 1998 after a record 16 years in office, and Merkel broke with her one-time mentor the next year when he refused to identify secret campaign donors. Writing in the Frankfurter Allgemeine Zeitung newspaper, Merkel said he had broken the law and caused damage to the party he led for a quarter-century. Now publicly reconciled, Kohl, who agreed in 1992 to give up the deutsche mark for the euro, passed the baton of his legacy on to a new generation at a Sept. 27 gala at Berlin’s German Historical Museum attended by his former protégée. “Let us make good use of time,” Kohl, now 82 and in a wheelchair, said at the event, where he described Europe as a “grand goal” that others now have to carry forward. “Let us get going.” A pastor’s daughter, Merkel’s austere Lutheran manner may fit the times even more than Kohl, the wine-loving West German who seized the moment and allayed fears of a bigger Germany with personal diplomacy. Merkel, seeking to extend her chancellorship to 12 years, told Kohl at the Berlin ceremony that he “defined an era.”

Eastern Collapse

Merkel cites East Germany’s economic collapse after decades of rot as a defining moment. Her methodical, home-spun image is part of her appeal as Germans contemplate their position as the chief underwriter of 386 billion euros ($500 billion) in pledges for Greece, Ireland andPortugal plus as much as another 100 billion euros for Spain’s banks -- with a sovereign rescue for Spain possibly ahead. The 700 billion-euro permanent bailout fund, the European Stability Mechanism, comes on top. “I like to read files,” Merkel said in Berlin on Sept. 26. She relishes cooking with her physicist husband at her rural lakeside retreat north of Berlin, buys her own groceries in the capital and holds up the mythical “Swabian housewife” as symbol of German thriftiness in speeches. She doesn’t host dinner parties and lets off steam with “hiking, cooking, laughing,” the Sueddeutsche Zeitung newspaper quoted her as saying in response to questions from celebrities on Aug. 10.


“The instrumental word with Merkel is trust,” said Jan Techau, head of the Carnegie Endowment for International Peace office in Brussels. “People don’t understand the European Stability Mechanism or the fiscal pact, but they trust Merkel” and her “plain-spoken confidence in resolving the crisis.” For all that the economy is slowing, with the Munich-based Ifo institutes’s gauge of business confidence at the lowest in more than two-and-a-half years, record-low German bond yields signal investor confidence in Germany as a safe haven. House prices in cities such as Berlin that were resistant to the boom- that-turned-to-bust in Ireland, Spain and the U.K. are rising so fast that billionaire investor George Soros said Sept. 10 the German capital was in “serious danger” of developing a bubble. Merkel is disproving “the chorus of people in Europe saying for years ‘the end is near,”’ Techau, a former analyst at the German Council on Foreign Relations, said in a telephone interview. “But the end hasn’t come and the perception is that she’s steered us through it.”

Euro-Bond Gambit

As the crisis heads toward its fourth year, Merkel has signaled that the euro and her plan to shift the energy supply away from nuclear power will be her main campaign themes. Germany’s economic strength is buoying her for now against the Social Democrats, who backed joint euro-area bond issuance as recently as April and now urge pooling the region’s old debt. Polls show voters overwhelmingly back Merkel’s rejection of euro bonds. To be sure, the latest Forsa poll for Stern published Oct. 2 showed the Social Democrats closing on Merkel’s bloc after announcing nominating Steinbrueck to run against her. The SPD gained three points to 29 percent, while her CDU/CSU fell by the same margin to 35 percent. What’s more, Merkel’s current coalition with the Free Democratic Party doesn’t have a chance of reelection if current polls are correct. The FDP has been scraping along at between 2 percent and 5 percent support since 2010, far below the 14.6 percent it won in 2009.

Coalition Constellations

Merkel told reporters on Sept. 17 that while she wants a re-run of her current coalition with the FDP, she wouldn’t “rule out” a return of the grand coalition with the SPD that she headed under her first administration from 2005 to 2009. Even if Steinbrueck can maintain his party’s bounce, the SPD wouldn’t be in a position to choose if elections were held now. A coalition with his preferred partner, the Greens, would fail to win a majority according to all six leading German polling companies. Gary Smith, executive director of the American Academy in Berlin, says that beyond trust, popular euro crisis policies and the economy, Merkel is also “recapturing the moral high ground” on European unification which, despite the euro crisis, remains important for many Germans. “Merkel has made the CDU stand for something again,” Smith, whose research group promotes trans-Atlantic ties, said in an interview. “They stand for Europe and voters understand that Germany’s global role is through leading the EU, and it’s Merkel who’s providing that leadership.” Merkel, pressed on her electoral intentions at a Sept. 22 meeting with French President Francois Hollande marking Franco- German postwar ties, said she’d “happily” serve another term. “I don’t feel at all like I’m at the end of my mandate,” she said.
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