"Is the showdown starting?"

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ifoindex Jan2018

Dear Readers,

the situation is getting worse. For the second time in a row, business expectations in industry have declined. Three consecutive declines would trigger a sell signal in the private wealth exchange model. We are therefore eagerly awaiting the results of the ifo economic survey in February.

This clouding of future prospects has been somewhat lost in the general euphoria. Finally, the business climate index as a whole rose again to the record level last reached in November.

The background: The ifo business climate is a mixture of the current business situation and business expectations for the next six months. The situation is currently assessed by far better than ever before. So Germany is currently experiencing a super boom. This is clearly shown by the Ifo business cycle clock, in which the assessment of the situation is now almost "bumped off" at the right-hand edge (see chart).

The assessment of the situation has pulled the climate upwards and more than compensated for the expectation component.

Interesting is: As a rule, the situation and expectations move in the same direction. If the scissors separate, there is a simple reason for this. The situation is so good that the entrepreneurs surveyed simply cannot imagine that things could get any better. If a few of them change their vote from "the business gets better" to "it stays the same", the expectation component will already decline. So a bit of location and expectation also work like communicating tubes. The better the situation, the less likely it is that expectations will be raised.

So it may well be that the situation will worsen somewhat next month, but expectations will rise again - and the German economy will remain in the boom zone for a long time to come.

However, if expectations decline again in February, things will get serious. In about two thirds of all cases, a three-fold decline indicated an economic turnaround. The situation then followed expectations downwards. The results of the Ifo business survey are therefore also regarded as an excellent early indicator.

Such a development would be fatal for equity investors. At present, the overwhelming majority of market commentators assume that growth and profit development at the companies will continue to accelerate in the future. The prices are correspondingly high. If, contrary to the hopes of investors, the situation were not to improve much in the future, there would be a risk of serious setbacks.

There is another point that irritates us: in recent days, volatility indices and share prices have risen simultaneously. This is unusual, since volatility indices are regarded as "fear indicators". They usually rise when prices fall.

One explanation given by the network is that more investors than before are hedging against price setbacks on the futures market. Investors are apparently more nervous than commentators and strategists who write only about the markets.

Conclusion:

The private-wealth stock market indicator remains invested. All in all, the German economy is still clearly in the boom quadrant of the Ifo economic clock. And the ifo traffic light also remains green. But the discomfort is growing. We would be seriously worried if the business expectations of German industry were to fall again in February.

In view of the very ambitious valuation of many shares, the model continues to propose a share quota of only 60 percent of the proportion of shares that the respective investor considers to be appropriate in the long term.

yours

Klaus Meitinger

Note: Despite careful selection of sources, no liability can be accepted for the accuracy of the content. The information provided in private wealth is for information purposes only and does not constitute an invitation to buy or sell securities.

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