Fifteen percent fall on DAX?

The future developments on stock markets are rather dark as predicted by Dirk Müller, investor in Switzerland, Germany, and Austria, who is also the owner of Dirk Müller Premium Aktien Fonds. He thinks that the main reason of the upcoming minor crash could be China and the uncertainty of the American central bank.
He also says that the German and other Western government including Washington have permanently started supporting industries based on alternative energy sources by grants and subsidies. The German government will also help the partially state-owned Volkswagen in the renewal. However, this all means that there will be disturbance in the Arabian Peninsula; Russia will be in even bigger danger, and the flood of refugees will increase. The interviewee also says that he personally – just like most of the German stock exchange operators – does not ‘buy’ the optimistic predictions of government supporting economists about the possibilities of the economic integration of refugees.

Péter Zentai: Lately, you have been talking about the crash of DAX a lot. Do you want to provoke people by doing so? Now, when German and European shares in general are becoming more expensive?
Dirk Müller
: According to our technical analyses and probability calculations – taking the international financial, stock market developments and the Chinese and American situation into account – it is likely that the German index will drop to 8600 or 8300 points. At the end of the year – as always – there will be a short rally, but after that, we expect a downward tendency and a serious bear market.

Could you name the reasons?
China and America. A member of the Chinese State Economic and Trade Commission who is also a professor at Peking University told me ‘the largest bubble in the history of world economy has developed in China’. Between 2009 and 2017 7 billion worth of state investments failed. I know that from him too that 47% of every state investment started and finished in 2013 failed. Everyone – including me – who goes to China, thinks it is quite odd that there are so many empty grandiose sky capers. Millions of apartments unrented. The base of the problem is that the Chinese economy continuously was in ‘boom’ state for quarter century. The Chinese GDP grew at a steady two-digit rate, prices and yields by western investors (too) permanently reached 15-20-25 percent. Such situation is unprecedented in economic history, and its eventual stop or significant slowing down will cause damages first in China, then in the rest of the world; damages more severe than what great national economies frequently struck by recession usually cause. In the latter cases, the recovery process is always faster; foreign investors have to bear losses for a limited time only, and they do undertake it because they are sure the economy will start growing again. However, foreign investors in China became startled, so it explains that within a year, they withdrew a billion dollars from the country, and China’s foreign currency reserves have decreased by 20 percent…

They still have a 3.5 trillion dollars reserve, and the Chinese central bank is about to flood the economy, just like the American central bank did.
This is a grand piloting game, and by their nature, bubbles sooner or later burst. However, concerning the current situation, I do not entirely deny that big central banks still have some ‘wind’ left.

You said that you believe America to be another main cause of the projected crash. Is it because of the coming interest-rate raise?
It is rather because of the uncertainty that comes along with it. Fed has been ‘playing this game’ for two years, the decision has been hanging in the air from quarter to quarter, and it just does not seem to be made. By this, they only contribute to that the investors plan for shorter periods and push share prices into the clouds by making irrational purchases. For now, my prognosis is that Fed will not dare take an action. After all, if it hesitated even though the macrodata in the last one and a half, two years were significantly better than currently – when employment rates seem to drop -, why would it make a move now? The decision-makers at Fed are afraid of the collapse of markets, but by this they only promote it because even the short-term confidence of investors just vanishes.

If you take on the collapse-scenario, what do you do with your customers’ money? DAX looks promising lately, though I thought the VW scandal and the unknown economic effects of the waves of refugees would have affected it more severely.
Volkswagen’s stock exchange message is this: a company with six hundred thousand employees cannot go bankrupt. They do not allow it; it is in nobody’s interest. The basic idea of every rationally thinking German and foreign investor is that one of the major owners of VW is called: Federal Republic of Germany. The German state – if it is needed – will aid the car giant unlimitedly support its modernization to become one of the absolute world market leaders by integrating the newest technologies. The VW scandal only speeded up the revolutionary changes, electric motor was given green light, and suddenly the governments of major economies have started strongly support it. Tesla receives unprecedented grants from the United States: it sets the speed of this race now. The age of petrol and diesel engines is soon to be over. Every company with a solar or wind energy profile receives political support never seen before. On one hand, this technological shift is an absolutely positive reform; while on the other hand, it raises global political challenges with no foreseeable consequences. In the coming years, the price and significance of oil will rapidly decrease which leads to the decline of Saudi Arabia’s reserves, and every oil-exporter country on the Arabian Peninsula will be facing social tensions, not to mention Russia, Venezuela, and Iran. The number of civil and international conflict sources will grow which will lead to a further significant increase of refugees heading to Europe. On the note of the recent refugee wave arriving to Germany, we, stock market investors see the close future quite darker, and we do not share the optimism of political decision-makers and directors of economic research institutions with ties to the government. Actually, thinking that we could integrate hundreds of thousands from industrially inferior countries and with unclear level of education into one of the most advanced economy of the world would be an absurdity; the possibility of substantially employing them in such a high-tech environment of the global competition front line is rather questionable.

If I take your line of thought then I would think that the fund you manage will switch to Tesla and the others…
One day companies dealing with alternative energy sources, such as Tesla or Solarworld will certainly make great profit. My funds (Dirk Müller Premium Aktien Fonds) however can only invest in companies that proved they can generate stable profit, do not require state support, and whose ledgers are absolutely transparent. Tesla and such companies are not like that. My actions as a investor and fund manager are limited to the classics – primarily North Americans and Scandinavians: front line and pioneer pharmaceutical firms and companies connected to general health care. Furthermore, there is Microsoft, Apple, Google, and some carefully selected segments of food industry. Recently, we have been continuously increasing our presence on the Faroe Islands where – as we believe – fisheries management has shown a steady and remarkable development, especially the best and most competitive salmon fisheries that are having a hard time fulfilling the ever growing global demand.

Original date of Hungarian publication: October 12, 2015