Exports boom in a parallel world ignored by gloomy pundits.
While this summer's sci-fi blockbuster Inception gives it a good run for its money, the Wachowski brothers' The Matrix remains the definitive film about our potential to blur realities.
As Agent Smith tells Keanu Reeves' character near the start of the film:
It seems that you've been living two lives. In one life, you're Thomas A. Anderson, program writer for a respectable software company. You have a social security number, pay your taxes, and you help your landlady carry out her garbage.
The other life is lived in computers, where you go by the hacker alias 'Neo' and are guilty of virtually every computer crime we have a law for.
And that's just a hint of the duality to be revealed.
The two sequels to The Matrix were disappointing; the directors couldn't pull the wool from our eyes twice. But if the Wachowski brothers fancy returning to the theme of parallel realities, they could do worse then cover investing in Europe in 2010.
It seems investors have been living two lives. In one life, they panic about a double dip recession. They worry about European sovereign debt and austerity measures choking off growth, and they park their money in low-yielding government bonds.
The other life is the real world, where the major economies have returned to growth and companies are reporting booming profits.
Confused? Good, because so is the economic landscape right now.
Germany surges
Nowhere is picture more mixed up than in Germany, which this morning posted startling quarter-on-quarter growth for the second quarter of 2.2%.
The figure -- the best since German reunification -- confounded the expectation of every economist surveyed by Reuters, who on average had been looking for just 1.3%.
Germany's Federal Statistics office also revised up first quarter growth to 0.5%, from the 0.2% previously estimated, and Economy Minister Rainer Bruederle hinted that the German government may now see reason to lift its forecast for the full year to above 2%, compared to its current prediction of 1.4%.
"We can't speak of a growth miracle but we are certainly in an XL-upswing," he said.
All Greek to the Germans
Remember, this is the Germany where Chancellor Angela Merkel has had to repeatedly battle with her own Parliament by issuing dire warnings about the Euro in order to get through measures to stop the Greek debt crisis spreading to other Southern European countries.
And it's the same Germany that has embarked on an 80-billion Euro austerity drive to bring down Government over-spending.
Neither factor has hurt Germany's exporters. According to Reuters, of the 30 companies in the DAX index, 23 have posted better-than-expected results for the second quarter -- and 12 raised their forecasts.
Only this morning Germany largest steel company, ThyssenKrupp, posted expectation-busting results. "Demand has improved significantly in our key customer sectors and core markets," said chairman Ekkehard Schultz.
ThyssenKrupp now believes it will make a pre-tax profit of 500 million Euros this year -- way up from the lower end of its previous outlook, which was for just 100 million Euros.
Three cheers for the currency crisis
True, not every German company is bullish -- ThyssenKrupp's rival Salzgitter yesterday missed second-quarter estimates and said rising commodity prices made it more cautious about the near-term.
But overall, the world's second largest economy is responding exactly how you would expect it to in the early stages of a global recovery, despite worries about the stability of the Eurozone.
In fact, the confidence wobble in Europe has if anything helped the cause of Germany's exporters -- and France's for that matter, which also posted solid growth of 0.6% quarter-on-quarter this morning.
The weaker Euro that's resulted from European debt fears has boosted the competitiveness of Europe's companies, especially against their Japanese rivals who are languishing under the yoke of a sky high Yen.
Enter the Matrix
So can the German -- and by extension the global -- recovery continue?
- If you're a bear, you'll note that the US seems to be slowing down again, that inventory restocking and cost cutting has run its course, and that Europe-wide austerity measures and persistently high unemployment make it hard to imagine consumer demand picking up the slack.
- If you're more bullish, you'll reply that macro-economic forecasting has a dismal record – as just proved again by these German GDP figures – and that double-dip recessions are vanishingly rare. With shares still looking cheap, it's best to look through the short-term fear and buy.
Only time will tell which view proves right, but one thing is certain. As The Matrix's Agent Smith warns Neo:
One of these lives has a future, and one of them does not.
More on the markets:
