The Germany allocation.
Positioning the bull, the base and the bear.

Every German asset call in this body of research reduces to a single question: does the largest fiscal impulse in post-war history convert into self-sustaining growth, or does it plug budget gaps and leave the structural problems intact? The bull case is crowd-in - the public money de-risks private investment, lifts confidence and triggers a genuine capex cycle. The bear case is substitution - the money is spent, not invested, and Germany ends the decade more indebted, no more productive, and politically radicalised. The base case sits between: affordable, partly effective, disappointing relative to its cost. This note translates that macro distribution into an integrated cross-asset allocation.

The desk's positioning is consistent across asset classes because the underlying bet is one bet. In equities, overweight the legislated fiscal beneficiaries - defence, infrastructure, capital goods, grid and electrification - and underweight the structurally impaired auto and energy-intensive complex; the alpha is in the dispersion, not the index. In rates, own Bund carry in the belly for the positive real yield, stay neutral on long-end duration given the supply wave, and position for medium-term steepening. In credit, own the fiscally supported and higher-rate-benefiting financials, avoid the cyclical and auto-exposed issuers. In currency, hold a neutral-to-modestly-constructive euro, recognising it as a correlated leg of the same fiscal bet rather than an independent position.

The single most important discipline is to size the aggregate German exposure for the base-to-bear distribution rather than the bull case, for two reasons. First, the probability is skewed: at 55 percent base and 20 percent bear against 25 percent bull, three-quarters of the distribution is at or below a disappointing outcome. Second, the bear case carries a non-financial tail - a visibly failed stimulus arriving alongside a leading AfD - that would impair German and European assets through a political channel the macro models do not capture. The correct posture is therefore a constructive but modestly sized book that owns the legislated upside cheaply (where earnings are contracted and visible) while keeping enough dry powder and quality ballast to withstand the substitution scenario.

The allocation is dynamic, and three signals would move it. The bullish trigger is a manufacturing-orders turn coinciding with rising infrastructure disbursement - hard evidence of crowd-in - which would justify broadening from the fiscal-winner barbell into domestic cyclicals and adding euro and equity beta. The bearish trigger is a deepening of the auto-tariff hit or a confirmation of the ifo substitution thesis in the spending data, which would argue for cutting cyclical exposure, extending into quality and Bund duration, and trimming the euro leg. The political trigger - a further AfD advance or a coalition wobble - would warrant raising the quality and ballast weighting regardless of the macro data, because it changes the tail.

Until those signals resolve, the base-case posture stands: a fiscal-beneficiary equity overweight, a Bund carry position, a higher-rate credit tilt, a neutral-to-constructive euro, and a book deliberately sized below conviction to respect the substitution risk and the political tail.