Sept. 18 (Bloomberg) -- Jens Ehrhardt, manager of Germany's best-performing major international stock fund, drives a yellow Porsche convertible. He refuses to buy the stock because, he says, the automaker is too dependent on debt-ridden Americans.

Ehrhardt, 65, is shunning all U.S.-related investments. He started dumping U.S. shares early in 2006 on concern that American debt was too high and by year-end was down from 10 percent of assets to zero. Now he is selling non-U.S. companies with large portions of sales in America, such as BMW AG.

The biggest piece of his Dividende & Substanz fund, 35 percent, is in German stocks, including the country's largest utility, E.ON AG, and fertilizer maker K+S AG. He's sticking with them because their cash flows don't depend on U.S. consumers, whose $9 trillion in debt has doubled in the last 10 years.

``The consumer credit bubble will weigh on the U.S. for the next five years, as it's a consumer-driven economy,'' said Ehrhardt, who oversees a total of $12 billion for Munich-based Dr. Jens Ehrhardt Kapital AG. ``Indebtedness has reached the limit.''

The strategy helped Ehrhardt's largest stock fund, Dividende & Substanz, return 8.4 percent this year, compared with a 0.4 percent gain in euros for the MSCI World Index. The fund outperformed 91 percent of peers with assets over 1 billion euros ($1.36 billion) in 2007, according to data compiled by Bloomberg.

Chemical maker BASF AG and automaker Volkswagen AG are top performers. After Germany, companies from Hong Kong and Switzerland represent Ehrhardt's largest investments.

When ThyssenKrupp AG, Germany's biggest steelmaker, chose Alabama as the site of a new $4.2 billion steel plant in May, Ehrhardt said he balked at the U.S. connection and cut his stake from 3.5 percent of assets to l.1 percent.

Hard Times

He won't buy Porsche because about a third of its sales come from the U.S. Ehrhardt also reduced his stake in BMW, which gets about a quarter of its sales in the U.S., from 1.5 percent in the summer of 2006 to 0.4 percent now.

Germany, after 15 years of hard times between 1990 and 2005, is now poised to finance domestic consumption and capitalize on growth in eastern Europe and Asia, Ehrhardt said. Germany's ratio of household debt to personal income is just 1.09, compared with 1.42 in the U.S. and 1.36 in Japan, according to data from the National Institute of Economic and Social Research in London.

U.S. national debt now stands at $9 trillion, up from $5.4 billion in 1997, according to the Treasury Department. That's more than the national debt of Japan, Germany and Italy combined.

Germany also has an industrial base that will drive exports to emerging economies such as China and India, Ehrhardt says. German exports jumped 14 percent in 2006, almost double the pace of 2005, according to government figures. Exports amount to 45 percent of Germany's gross domestic product, compared with 11 percent for the U.S. and 16 percent in Japan, according to the EU's Eurostat agency.

China Bets

Ehrhardt's favorites for capitalizing on Chinese growth are Wolfsburg, Germany-based Volkswagen, whose shares are up 76 percent to 152 euros this year, and BASF, which has risen 26 percent to 93 euros.

Ehrhardt's German strategy isn't foolproof. The Dividende & Substanz fund slid 2.5 percent in the three months ended Sept. 14. Deutsche Bank AG, the country's biggest lender, is a main holding in the 1 billion-euro fund, even after Ehrhardt pared back financial-services stocks.

Deutsche Bank stands to lose more than other European investment banks as corporate borrowing costs rise after the collapse of the U.S. subprime mortgage market, according to JPMorgan Chase & Co. and Credit Suisse Group. Deutsche Bank shares are down 13 percent this year to 90 euros.

Losing Less

The 6 percent drop in Germany's DAX Index of 30 stocks this quarter caught him off guard. ``I haven't seen such a situation before,'' said Ehrhardt, a money manager for 38 years. ``Share prices should be rising given the extent of share buybacks and the contraction of price-earnings ratios. The credit crisis has turned into a crisis of confidence.''

Ehrhardt has responded by moving money into cash. His fund, almost 100 percent invested as of May, now has about 28 percent in cash, he said.

His pessimism, particularly with regard to the U.S., strikes some German money managers as wrong-headed, especially if the Federal Reserve cuts its main interest-rate target from 5.25 percent at today's meeting.

``I've heard doomsday scenarios on the U.S. since I've been in this business,'' said Gunther Westen, who helps oversee $55 billion as head of asset allocation at WestLB Mellon Asset Management in Dusseldorf, Germany. ``I don't believe them. An interest rate cut Sept. 18 should bring some relief for equity markets there.''

`Positive Signal'

While Ehrhardt sees the possibility of a European rebound later this year, he doesn't expect gains in the U.S., even after a rate cut from the Fed. ``U.S. consumers won't benefit much from cheaper loans if their bank is too worried about liquidity to give them one,'' said Ehrhardt, who held U.S.-based oil companies Chevron Corp. and Exxon Mobil Corp. until last year. ``The subprime crisis won't be over any time soon.''

The U.S. economy lost 4,000 jobs last month, the first decline in payrolls since 2003. San Francisco Fed President Janet Yellen said in a speech this month that declining home prices and rising unemployment may cause ``significant'' cutbacks in consumer spending.

Ehrhardt predicts German stocks will outperform U.S. stocks again this year. The DAX 30 gained 22 percent in 2006, beating the Dow Jones Industrial Average's 19 percent. This year the DAX is up 13 percent while the Dow has risen 7.9 percent.

`Secure Cash Flows'

The Dividende & Substanz fund has about 4.6 percent of its assets in Dusseldorf, Germany-based E.ON, Germany's largest utility. Shares of the company, which gets only 5 percent of sales in North America, rose 24 percent this year to 126 euros.

About 1.7 percent of its assets are in Kassel, Germany- based K+S, the world's third-biggest producer of potash used in fertilizers. Shares of K+S, which gets less than 5 percent of its revenue in the U.S., rose 31 percent this year to 112 euros. The shares got a lift last week after K+S said Russian billionaire Andrei Melnichenko bought a 6.75 percent stake.

Hamburg-born Ehrhardt worked as an assistant in his father's documentary film production company before graduating in business administration from Munich University in 1969.

Now Ehrhardt's son Jan, 32, works in the business with an eye to taking it over when his father retires. Ehrhardt founded it in 1974, the same time he started his stock market newsletter ``Finanzwoche.'' He has at least 10,000 readers, according to the company.

``Ehrhardt hit the mark with what he wrote on the U.S. credit crisis during the past weeks,'' said Matthias Jasper, head of equities at WGZ Bank AG in Dusseldorf, who has read ``Finanzwoche'' for almost 10 years.

To contact the reporter on this story: Andreas Hippin in Frankfurt at ahippin@bloomberg.net.

Last Updated: September 17, 2007 20:04 EDT