Donnerstag, 30. Juli 2009

Reader Notice

As you may have noticed, posts have been a bit thin lately.

It's a combination of being somewhat busy, feeling that the topics are starting to become a bit repetitive, and generally being somewhat low on motivation.

Will start posting again in a little while.

Freitag, 24. Juli 2009

Germany's migration statistics

Now it's official:

In 2008, the number of people leaving Germany exceeded the number of newcomers by 56,000.

(There's a catch, though: The data regarding foreigners residing in Germany was extensively reviewed during 2008, and many non-existing residents were deregistered by the authorities. In other words, the negative balance is overstated, and nobody knows how many people really left the country last year...)

Mittwoch, 22. Juli 2009

Wealth Tax

The Vermögensteuer (wealth tax) is being hotly debated in the press once again. The latest study, this one authored by the DIW, suggests to raise an additional 25 bn € by levying a 1 % tax on private wealth in excess of 500,000 €.

In principle, I tend to agree that the lack of demand we are currently facing could be eased by taking money away from the rich (which tend to be big savers) and spending it on the poor (which tend to save little or nothing).

However, in practice this becomes rather tricky:

- How do you measure "private wealth"? One of the reasons why the Vermögensteuer was abolished was that revenue was comparatively small, yet the work involved in assessing it was quite big, i.e. lots of tax inspectors needed to toil away, and lots of tax advisers needed to help filling out the forms. It wasn't exactly an efficient way to raise tax revenue. In particular, how do you deal objectively with real estate and with stakes in non-traded company? The "old solution" was to tax it very lightly. But that of course is unfair, and it also reduces tax revenue.

- The other reason for abolishing the tax was that the constitutional court had declared it to be unconstitutional, because it implied a marginal tax rate of more than 50 % on the income of rich people, and for some reason, the German constitution does not allow for taxation in excess of 50 % (I never quite understood why, though).

- In any case, a wealth tax of 1 % in addition to the 25 % tax on capital income and 48 % top income tax bracket would surely drive many of the remaining ultra-rich abroad: An individual with a net worth of 1 bn € would have to pay an additional 10 m € per year in taxes, on top of what he is already paying.

- Considering the current low money-market of roughly 1 %, many people might even find it more attractive to turn their savings into cash and stash the cash in a safe box or under the mattress. After all, 1 % interest minus 25 % income tax and minus 1 % wealth tax equals -0.25 %. Putting the money under the mattress equals zero.

I'm not sure how the DIW arrived at 25 bn € in tax revenue. But considering all these points, I highly doubt that a 1 % tax on wealth in excess of 500,000 € would yield anywhere close to 25 bn €. But at least it would provide stable jobs to thousands of newly hired tax inspectors...

(According to Wikipedia, the Vermögensteuer was payable until 1996. In 1996, it yielded 4.5 bn € in revenues, and cost 150 m € to collect. Tax-rates were 0.5-1.0 %, depending on asset class. Sure, wealth has grown since 1996, but it hasn't exactly exploded. The gap between 4.5 bn € of revenues back then, and the claim of raising 25 bn € now seems hard to reconcile.)

Montag, 20. Juli 2009

Bank Recapitalisation

According to this Spiegel article, various high-profile German economists are asking the government to force banks to accept government equity participations.

The strange bit: They don't say which banks. Right now, the only major banks without government involvement are Deutsche Bank and HypoVereinsbank. And currently, those two banks appear to fulfill the solvency requirements. So on what grounds would Berlin be allowed to force a partial nationalization on them?

But it gets even better:

The reaons for the partial nationalisation are stated as follows:

Der Bund hätte zudem Einfluss auf die Geschäftspolitik und könne die Institute zur Kreditvergabe zwingen. Außerdem könne die Regierung die Banken von einer Rückkehr zu ihren früheren gefährlichen Geschäftspraktiken abhalten.

On one hand, the banks should be forced to lend more. On the other hand, the government can make sure that the banks will not return to "dangerous practices of earlier times". Right. State-owned banks do a much better job of avoiding "dangerous practices", as evidenced by the great shape of the Landesbanken. And of course being forced to lower lending standards in recessionary times does not constitute "dangerous practices".

(As posted many times already, I am not against nationalising banks that do not have an appropriate level of capital. But only to avoid setting the wrong incentives. Certainly not to force them to lend more or to institute superior risk management practices.)

Sonntag, 19. Juli 2009


In a Spiegel interview, Madeleine Schickedanz, the largest Arcandor shareholder, argues that ex-CEO Middelhoff can't possibly be accused of doing anything improper. His only possible mistake according to her: He may have given too much leeway to his CFO during the real estate crisis.

I see. So the fact that Middelhoff invested millions of his personal money into real estate sold by Arcandor to a fund where he was co-investor is due to the excessive leeway he gave to his CFO. Interesting way of seeing things...

Samstag, 18. Juli 2009


According to press reports, it's more and more likely that Wiedeking will step down from his post as Porsche's CEO. Apparently, his contract goes until 2012, and if he agrees to leave early, he would be able to claim a golden parachute worth more than 100 m €.

Now let me get this straight:

Here's a guy who was paid 80 m € last year because of Porsche's record profit caused by a huge bet on VW's share price. Then it all turned sour, and Porsche now desperately needs to be bailed out by VW and/or foreign investors. Yet if the owners want to get rid of him, they have to throw in another 100+ m €?

Why on earth did they give him a contract that entitles him to such a crazy sum in spite of screwing up?

(Though if I read the press reports right, they are speculating. They don't actually know what's in the contract. But I suppose we'll know soon enough if the number turns out to be true.)

Freitag, 17. Juli 2009

International Air Travel

International air travel continues to be extremely weak. In particular, business class traffic appears to be collapsing:

"Passengers travelling on premium tickets in May were down 23.6 per cent, after a 22 per cent decline in April and a 19.2 per cent fall in the first quarter. This means that premium travel numbers have been in decline now for 12 consecutive months. Economy travel numbers were also down in May - by 7.6 per cent. And total passenger numbers in international markets was down 9.2 per cent, after a 2 per cent fall in April and an 8.2 per cent fall in Q1. Premium passengers account for almost 30 per cent of airline revenue but only about 10 per cent of numbers, so total travel is shaped mainly by movements in economy ticket numbers ... In the Far East, premium travel was down 31.6 per cent in May; across the Pacific, it was down 30.7 per cent; and from Europe to the Far East, down 26.3 per cent - all following smaller declines in Q1. Intra-Asia economy class travel fell 15.9 per cent in May, after a 10.4 per cent decline in the January-March quarter. Fear of H1N1 flu may account for a large part of the May deterioration, with the region sensitive to such issues following Sars in 2003, Iata said. The impact of H1N1 on air travel was shown in the 62.4 per cent fall in total passenger numbers within central America during May."

(Source: Singapore Business Times, July 17; no link, because links to their articles tend to break down within a few hours)

Note that this is about international air travel only, i.e. domestic trips are not included in the data. In particular, domestic plane traffic in China appears to be growing at a 10-15 % pace based on official data.

Unemployment Rates

The FT has an interesting graph showing how unemployment rates have changed compared to a year ago:

Spain: +8.2 percentage points
Ireland: +6.2 percentage points
US: +3.8 percentage points
Japan: +1.2 percentage points
Germany: +0.3 percentage points

Interestingly, the recession has hit hardest in Japan and Germany when measured by "drop in GDP", with Spain and the US seeing much smaller GDP contraction.

However, Spain's unemployment rate has skyrocketed, whereas it has hardly budged in Japan and Germany.

Part of the reason is probably the German Kurzarbeitergeld, and large companies' reluctance to lay off core staff. In contrast, Spain has presumably shed lots of low value-added, low-paid jobs in the construction sector.

Still, it's hard to fathom how there can be such a huge divergence between Germany and Spain.

As for the US, the article mentions that the number of US workers "forced into part-time work for economic reasons" stands at roughly 9 million people, 6 % of the labor force. And 1 in 9 Americans now rely on food stamps.

Mittwoch, 15. Juli 2009

German Pensions

According to press reports, "experts" of the Deutsche Rentenversicherung have calculated that Germany's public pension system is not in fact a bad deal for the contributors.

Specifically, an average income-earner retiring between 2030 and 2040 will receive a return of 2.8 % (male) / 3.3 % (female) on the contributions made.

Sounds decent.

The catch:

Nobody tells us what the assumptions are. And the assumptions (inflation, real income growth, number of contributors, taxpayer subsidies) are crucial. The calculation results are completely meaningless without knowing the assumptions.

I tried to find the study on the website of Deutsche Rentenversicherung, but it doesn't seem to be there. Or maybe they are hiding it in some obscure corner of the website.

Montag, 13. Juli 2009

Salary Caps at German Banks

Banks that receive government funds are only allowed to pay their top management a maximum salary of 500,000 €. HSH Nordbank is one of the biggest basket cases in German banking, so surely CEO Nonnenmacher is subject to the cap, right?

Turns out he isn't. According to the FTD, he will receive a bonus and a pension entitlement totalling 2.9 m €. That's on top of his regular salary (no idea how high that is).

How can that be? Well, technically HSH has not received money from Soffin. It "only" received guarantees of 30 bn €. The equity injection of 3 bn € came from the states of Hamburg and Schleswig Holstein, not from Soffin. So state-owned HSH can pay its CEO as much money as it likes.

Keeping Legal Jobs Safe

Here's a bizarre story about Wells Fargo bank suing itself: It hired lawyers to press charges, and other lawyers to deny the allegations. And no, it's not one subsidiary suing another, it's the same legal entity suing itself. At least American lawyers don't need to fear for their jobs, it seems...

China Swine Flu Quarantine

Here's yet another China swine flu quarantine story.

It's definitely not recommendable to go to China right now. The flu isn't a problem. But the quarantining is.

Freitag, 10. Juli 2009

Do Managers Live Dangerously in China?

A Chinese company wants to invest many billions of dollars to buy a stake in a large Australian company. The deal falls through.

Some months later, a manager of this Australian company is in China to negotiate prices for its goods, which are in huge demand in China. The Australians want more money, the Chinese want to pay less. No agreement is reached.

Then the Australian negotiating team (one Australian and three locals) is arrested for "stealing state secrets" and "causing huge losses to China's economic interests". No details are revealed as to what those horribly damaging state secrets actually were.

China's foreign ministry warns Australia not to politicize the case, because this would be "no good for Australia".

Odd, isn't it?

And not exactly reassuring from the point of view of a foreign executive.

By the way: "Stealing state secrets" is punishable with life imprisonment as a possible maximum sentence.

(Source: BBC)

German Shipyards

I've been criticising China for pouring so much money into its shipyards even though very few new ships will be needed over the next few years.

Turns out that Germany is doing the same thing, albeit on a much smaller scale:

The Wadan shipyards in East Germany are Germany's third biggest yard. After receiving 167 m € in aid from state and federal government a few months ago, the Russian and Korean owners refused to inject more money, and the company went into insolvency proceedings. Now, the government is apparently in the process of approving an insolvency credit line ("Massekredit") of 190 m €, so that the shipyards can finish their ongoing projects.

Inconvenient detail: Apparently, the buyers of the ships have no financing, so it's highly doubtful that they'll pay. And when they're done building those ships, there are no new orders waiting. But hey, the 190 m € will help maintain the 2,500 jobs for a few more months. What's a mere 80,000 € per job, if it means that those 2,500 people will be able postpone their unemployment by a few more months...

Donnerstag, 9. Juli 2009

China's Economy

I've been trying to make sense of what is happening in China, but it's all rather confusing. Let's see:

- Loan growth is off the charts, with close-to limitless money being handed out to every (state-linked) company that asks for it.

- Car sales are still very strong, far higher than last year

- Domestic air traffic is up sharply (+11 % in first five months)

- Even electricity consumption has now (finally!) started increasing year-on-year

Can this be a sustainable mini-boom?

Intuitively, I'm tempted to say "no way!". There's the export drop that hasn't even started easing. There's the overwhelming temptation of allocating all the easy money in all the wrong ways. There's a collapse in foreign direct investment (and probably a sharp slowdown in local private investment as well).

But China has a habit of surprising. My guess is they will keep firing away for a while, and if they're lucky, they (eventually) get to find reasonable uses for much of the excess investment they are putting in place (not immediately, but China might "grow into it" after a while). If they are not so lucky, they will be saddled with huge amounts of new non-performing loans and near-bankrupt SoEs, but that's at least two years in the future.

But even in the adverse scenario, it won't destroy the Chinese economy. Sure, it will drag down the living standards of consumers, because somebody has to pay for the misallocated investment in the end (what's invested cannot be consumed; and if investment doesn't produce useful stuff in the future, it doesn't help future consumption either). But GDP doesn't measure standard of living. It measures the amount of stuff produced, useful or not, well allocated or not.

Mittwoch, 8. Juli 2009

Speculation and the Oil Price

According to press reports, France, the UK and the US want to limit speculation in oil futures to reduce price volatility.

Two questions:

1. To what extent can speculation actually influence the oil price?

2. Is it bad if "speculators" drive up the price?

Let's see:

ad 1:

As discussed in previous posts, the way it works is like this: If people expect the oil price to go up, they can drive up the price for future deliveries, thus encouraging others to store physically available oil as opposed to selling it to end users. This reduces the oil available for consumption today, and therefore drives up the spot price. It's hard to say what the effect on price is, but in a tight market, rather marginal supply changes can have big price effects.

ad 2:

So we established that "speculators" can potentially drive up the price if they think prices will anyway rise in the future. In theory, they can create a "bubble" on the spot market, but only if they encourage enough people to put oil into storage. But if so, is this a bad thing?

I would argue it isn't: If we all agree that oil is a finite resource, and will become progressively more scarce in the future, then it is the job of a functioning market to drive up today's price so that people use oil more efficiently today and leave more of it unused for tomorrow. Arguing for a low price today is shortsighted (and selfish, if the argument is made by people beyond a certain age).

In other words: "Speculators" that drive up the oil price don't cause harm. Quite the opposite: They help to achieve efficient intertemporal decision-making.

Though of course there's always the "us vs. them" argument: "We" (the people from oil consuming countries) don't want to pay too much money to "them" (the people from oil producing countries), even if that means inefficient intertempral allocation.

Dienstag, 7. Juli 2009

More on Arcandor

Arcandor's market capitalisation as of today: 140 m €

How come the shares are still worth so much?

If investors are betting on a "best case" upside, what would they need to expect?

Let's see some possible calculations:

80 % zero value, 20 % 700 m € value
90 % zero value, 10 % 1.4 bn € value

Can anybody seriously expect an upside of that magnitude?

Hmmm, maybe some investors saw me spending 34,99 € at a Munich Karstadt this morning, and that gave them a much-needed boost of confidence?

On a side note:

I noticed that KarstadtQuelle Bank is aggressively advertising term deposits (3.6 % for 2 years).

While it's true that they are not owned by Arcandor (instead, they are owned by Valovis Bank, which in turn is owned by the Arcandor Pension Trust), most of their business appears to be linked to Karstadt and Quelle.

Right now, they still have 8 branches in Karstadt department stores, but all of them will close within two months.

I wonder: What sort of sustainable business model do they plan on implementing going forward?

Chicago Real Estate

This is one of those snippets that are hard to believe:

According to Mish, the vacancy rate of office space in suburban Chicago has reached 24.3 % (out of a total of 96 m sq.ft).

And Chicago is not exactly a crisis hotspot, as far as I'm aware.


Naked Capitalism quotes "veteran oil analysts" which are sure that "oil will drop to $20 a barrel by the end of the year because this situation just cannot be sustained". The reason? Huge oversupply.

A price correction is certainly possible, but 20$/barrel? I just cannot imagine that this will happen. Well, we shall see.

Goodwill on German Balance Sheets

Yesterday's Handelsblatt informed us that the 133 German corporates listed in the various DAX-indexes had a total of 189 bn € in goodwill on their 12/08 balance-sheets. Of this, 75 bn € was added since 2004, and 13 bn € in 2008 alone.

The biggest acquirers were Deutsche Telekom (21 bn € goodwill), Eon (17 bn €) and Siemens (16 bn €). 13 companies, including Deutsche Psot (10 bn € goodwill) had more goodwill than equity, i.e. their net tangible assets are negative.

Considering that the lion's share of M&A activitiy was cross-border, that the money paid for acquisitions includes not only goodwill, but also net assets, and that non-listed companies also engage in M&A, it appears that during the last 5 years, at least 1-2 % of Germany's GDP went into cross-border M&A.

That's quite a substantial part of the current account surplus. As much of it was clearly acquired at too high a price, it probably wasn't a much better use of investor money than buying American residential & commercial real estate.

In other words: Much of Germany's current account surplus was invested so wonderfully well (in M&A and foreign real estate), that it has all but evaporated by now...

Montag, 6. Juli 2009


BP's chief economist apparently believes that 20 years from now, 80 % of the world's energy needs will still be met by burning fossil fuels. Let's hope he's wrong.

Coincidentally, after a two month hiatus, I decided to buy oil futures again. No clear reason really, other than the price being under pressure lately, and my continuing conviction that in the longer run, it can only go up. As for the short run, no idea. Except that I consider it extremely unlikely that oil will again fall below 50$/barrel for a prolonged period of time. In other words: IMVHO, mid-term upside is bigger than mid-term downside.

Sonntag, 5. Juli 2009

Lend them money now, or else!

Three German cabinet members are now openly saying that banks should be forced by law to extend more loans to help troubled companies:

"Sollte es zu einer Kreditklemme kommen, müsse die Bundesregierung über noch nie da gewesene Maßnahmen nachdenken, sagte Peer Steinbrück der 'Bild am Sonntag'. Auf die Frage, ob er dabei an die Einführung von Zwangskrediten denke, sagte er: 'Ich will darüber jetzt nicht spekulieren.'

Steinmeier drohte im 'Tagesspiegel': "Wenn wir in einigen Wochen sehen, dass die Banken noch immer nicht bereit sind, ihre Aufgabe als Dienstleister der Wirtschaft zu erfüllen, dann müssen wir über weitere Schritte nachdenken." Trotz massiver staatlicher Hilfe müsse er feststellen, dass viele Unternehmen bei den Banken abgewimmelt würden oder Kredite nur zu unverschämten Zinssätzen bekämen.

Am deutlichsten wurde Guttenberg. Er drohte, die Bundesregierung suche Ansätze, Banken zu der Erfüllung ihres Kreditauftrages zu verpflichten - räumte allerdings ein, dass das rechtlich schwierig umzusetzen sei."

Is this pure posturing ahead of the election, or are they seriously contemplating legislation? I find it rather hard to imagine how such legislation could work in practice: What exactly would banks be directed to do? Fulfill lending targets to specified sectors of the economy? Base their lending decisions on criteria defined by the government as opposed to their own risk assessment? And wouldn't the bank shareholders have legal claims against the government if those "forced loans" go bad?

It all sounds hopelessly impractical to me. But politicians need to be seen to be doing something, I guess...

(Source: Spiegel)

Executive Education

In this week's Economist, I once again stumbled over an ad that seems to be there every week: The Wharton School advertises its "Advanced Management Program" for "Senior Leaders":

A middle-aged greying gentlemen sits on a chair and gazes out over a pristine lake. The caption reads: "Now I invent instead of predict. I am a visionary."

And further down, we are told that "true visionaries" are "the most sought after executives in the world. And after five weeks at Wharton, you will be too."

I dare say that any senior executive who seriously believes that a five week Wharton program will turn him into a "true visionary" is way too naive to be a "senior leader".

And in any case, most of the "I have a vision, don't bother me with facts!"-style CEOs seem to do more harm than good...

Samstag, 4. Juli 2009

US Retail

FTD reports: Major US retailers have plans to thin out the selection of goods they have on offer, with a view to slashing inventories. Saks, Neiman Markus, Macy's and Bloomingdales all announced to reduce overall monthly order volumes by up to 25 %. And Walmart said it has plans to delist up to 25 % of products in some categories, and gives the example of instant glue, where it currently offers 25 different products, but will slash the selection to 11.

Doesn't sound too good for manufacturers of consumer goods, huh?

US Real Estate

Manhattan is becoming "cheap": According to the FTD, last month the average price for a Manhattan apartment dropped to a mere ... 835,700 US$. Sure, it's down 20 % on a year ago, but it's still a far cry from Detroit's 6,000 US$.

Reminds me of what a colleague told me yesterday: A friend of his had bought a decent apartment in central Leipzig a few years ago, and is now trying to sell it. Apparently, he's finding it hard to attract buyers at less than 50,000 € asking price (far less than what he had paid). In central Munich, a similiar apartment would probably sell for at least 400,000 €.

German Real Estate

According to the FTD, anglosaxon investment funds have spent a massive 72 bn € on German residential and commercial real estate during 2005-08. And apparently, much of it is now proving hard to rent out or sell on.

It's not clear from the article how much of that money is from investors and how much from banks (nor do we learn how much of the bank loans are from German banks, and how much of the investor money is German money flowing into American-led funds), but it shows that it isn't only German investors that got burnt with US subprime - at least to some extent, it was a two-way-street...

Freitag, 3. Juli 2009

Foreign Direct Investment in China

Bloomberg reports today:

"Foreign direct investment in China faces 'unprecedented difficulties' as the global crisis cuts multinationals’ spending, Vice Commerce Minister Chen Jian said in Beijing today. "

That's already the complete article, actually. From the way it's phrased, it sounds like MNCs have totally stopped making new investments in China.

Mittwoch, 1. Juli 2009

Arcandor Tidbits

My hairdresser is on the third floor (Ground+2) of a Munich Karstadt. When I went there today around lunchtime, there was not a single customer anywhere in all of the third floor (apart from a few people in the hairdressing salon). There were quite a number of customers downstairs, but apparently nobody found it worthwhile to venture upstairs. And there are two more floors above the third floor...

As for Quelle, the FTD reports today that DHL sent out 160 million parcels for Arcandor's mail-order subsidiaries in 2008. That equals 4 parcels for every German household. Considering that I hardly know anybody who ever orders there, it seems that their hardcore customer base orders at least 1 parcel per month. Impressive, isn't it? Apparently, a massive 1/4 of DHL's revenue from commercial parcels is with Arcandor.

If Quelle really shuts down, it will be interesting to see where all these customers migrate to. Otto? Internet retail? Classical retail? 8 bn € of revenues is quite a big pie... As for DHL/Deutsche Post: It's not exactly good news for them, I'd say.

China's Growth Potential

Here's a statement that's obviously true:

"China is still comparatively poor. Therefore, it has a lot of growth potential, and can keep growing fast for decades to come."

From a macro point of view, that's surely not wrong.

However, we need to remember that some sectors of China's economy are already much larger than elsewhere:

China has 19 % of the world's population and produces roughly 5 % of the world's GDP (at market-prices; closer to 10 % based on PPP).

But according to this article, China will account for 60 % of the world's 2009 iron ore purchases.

And according to this paper, China produced 35 % of the world's steel and 27 % of the world's aluminum as of 2006 (nearly all of it for domestic use). Both percentages have increased further since then.

Seems to me that China's growth potential in these sectors will be rather limited...

(Just another way of once again stating the obvious: China needs to rebalance its economy.)