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Socialism in America
vor 3 Wochen
Montag, 13. Juli 2009
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.
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)
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...
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.
- 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.
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?
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.
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.
Oil
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.
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...
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...
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