EUCOM Economic Analysis - Part I

[davidbfpo]

That is a classic and from a Swede too.

Seems to me Cyprus fell for easy money assuming there was no risk, just wealth. Didn't Iceland do the same, but with a very different, popular response when disaster struck?

[Firn]

Well Iceland had even a higher deposit/GDP leverage then Cyprus today thanks to the marauding Viking banks. In this case white money poured in from the EU, attracted by the great rates and low costs. A brilliant deal.

When the bubble burst it was obvious that the small population could refund foreign lenders and acted accordingly. The Icelanders blamed their government and their banks and did what had to be done. The Cypriots seem to blame mostly the EU/ECB/IMF/Germany for not helping more and seem to want to keep the grossly inflated banking system and the dirty (Russian) money stream with which it grew.*

*Little Cyprus was last year responsible for roughly 1/4 of all 'foreign' investment into Russia...

Fellow members should take note that the lender of the last resort must actually be capable to lend to keep the money in his banks safe. Ideally should also be able to print his own money.

[Firn]

This mirrors my impressions:

11.09 Reuters has seen the notes made during an emergency conference call of eurozone finance ministers revealing the level of panic being felt over Cyprus.
One official described emotions as running "very high" admitting this made it difficult to come up rational solutions, and referred to "open talk in regards of Cyprus leaving the eurozone".

The call, among deputy finance ministers or senior treasury officials, as well as officials from the ECB and European Commission, was shunned by the Cypriot representatives, a move seen as ominous by their counterparts. The French representative is recorded as saying:

'The Cypriot parliament is obviously too emotional and will not decide on anything, if Cyprus does not even feel that they can attend the call it is a big problem for us.'

The emotions are indeed running high, after the jubilation of the heroic 'no' there is now the expected disperation in the streets. Many really didn't saw it coming, didn't they? And most can hardly be blamed for that even if a look at the Cypriot balance sheet, labour costs, housing bubble and bank rates should have made one shudder. But a bubble is a bubble for the very reason that it is a bubble.

17.07 More on the protests happening outside the Cypriot parliament this evening, where anxious bank workers have gathered. Joe Lynam of the BBC tweets:

BBC_Joe_Lynam Joe Lynam BBC Biz

The road outside #Cyprus parliament is now closed because soon to be jobless Laiki bank workers were attacking politicians

Shocking scenes and so sad.

lemasabachthani lemasabachthani
*CYPRUS POPULAR BANK HAS FEW HOURS OF LIQUIDITY LEFT: OFFICIAL

The social media certainly helps to spread the panic around. When will we see banks open again? And how should the economy work without liquidity?

17.34 Reuters reports that Cyprus' Popular (or 'Laiki') Bank has announced restrictions on cash machine withdrawals of €260 per customer daily.

Obviously the banks are faced with an unprecedented demand for cash at the ATMs with everybody desperate to get as much cash as possible as more and more shopkeepers are only accepting that. We are seeing a classic bankrun by modern means all over Cyprus. Every day that passes liquidity will get horded as much as possible and drained from the banks and the economy. With no international bank lending to practically dead Cypriotic banks and the ECB not willing to infuse liquidity without a plan the whole banking system + the economy will go down very quickly.

Why did the Cypriotic politicians do nothing, why were they so stupid and proud to say no?

alexralph Alex Ralph
At Laiki Bank branch in Mayfair. Little activity. One Russian accented gentleman on mobile talking about bank split and asking for lawyer.

...

[Firn]

The last years have certainly been highly interesting for everybody who studied economy, with texbook cases all too often played out in the real world.

'Open talk' of Cyprus leaving euro

Unless the island signs off on a radical debt-cutting programme, the ECB will on Monday withdraw "emergency liquidity assistance" leading to the immediate collapse of the two largest Cypriot banks and a financial crash in Cyprus.
It has also emerged that talks over Cyprus leaving the EU's single currency took place on Wednesday night between senior finance officials who have drawn up plans for capital controls to prevent a meltdown of the eurozone's financial system.

In minutes seen by Reuters of a telephone conference that Cyprus refused to take part in, one senior ministry official described emotions as running "very high" and "open talk in regards of (Cyprus) leaving the euro zone".
The officials, heads and deputy heads of the eurozoneﾒs finance ministries discussed draconian capital controls to "ring-fence" the rest of the eurozone from the impact of Cyprus leaving the euro and to ensure there was no contagion.

Fears were raised of large outflows of capital once Cypriot banks reopen on Tuesday with ﾓtechnical preparations" being made to try to limit capital flight.

Capital controls are still in place in Iceland, with business owners having to get the nod from the MoF to get € to pay for the goods.

The chairman of the ﾓeuro working group, Thomas Wieser, an Austrian, warned: "The economy is going to tank in Cyprus no matter what. Restrictions on capital will probably be imposed."

Cypriot banks are totally reliant on the ECB for funding and have taken over €9.1 billion in an emergency programme to ensure cash does not run out.

The damage has been now done. The Cypriotic politicians refused a deal which sounds now very good indeed. Sometimes you must know when to fold them. Obviously we will now have:

1) Even lower limits at ATM

2) Banks staying closed longer

3) An economy like a dead fish

4) Panic, protests and shock

5) Very strict capital controls

Blast from the past, but the US was thankfully no Cyprus.

[Firn]

Back home and I took a quick look around.

The BBC video does support my fears and make it much more graphic.

The economy seems to have come to halt. Our market economies, just like our bodies need a realiable circulation of liquidity so that goods can be exchanged easily and quickly. In the last years the ever greater increase of electronic transfers has meant that a surprising small amount of cash, real paper or coins (lets keep it simple) are needed.

In Cyprus capital controls are effectively in place and suddendly everybody hords it creating a huge spike in demand for cash which sucks the economy and the banks dry.

1) I wonder how the online banking is handled. Maybe they have been slower to clamp down on that.

2) I heard that just deposits aka cash were meant to take a haircut, not portfolios. That can hardly be true as this would greatly lessen the impact on the bigger guys. But with the way the politicians have fought for the rich it just might be.

3) Few saw that coming. One side imagined that they would get a way lightly while the other side imagined a 'rational' reaction.

[Firn]

Die Zeit

Merkel seems to be less then amused on how Cyprus handled the crisis. No plan, no communication, no realism. She is said to have stated that the Cypriotic model of business has come to an end.

'Geschftsmodell am Ende'

Darber hinaus wurde die deutsche Regierungschefin grundstzlich. Zypern, so soll sie laut Teilnehmern gedroht haben, drfte die Geduld der Euro-Partner im Ringen um ein Rettungspaket nicht ausreizen. Es knne nicht sein, dass Nikosia die Grenzen der Troika testen wolle. Merkel klagte, dass Zypern seit Tagen nicht mit EU, EZB und IWF kommuniziert habe. Im brigen sei der kleinen Mittelmeerinsel noch nicht klar, dass ihr bisheriges Geschftsmodell am Ende sei. "Wir werden weiterhin darauf hinweisen, was auf dem Spiel steht."

In my humble opinion the business model is now indeed dead. Which person doesn't want to get his money out sooner rather then later. Even the draconian capital controls will not stop some drain, even if they are absolutely necessary despite crippeling the economy.

10.38 Yiannis Mouzakis, who blogs as The Prodigal Geek, has seen the full banking bill (in Greek) and gives a summary of what the wide-reaching capital controls would entail.

Restrictions in daily withdrawals

Ban on premature termination of time savings deposits

Compulsory renewal of all time savings deposits upon maturity

Conversion of current accounts to time deposits

Ban or restrictions on non cash transactions

Restrictions on use of debit, credit or prepaid debit cards

Ban or restriction on cashing in cheques

Restrictions on domestic interbank transfers or transfers within the same bank

Restrictions on the interactions/transactions of the public with credit institutions

Restrictions on movements of capital, payments, transfers

Any other measure which the Finance Minister or the Governor of Cyprus Central Bank see necessary for reasons of public order and safety

Pretty much the full program. This means of course also a big stress on the Russian economy as Cyprus is a key stepping stone for many Russian deals on their round-about trips. I can see little chance for that working again for quite some time.

Cyprus Market Cyprus Market ‏@russian_market 1h

Russians chatter about 47.5% tax. It's like 1917 revolution in Russia @TradeDesk_Steve: Talk of a deposit haircut above 100k of 30-40%

Russian market puts his flashlight on the mood in the wealthier Russian circles, those who have private or company money in Cyprus.

11.36 Foreign correspondent Richard Spencer explains the implications of the official government statement (emphasis ours):

The key thing is that party leaders are consulted so presumably the president thinks the bank legislation will go through - this is itself a major cave-in to Germany, which demanded acceptance both that Cypriots (and Russian) depositors cough up part of the bail-out money and also that Cyprus abandon its banking model.

We will see if that happens, lots of rumours around...

11.52 Our man in Brussels Bruno Waterfield sends a snap update of the situation. It looks like the bank levy is back on the table.

Looks like deal is emerging as:

Laiki break up

Deposit levy on all above 100k -more than 9.9pc

Capital controls -very tough for all banks and deposits

Generic bank resolution laws if other banks in Cyprus get into further trouble

So back to plan A just as the Eurogroup/ECB/IMF proposed a couple of days earlier. The one on which the Cypriotic PM is reported to have stormed out? Plus very though capital controls plus a breaking up of one of the two biggest banks? In which the costumers above 100.000 € may lose up to 40%?

It would have been all too easy and humble to say yes, we messed up, now the trust is gone and a vast amount of damage has been done.

The Telegraph gets it this time pretty well

That is in line with view of other more cool-headed analysts who have also described the overwhelming repudication of the first bailout package as a classic example of MPs pandering to populist sentiment.

Indeed. Told you so, even if it is easier to keep the head cool if you are not part of the game. Of course we do not know how things end and with crisis management this bad...

[Firn]

13.27 More analysis from think tank Open Europe, who wonder whether the latest plan will doubly penalise large depositors.

Thinking about the plan in more detail, it occurred to us that this may amount to trying to burn the larger depositors twice. The plan essentially is to move all the bad assets to a bad bank, along with the large uninsured depositors (€100,000+). These assets would then be wound down or sold off at a large discount with the depositors footing the bill (and taking losses of 20pc - 40pc). This, along with the merging of Bank of Cyprus and the good bank, is how the recapitalisation costs will be reduced by €2.3bn.

So, the large depositors will take significant losses here and yet may still face a large deposit tax as well? That seems to be pushing the boundaries to us, although it is not impossible. Cyprus would not recover as destination for foreign investment for some time. One way to structure this could be for the tax only to be applied to depositors above €500,000 (as we suggest below) and the bad bank to apply to all uninsured deposits. Obviously, the bad bank scheme so far only applies to Laiki bank, but as the second largest Cypriot bank it is still likely to account for a large amount of big deposits.

Still this could see larger depositors taking up to 50pc hits in some cases. We can't imagine Moscow would take that one lying down, especially given comments earlier in the week..

Didn't Medvedev didn't look yesterday on his iPad during the PC and stated that there would be not bank levy? He must not be too happy, we will see.

[Firn]

Krugman on the choice of the dancing partner. The Icelandic raiders plundered softer targets. BTW he is positive about the Icelandization. The Cypriots might have found themselves under a truly massive pile of debt without that move and European solidarity. Yes, they should arguably say thanks many times to the European taxpayer for helping them with many, many €. And that after having made them in general pay more by helping others to evade quite a few of those taxes. Of course we will hear none of that.

Cyprus Update

Well, it looks as if the Icelandization of Cyprus — at least in the sense of making offshore depositors take a big hit — is happening faster and more decisively than I feared. Great summary by Paul Murphy at FT Alphaville, ending thusly:

Big depositors in Cypriot banks stand to lose circa 40 per cent of their money here, which has drawn plenty of fury and veiled threats from Russia.

But what exactly can the Russians do about this? Sell euros? Tear up double taxation agreements? Murder Cypriot bankers? Medvedev and co could not have played a worse hand during this crisis — and it’s not immediately clear why.

Cyprus now has a binary choice: become a gimp state for Russian gangsta finance, or turn fully towards Europe, close down much of its shady banking sector and rebuild its economy on something more sustainable.

The choice is obvious.

Still, if I were a Cypriot official I might seek a bit of extra security for my family …

Indeed, with friends like that...

[Firn]

Cyprus did not witness a bank run, which is not that surprising given the draconian captial controls and to a lesser degree the publicity stunt of airlifting 5 B € in cash into country under heavy security. If you and (most) others have no chance to get even a decent amount of your cash out of the banks then there is little incentive to run to your bank. You have been doomed either way.

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Bersani can not form a government alone. Berlusconi offers his greasy hand but Bersani says (rightly) no. Bersani offers his to Grillo but Grillo says **** off to all. The result? No government in sight. Elections seem sadly be the most likely answer unless we get another technical one.

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Capital claims a record share of the net income. This trend is obviously, at least in the short run, good for those who own large amounts of equity.

It is difficult to see demand in the advanced economies keeping up, as it is mostly driven by our broad middle classes. Other success economic success stories like China or Brazil certainly increased their demand for many US/European goods and services. Still we have to consider just how big the demand share of the West is compared to the rest of the globe.

[Firn]

Quite a bit of Italians seemed to be worried about the status of Austria's 'Bankgeheimniss', according to some friends working in Austrian banks. 'You know the off-shore and tax stuff*'...

Over the last year I also read a lot about big catches on the Italian border with Switzerland. Certainly the tax pressure has been racheted a lot from an already terribly high level for our middle class. Housing has increasingly been seen as another source of tax revenue, targeting the biggest and dearest asset of the Italians. Older ones will also remember the last haircut on their deposits...

So I can understand why people would want to invest and deposit in 'safe' and rather 'silent' neighbouring states. The incentives are certainly stacked against the honest folk.

*Austria does tax the capital gain of foreign EU capital at around 35% IIRC and sends the money to the respective state but without telling them the name of the owner.

[Firn]

Evidence and Economic Policy

Henry Blodget says that the economic debate is over; the austerians have lost and whatshisname has won. And it’s definitely true that in sheer intellectual terms, this is looking like an epic rout. The main economic studies that supposedly justified the austerian position have imploded; inflation has stayed low; the bond vigilantes have failed to make an appearance; the actual economic effects of austerity have tracked almost exactly what Keynesians predicted.

But will any of this make a difference? The story of the past three years, after all, is not that Alesina and Ardagna used a bad measure of fiscal policy, or that Reinhart and Rogoff mishandled their data. It is that important people’s will to believe trumped the already ample evidence that austerity would be a terrible mistake; A-A and R-R were just riders on the wave.

The cynic in me therefore says that after a brief period of regrouping, the VSPs will be right back at it — they’ll find new studies to put on pedestals, new economists to tell them what they want to hear, and those who got it right will continue to be considered unsound and unserious.

But maybe I’m wrong; maybe truth will prevail. Here’s hoping

Roughly five years ago I expected high inflation after the waves of liquidity injected by increasingly easing central banks. As it didn't happen I read a bit around and mostly Krugman pointed me to that basic modern macro we learned back in college as undergrads. To me it made intellectually perfect sense after looking at the evidence and intrinsic logic I found and I did also adjust increasingly my personal investing to those rational conclusions.

Keynes was indeed a great mind and applied his intellect also very successfull as an investor. No wonder that he is by far the most quoted economist by Buffett.

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Sadly austerity is indeed taking it's bitter toll. Spain had a might housing bubble and far too much building in general but while the private sector (and some regions) was deep in debt the central government had actually little. Still they cut, cut, cut and cut exactly during a time when the private demand totally collapsed and helped contracting the economy.



Spain has now over 6 million unemployed, over a quarter of the populations and that despite a shrinking population.



Shockingly they are insisting and cutting deeper and deeper into the flesh of the economy. Public employment drastically austeridaded.

Dear Merkel, I agree with the part that the southern countries need the ECB to help to inject more liquidity and more credit into those economies. Good to hear that however I disagree that Germany would need a higher 'Leitzins'. In isolation maybe but we live in interconnected Europe and globalized world. A slightly higher inflation in Germany is important for the whole Eurozone and will thus help Germany indirectly far more than a tighter one. Developing economies like China and Brazil are also subject to rapidly increasing labour cost and the German advantage will just be somewhat lessened.

The Bank of England is certainly doing it's part in trying to help the British economy suffering under terrible economic policies of Mr. Cameron&Co. The ECB must act very strongly and used it's mandate and the monetary policy to it's fullest.

[Firn]

Work is done for this week and I wanted to reflect a bit about taxes, speculations and investing. Last week it became public that Uli Hoeness, president of the FC Bayern did not pay taxes on a 'zocker', 'gambling' portfolio deposited on a bank account in Switzerland. I'm a fan of two international clubs, Bayern and Inter and I have always admired Hoeness for his work for Bayern. He certainly is a highly intelligent, very hard working business man with a heart for social issues but it shows once again that such persons can also make big mistakes. If he really fell under the spell of gambling & speculating a Swiss account was certainly suited to seperate that from the 'sane' business accounts.

In Deutschland handeln zehntausende Anleger exzessiv an der Brse. Genaue Zahlen gibt es nicht, nach jngsten Angaben existieren jedoch rund 67.000 CFD-Konten. CFD steht fr Contracts for Difference. Diese Differenzkontrakte sind eigens dafr geschaffen, mit hohen Hebeln den Geldeinsatz binnen kurzer Zeit zu vervielfachen. Ebenso schnell kann der Einsatz jedoch verloren gehen. Je nach Kontengestaltung muss der Anleger dann sogar Kapital nachschieen.

Ob Uli Hoene auf seinem Schweizer Konto mit CFDs gezockt hat, ist unklar. Im Gesprch mit der Wochenzeitung Zeit sprach der Prsident des FC Bayern Mnchen jedoch davon, seit etlichen Jahren an der Brse aktiv zu sein und davon in den Jahren 2002 bis 2006 an der Brse richtig gezockt zu haben - teilweise auf Basis eines Kredits in Millionenhhe durch seinen Freund und Adidas-Vorstandsvorsitzenden Robert Louis-Dreyfus.

Er habe selbst bei Fuballspielen seinen Brsenpager mit aktuellen Kursen dabeigehabt. Ich habe Tag und Nacht mit der Bank telefoniert, die haben ja alle so Nightdesks, wegen der Zeitverschiebungen, sagt Hoene. Die Sicherheiten der Bank mssen ja 24 Stunden gelten, wenn es aber in Asien nachts extreme Bewegungen gibt, wirst du trotzdem rausgeschossen. Die Bank sagt dir, du musst einen sogenannten Stopp einbauen, das heit, wenn die Sicherheit unterschritten wird, fliegst du automatisch raus.

Smart guys or guys who think they are smart guys are arguably especially in danger of becoming gamblers. I guess they see it as an intellectual challenge a bit like poker with high stakes. That a guy with so many big tasks at hand like Hoeness seemingly fell for it is sadly not so surprising. As Ben Graham wrote that is stunningly common that smart & successfull business men throw away all their sound principles once they step into the terrain of Wall Street. He personally always stated that the best approach to investment was the most business-minded. Maybe for some it is some sort of outlet.

Unter dem Strich schneiden die aktiven Handelsteilnehmer daher meist sogar deutlich schlechter ab als der Marktdurchschnitt - wie Hoene offenbar auch. Der berwiegende Teil der aktiven Anleger erleidet beim Trading Verluste, sagt Alexander Surminski, Geschftsfhrer von Ayondo, einer Plattform, auf der erfolgreiche Anleger imitiert werden knnen. Nur wenige Trader, die eine jahrelange Erfahrung vorweisen knnen, erzielen eine Marktberrendite. Studien sprchen von nur 1 Prozent der exzessiv handelnden Anleger. Nach unseren eigenen Erfahrungswerten machen 85 Prozent der Trader auf Dauer Verluste.

That 85% of all those active traders suffer losses over time sounds high but it is not too unlikely. Every movement causes friction in the form of fees and most of the monetary energy gets tranfered this way into the hot pockets of the financial industry. This should hurt them especially as the last 10 years have been brilliant for a long-term investor.

Die berragende Mehrheit der an der Brse aktiven Deutschen whlt indes eine weitaus konservativere Herangehensweise. Von den 4,2 Millionen Aktienbesitzern gelten mehr als 4 Millionen als langfristig orientiert und damit auf die Dauer erfolgreich. In den vergangenen zehn Jahren hat ein breit gestreutes Depot mit deutschen Aktien im Durchschnitt eine jhrliche Rendite von 10 Prozent erbracht, in zwanzig Jahren von gut 8 Prozent und in dreiig Jahren von knapp 10 Prozent. Ob ein in Deutschland wohnender Anleger seine Brsengeschfte in Deutschland ttigt oder wie Hoene in der Schweiz, ist aus steuerlicher Sicht irrelevant. Spekulationsgewinne mssen nach deutschem Recht versteuert werden.

Keep in mind that the German DAX outperformed pretty much every other Euroepan index so the numbers look especially good. Still even with broad investments in Euroepan stocks one could get excellent returns in the long run.

The high volatility of European stocks has been actually a huge advantage for the business-minded investor and for those who wanted to reduce their tax bill. Today the state sent me back a significant amount of money because temporary downswings last year in three stocks allowed me to sell low and buy low again. Those losses on stocks (minus the fees!), which have been risen a good deal in the last months did reduce the taxable gains. Keep in mind that dividends and yields flow into the same pot, so a steep fall of recently acquired stock of a good company can be a gift, enabling you to cut taxes and buy additional stock at a cheaper price.*

Strangely the yield you get on money alone does not flow into that pot, which means that most can not profit from such moves. It is also a solution which is IMHO sensible from an accounting point of view but is as a whole quite narrowly focused on the not so poor. In this case the state got less money and the capital was not consumed but will be reinvested. So it is one of the cases in which a tax break set little incentives for additional demand. For the economy as a whole it would have made much more sense if that money had enabled consumption and increased demand.

*Of course you would have to pay even more tax if you sell that stock later at a relative higher price. But I tend to keep a good business in my portfolio unless it becomes clearly highly overvalued. and nobody knows if that is going to happen anytime soon.

P.S: I pretty much never talk about money even with friends, maybe this is typical for the region I come from. So possibly this is the reason why I like to discuss such issues on an international board with a strong focus on policy. The last time I looked at the 'discussions' on an specialized Italian board I was rather taken aback by the amount of gambling. It seems that the more you throw around things like CDS, trigger, call and stuff the cooler & smarter your are.

P.P.S: I wrote a couple of months ago that I never saw a more dominant squad in an European final which ended up losing the cup then Bayern, which absolutely dominated Chelsea, getting many huge chances and conceding pretty much nothing. I think it was about Kahneman and the element of luck. Bayern has recently shown just how strong it has become over the last years by the right strategy and tactical answers. Of coruse this doesn't mean that they will win against Dortmund in the big final.

[Firn]

After having taken a quick look at the financial data of the last week this article fits the topic rather well. I have to disclose that I have bought a considerable amount of Apple stock a bit over 400 $ as the fundamentals made it look much undervalued. (RoE, margins on operations, Graham P/E, Owners Earnings & P/E, RowA all seemed good or great). The future certainly looked brighter then imagined by many. A greater $ share of the portfolio also made sense from a diversification and hedging point of view. Still I'm long on Europe.

I hoped before the shareholder meeting that Apple would drastically increase their buybacks for those very reasons and they did announce pretty much that. Doing it with bonds, the capital of others, with such a low yield for such long periods is brilliant from the two angles called equity and taxes. Sadly the stock price went up so quickly, now those buy backs will cost more. At 400 $ the EPS would have went up over 30% for the shareholder even if the earnings had stayed (inflation-adjusted) flat...

A similar sad story is the VW stock which I bought after the big fall to 140 €. (I was stupid enough not to buy it under 50 € a couple of years ago). I have some money due within a month and wanted to invest a lot more into VW as it is IMHO was undervalued and made sense to diversify the portfolio risk. (VW is big worldwide in pretty much every sector of the industry with increasingly huge economies of scale and massive financial advantages compared to practical every non-German European carmaker.) Now the stock went up despite a fall in demand in the European markets and is likely that I won't get it that margin of safety soon.

[Firn]

This weekend we had the big shareholder meeting of Berkshire in Omaha.* Looking at the GAAP earnings of the last quarters, which underestimate by a fair amount the owner earnings I should really kick myself for not buying a couple of A shares a couple of years ago. I can just hope that we will see soon once again one of those rare big sell-offs, but that is rather unlikely.

Bonds certainly look like a 'terrible' investment, as the are obviously incredibly expensive compared to historical standards. I have written about that before. He will also not buy any of those expensive Apple iBonds. I bought a considerable amount of Apple shares around roughly 400$ recently and I think it is a great company which did finally make a big step into the right direction of capital allocation. (At least they did not throw all that money at bad purchases, not any company - HP - can say that). The fact that they can get so much foreign capital so cheaply to buy back stock at attractive prices is exactly the reason why I want to be on the equity side of that company.

With inflation that low liquidity is not that costly compared to 'safe' bonds. Of course you should avoid states like Cyprus and keep it under those 100.000 €. Stocks hit all-time heights recently and it was a good ride for those with a lot of equity in stocks. It is just very hard to sell most of it as it is very hard to find a better investment for the long-term. As Warren rightly says it is absolutely natural to see new heights from time to time, as business growth + retained earnings will push the prices in the long run higher and higher.


*EON did also have one in Essen, but it was a rather different affair.

[Firn]

A quick look at the European economy.

1) There has been some mobility of the factor labour in the sense that Germany had a net migration growth of 369.000, the highest in almost 20 years. It would be interesting to compare the average age of those coming into Germany and going away. A good deal of Italians went all'estero.

Obviously from a economic, European perspective this is a good thing within a bad situation and quite overdue. Labour is in demand in Germany, capital is easily accessible there and labour is in great supply in countries like Spain where capital is rather restricted. National austerity is the whip and German boom the honey.

2) Rapid current-account rebalancing in the southern Eurozone is also generally good news even if it is done under unnecessary and plain stupid austerity pain.

Conclusion

A key requirement for the Eurozone to achieve long-term success is that corrective forces are at work which limit external imbalances.6 This column documents that Greece, Italy, Portugal, and Spain are close to achieving a balanced current account.

These patterns indicate that one of the key requirement for the end of the European debt crisis is on its way. In as such, there is no evidence that the institutional setup of the European Monetary Union will lead to ever-increasing imbalances akin to the ones in the Bretton-Woods system. In fact, the speed of current-account rebalancing in these four nations is actually faster than the typical rate of adjustment found after other episodes of large current-account imbalances.

This rebalancing also has to be seen in the light of the current discussion on the origins and implications of the large Target2 imbalances within the Eurozone. In a panel analysis, I analyse the role that the provision of central-bank liquidity (visible in Target2 balances) played in smoothing the ‘sudden stop’ and the partial reversion of private capital flows that had financed current-account imbalances before the onset of the financial crisis in 2007.

Given that current-account imbalances are rapidly diminishing, Target2 balances will be reduced once private capital flows* return to the southern Eurozone. Given the current signs that private investors are rediscovering these troubled financial markets (see Atkins and Watkins 2013), this may happen in the not-too-distant future.

I bought recently Telecom Italia and ENEL stock as I thought them to be grossly undervalued, especially the latter. The times are harsh with little investment in Italy. I hope that Italy will become quickly more competitive, every month that goes on like that does inflict terrible damage on the economy and the people, especially the youth.

In any case life will mostly go on. The sun will go still up over Napoli so let us listen to atarantella

[Fuchs]

A couple ten thousand of those migrants are actually university students. Universities are almost free in Germany (about 500 €/year all inclusive) and there hasn't only been a rise of German university students*, but also of foreign ones.



*: Abitur (highest school degree) shortened from 13 to 12 years, producing a double class, no more conscription or alternative compulsory social service, efforts to improve especially the education of Germans 'with migration background' and the unsatisfactory labour market with poor pay expectations for non-academics have contributed tot his rise.

[Firn]

A couple ten thousand of those migrants are actually university students. Universities are almost free in Germany (about 500 €/year all inclusive) and there hasn't only been a rise of German university students*, but also of foreign ones.



*: Abitur (highest school degree) shortened from 13 to 12 years, producing a double class, no more conscription or alternative compulsory social service, efforts to improve especially the education of Germans 'with migration background' and the unsatisfactory labour market with poor pay expectations for non-academics have contributed tot his rise.

Can you back that up quickly?

Not that I don't think it is likely, as my brother studied in Munich 'Elektrotechnik'. Keep in mind that there are many Germans who study abroad. So once again the net difference would be interesting. In any case university is a steal in central Europe compared. I also don't think the quality is bad...

Personally I think that by far the biggest share of the net surplus is searching desperately for work...

[Fuchs]

2011 there was more than a quarter million foreign students in Germany for the first time.
https://www.daad.de/portrait/presse/.../21295.de.html
More in 2012, no doubt.
I know a university of applied sciences for engineering and IT that's operating at 200% of designed capacity in terms of students enrolled becuase of huge growth in past three years.

[davidbfpo]

One of the consequences of the English government requiring universities to raise tuition fees, starting this academic year, to 9k UK Pounds per annum (or US$14k), funded by student loans (by a specific agency, not the banks) was a 6% drop in admissions. Few want to consider the impact of emigration after graduation, so avoiding repayment of the loan. What better why to encourage emigration of the "best & brightest"?

[Firn]

In a depression the implicit opportunity costs of studying at a university should be considerably lower then during a booming economy, especially if you are fresh out of school. Thus such a drop is quite interesting even if the explicit cost did rise and credit got possibly tighter.

A quick look at the age structure of the UK reveals that the group from 15-19 is quite a bit smaller then the 20-24 one. It is quite a rough yardstick, but the trend is relatively well supported by one agegroup up and down. So maybe it is mostly just a 'natural' trend, one would need to dig a little bit deeper.

Interesting to see a rise in the 0-4 group. The effects of the large immigration in the last 6-7 years and the bad economy for young people? On of my sisters got the kids earlier because a certain job program at the local hospital took a bit longer then expected to get approved. Quite a few capable & educated people lost to the UK, Switzerland and Germany, congratulations.

@Thanks Fuchs: Interesting to see so many Chinese. My brother said they were rather reclusive compared to the other guys and that some cooperating companies quietly told the uni that next time they would rather have a student from a different country working with them. Stories about copied data and so forth. It is of course difficult to get an objective overview on that.