Is Europe becoming uninvestable?

[lnofeisone]

Europe continues imposing a windfall tax on sectors where profits surge. These sectors are usually very volatile and ebb and flow with global dynamics.  So far it's oil and gas, food, pharma, and banks. I know some of you are invested in European equities (e.g., DB) and some live across the pnd. Long term, I suspect this will erode domestic production, raise prices to compensate for the tax, and will put EU at the mercy of the importers. Feels short-sighted on their part, but curious about what the board thinks. 

 

https://www.ft.com/content/c16fdb5d-ec8a-44bd-a482-ff9c50719c3c

[thowed]

I'm attaching a letter from a Fund House I greatly respect - I got it from their website, but sadly they don't post them any more - I'd love to know their current thoughts.

 

Anyway, this was what finally put me off Europe (as someone who lives in it, or perhaps not since 2016!).

 

Of course there are some exceptions like LVMH, ASML etc. though at a price.

2019 Q3 Ownership Letter.pdf

[John Hjorth]

I think these kinds of generalizations are at best to no avail, at worst cognitive bias creating and bias generating.

 

- - - o 0 o - - -

 

The political systems across European countries on surface may appear alike [democracies], but are far from that with regard to actual modus operandi. Everywhere - also in the USA - there are people who start yelling "Tax, tax tax!" , when they "see" some company being in the good part of their individual cycle. ["See", because they don't really read financial reports from any company, but read headlines in MSM as a basis for their doings and yelling].

 

I have personally seen Danish left wing [and right wing] politicians being cruzified by diligent journalists doing their job well with the mic turned on and TV-camera runnning in interviews about Danish tax legislation, where you are left behind with the clear impression that they have no clue what so ever what's going in their own tax returns, nor able to explain just the basic mechanics in the tax calculations for a couple with kids, a home, morgages and two cars and a couple of 401-Ks. But they still have an opnion on about every everything in it, while in reality they don't have a clue.

 

And it gets even worse, when the discussion turns to corporation taxation.

 

Stupidity and ignorance is present everywhere!

 

- - - o 0 o -  - -

 

Putting a nationality label on a well performing listed large cap is to me in most cases a serious mistake, and makes no sense in todays globalized world.

 

Berkshire Hathaway is for most American, but many of the companies in the listed portfolio are international megacaps [think Apple], [but parent co. based In Omaha, Nebraska],

Fairfax Financial Holdings is not a Canadian company [, the functional currency is not even CAD, but USD,] most of the activity takes place outside Canada, [but HQ based in Toronto, Canada],

Markel Corporation is an international insurance group, too, not an american, based on activity, [ but HQ based in Richmond, Virginia],

LVMH is not a French luxury conglomerate, but basically a global company with most of its activity outside France [, but HQ based in Paris, France],

If one just think of Banco Santander as "Spanish bank" just 5 minutes of yours the last annual report for it will drag you out that bias [, and headquartered in Santander, Spain],

I think that Novo Nordisk has less than 1 percent of it sales in Denmark [, but headquartered in Copenhagen, Denmark],

Atlas Copco is headquartered in Nacka [a part of Stockholm], Sweden, and you can do business with it here :

 

Edited August 14, 2023 by John Hjorth

[lnofeisone]

@thowed - thanks for the article. Added to my list to read tonight. 

 

@John Hjorth - I think you are making my case. Investing into multi-national concerns that derive much of their profit outside of EU seems fine. Otherwise, specific European core sectors like banking, energy, and food seem to be treated like utilities. There is a cap on how much you can earn, and WFT is applied once that value is exceeded. It's only on the gains and losses aren't subsidized. At least in the US utilities are guaranteed to make a profit and the market they are in is hyper local with utility having a monopoly. This isn't the case for European markets. 

 

Taxes are also passed retroactively. This type of stability (or lack thereof) isn't conducive for business planning and will hurt the economy in the long term more than it helps today. 

[changegonnacome]

Europe isnt one 'place' - you invest in Italy you expose yourself to crazy italian politics......the short version of how I think about Europe is I want to own things in countries that are closer philosophically to the USA. Which is to say that they respect and champion something closer to free market enterprise.

 

My shortlist of European countries I consider investable are:

 

UK

Netherlands

Switzerland

Ireland

Luxemburg

Germany

 

These are in the main the 'centre right' countries in Europe....with some exceptions the rest of Europe is very much left or centre left......and prone to bananas economic policies at times where they can swing wildly left....the above on balance tend to default to free market solutions with minimal interference.

[scorpioncapital]

I'm confused. Are the former Communist Eastern European countries more capitalist than the Western European ones?

For example, from what I understand the EU controls international elements of the bloc as well as cross-country policies. 

But does the EU have the right to control taxes on companies within a country? Or is that an OECD thing?

In other words is it possible that some EU countries are very economically liberal compared to others?

Well, the Eastern ones have other problems like a regressive tax system. (E.g. very low flat tax which benefits the rich or those with capital and very high wage taxes, say 30-40% plus the 10% flat tax which impedes capital formation if you don't already have it)

 

PS. These bank windfall taxes make 100% sense to me and I'm all for it even as a capitalist. Think about it. The banks pay 0% interest. They don't want to pay 3 or 5%. The government is saying, unless you pay 3-5%, we will take that money as a tax and distribute it to people in lieu of getting that 3-5% on interest. How is it different than the outflow of capital from banks causing bank failures in USA because people took their money out to brokers or etfs that did pay 5%? Essentially it is the bank's own fault for not following with higher rates on cash. Now one can argue its not the best method. For example, not everyone has savings so it could just be a socialist redistribution grab but the banks could certainly up interest to avoid some of these taxes?

Edited August 15, 2023 by scorpioncapital

[james22]

 

[schin]

On 8/15/2023 at 9:05 AM, changegonnacome said:

Europe isnt one 'place' - you invest in Italy you expose yourself to crazy italian politics......the short version of how I think about Europe is I want to own things in countries that are closer philosophically to the USA. Which is to say that they respect and champion something closer to free market enterprise.

 

My shortlist of European countries I consider investable are:

 

UK

Netherlands

Switzerland

Ireland

Luxemburg

Germany

 

These are in the main the 'centre right' countries in Europe....with some exceptions the rest of Europe is very much left or centre left......and prone to bananas economic policies at times where they can swing wildly left....the above on balance tend to default to free market solutions with minimal interference.

 

Can you really considering Switzerland after that whole CS and UBS fiasco... I mean... 

 

As for Germany, I hope so.... I'm in Commerzbank and DB.

[schin]

On 8/15/2023 at 1:17 PM, scorpioncapital said:

I'm confused. Are the former Communist Eastern European countries more capitalist than the Western European ones?

For example, from what I understand the EU controls international elements of the bloc as well as cross-country policies. 

But does the EU have the right to control taxes on companies within a country? Or is that an OECD thing?

In other words is it possible that some EU countries are very economically liberal compared to others?

Well, the Eastern ones have other problems like a regressive tax system. (E.g. very low flat tax which benefits the rich or those with capital and very high wage taxes, say 30-40% plus the 10% flat tax which impedes capital formation if you don't already have it)

 

PS. These bank windfall taxes make 100% sense to me and I'm all for it even as a capitalist. Think about it. The banks pay 0% interest. They don't want to pay 3 or 5%. The government is saying, unless you pay 3-5%, we will take that money as a tax and distribute it to people in lieu of getting that 3-5% on interest. How is it different than the outflow of capital from banks causing bank failures in USA because people took their money out to brokers or etfs that did pay 5%? Essentially it is the bank's own fault for not following with higher rates on cash. Now one can argue its not the best method. For example, not everyone has savings so it could just be a socialist redistribution grab but the banks could certainly up interest to avoid some of these taxes?

 

The government didn't give subsidies when they had negative interest rates.... and were focused on banks keeping their branches and employees employed.... Negative interest rates is a huge tax on banks and a forcing factor for them to streamline their bloated costs..... which is closing branches and firing people... which the government doesn't want.. I mean... you cannot have it both ways.

 

 

[John Hjorth]

On 8/15/2023 at 7:17 PM, scorpioncapital said:

I'm confused. Are the former Communist Eastern European countries more capitalist than the Western European ones?

For example, from what I understand the EU controls international elements of the bloc as well as cross-country policies. 

But does the EU have the right to control taxes on companies within a country? Or is that an OECD thing?

In other words is it possible that some EU countries are very economically liberal compared to others?

Well, the Eastern ones have other problems like a regressive tax system. (E.g. very low flat tax which benefits the rich or those with capital and very high wage taxes, say 30-40% plus the 10% flat tax which impedes capital formation if you don't already have it)

 

PS. These bank windfall taxes make 100% sense to me and I'm all for it even as a capitalist. Think about it. The banks pay 0% interest. They don't want to pay 3 or 5%. The government is saying, unless you pay 3-5%, we will take that money as a tax and distribute it to people in lieu of getting that 3-5% on interest. How is it different than the outflow of capital from banks causing bank failures in USA because people took their money out to brokers or etfs that did pay 5%? Essentially it is the bank's own fault for not following with higher rates on cash. Now one can argue its not the best method. For example, not everyone has savings so it could just be a socialist redistribution grab but the banks could certainly up interest to avoid some of these taxes?

 

@scorpioncapital,

 

Trying to answer all parts of your questions would quite a mouthful .

 

Here I will just try to focus and zoom in a bit on European taxes.

 

Wikipedia : Tax rates in Europe. So it should be very clear to you that the taxation of income is individual per nation, with national definitions how to calculate taxable income, including possible and legal deductions included in taxable income.

[UK]

https://www.economist.com/europe/2023/10/12/our-european-economic-pentathlon

 

 

[schin]

On 10/14/2023 at 3:19 PM, UK said:

https://www.economist.com/europe/2023/10/12/our-european-economic-pentathlon

 

 

 

Is there any correlation to good investments? Like what are the best companies in Ireland, Malta, and Cyrus?

[UK]

1 hour ago, schin said:

 

Is there any correlation to good investments? Like what are the best companies in Ireland, Malta, and Cyrus?

 

Not sure it is a good way to look at things generaly, but Bank of Ireland and Bank of Cyprus. Kind of similar stories, market position etc. Very related to a economy of a country. Do not know much about Malta.

[petec]

Europe is not uninvestable, but you should treat it as an emerging market with more debt and less growth, in my view.

[lnofeisone]

8 hours ago, UK said:

 

Not sure it is a good way to look at things generaly, but Bank of Ireland and Bank of Cyprus. Kind of similar stories, market position etc. Very related to a economy of a country. Do not know much about Malta.

I looked at Bank of Ireland but the talk of windfall tax is a turn off. 

[changegonnacome]

On 10/14/2023 at 3:19 PM, UK said:

 

 

Irish stock's trade at times with their UK counterparts...especially those with dual listings on the ISEQ & LSE....the divergence between the economies from a macro perspective is just night and day.

 

Irish homebuilders for example are facing a completely different set of circumstances versus their UK peers.....yet Glenveagh Properties moves with Taylor Wimpy & Persimmon.

[changegonnacome]

8 hours ago, lnofeisone said:

I looked at Bank of Ireland but the talk of windfall tax is a turn off. 

 

Fear no more - the windfall tax has already happened - and it's a nothing burger.

 

Bank of Ireland will have PBT of about €2.15bn this year ((Mkt Cap €10bn)......the Irish Minister for Finance (who owns a majority stake in AIB and PTSB) decided to hit the THREE domestic banks with the dreaded windfall tax by increasing the bank levy (FDIC type insurance).....a grand total of an extra 120m between them all..........BOI on the hook for max €50m ....so now its 2023 profts will be €2.1bn! 

 

Everybody wins......Government can say they went after greedy banks.......electorate doesn't really understand quantum of windfall taxes realtive to bank earnings or uplift since rate rises....the irish exchequer doesn't need the money, they are drowning in money.....and theyre the largest shareholders in the bloody banks anyway (excluding BOI).

 

Political theatre at its best

 

https://byrnemccall.ie/2023/10/11/banking-levy-increased-in-budget-2024/#:~:text=Ireland will revise how it,Minister Michael McGrath said today.

[CorpRaider]

They really just need an America in the '80s period imop.

[Spekulatius]

What's up in London? 1/3 of the riff raff stonks I follow there are halted.

 

 

 

Edited October 19, 2023 by Spekulatius

[changegonnacome]

18 minutes ago, Spekulatius said:

What's up in London?

 

Tech gremlins it seems-

https://www.reuters.com/world/uk/lse-says-investigating-incident-some-shares-not-trading-2023-10-19/

[james22]

Europe could face a ‘century of humiliation’ warns CEO of Nvidia rival, who says startups fare better in America

 

European technology startups would have more success if they upped stakes for the States—at least, that’s according to British chip designer Graphcore’s chief executive, Nigel Toon.

 

“We’d probably have it easier if we moved to the U.S.,” he said in an onstage interview at the Bloomberg Technology Summit in London on Tuesday.

 

Why? Because, according to Toon, there is just more investment and support for computing technology across the pond.

 

Toon even went as far as to say that the U.K. and Europe could enter a “century of humiliation” if they fail to invest enough in new technology.

 

Pointing to China’s mediocre growth during the industrial revolution, he added: “We risk, as the U.K. and Europe, being left behind in this technology war.”

 

https://fortune.com/2023/10/25/europe-century-humiliation-ceo-graphcore-nvidia-rival-startups-america-ai/

[Parsad]

https://finance.yahoo.com/news/nearly-50-000-companies-face-181828021.html

 

Cheers!

[Sweet]

1 hour ago, Parsad said:

https://finance.yahoo.com/news/nearly-50-000-companies-face-181828021.html

 

Cheers!

 

 

“Hikes to corporation tax and the National Living Wage are also adding to costs for debt-laden businesses.”

 

That’s our supposedly conservative and supposedly pro-business government for you.  And Labour, the higher tax party historically, are likely to be the next government - I guess they can’t do any worse.

[Eldad]

Yes! Look at any American company vs their European counterpart. Buybacks, ROE, ROIC almost always leaps and bounds better on USA side. US companies are still bloodthirsty capitalists that put the shareholder first. Europe it’s stakeholders, esg, gretta, blah blah blah.

 

Reminds me of how Warren B would not invest in Japan for a long time saying they tend to have low returns on equity. Japan is similar to Europe in the outlook that the broader society is a stakeholder in the company. 

 

Exceptions for ASML, NVO, etc. like you said. 

[Gmthebeau]

On 10/17/2023 at 5:53 AM, petec said:

Europe is not uninvestable, but you should treat it as an emerging market with more debt and less growth, in my view.

 

+1