Is Europe becoming uninvestable?

[Dalal.Holdings]

If Europe can fix itself, there is a lot of potential upside

 

 

 

 

[Spekulatius]

Even if Europe doesn’t fix itself, some European companies will be fine.

[Dalal.Holdings]

https://www.bloomberg.com/news/articles/2024-11-13/german-opposition-leader-lambasts-scholz-in-election-broadside

 

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He also ridiculed Scholz’s relationship with Donald Trump. “Don’t think you have any authority to talk to this new president,” Merz said. “He will drop you like a lightweight.”

 

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Scholz ended his governing alliance on the same day that Donald Trump declared victory in the US election. The president-elect has raised doubts about further military support for Ukraine and stoked fears about a damaging trade war with China and Europe.

 

Donald Trump is forcing Germany to do what Merkel didn't and couldn't--face reality and reform itself. And all he had to do was win an election 

[Luke]

8 hours ago, Dalal.Holdings said:

Donald Trump is forcing Germany to do what Merkel didn't and couldn't--face reality and reform itself. And all he had to do was win an election 

Some questions:

 

What did Merkel not do and could not do, which reality and which reforms?

 

How is Trump going to achieve that with his presidency?

 

Why would that make Europe or Germany more investable?

[Dalal.Holdings]

3 hours ago, Luke said:

Some questions:

 

What did Merkel not do and could not do, which reality and which reforms?

 

How is Trump going to achieve that with his presidency?

 

Why would that make Europe or Germany more investable?

 

Well, for starters the election of Trump had some influence on Sholz's exit and he's been forced to hold elections sooner than he wanted (all because Trump is coming in late January). Trump and many of his views are reflected in Merz. Germans acknowledge they need a stronger leader and more unified government to face Trump. It seems many governments around the world are moving in the Center-Right direction (I will quote Der Spiegel):

 

https://www.spiegel.de/international/germany/germanys-new-elections-what-would-a-chancellor-merz-do-differently-a-12962697-685f-4067-b32c-465da1eb8332

 

1) By using NATO as a bargaining chip, force NATO members to boost their own defense (something Merkel resisted with Trump). There is a reason Finland and Sweden have the militaries they do

 

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Should he become chancellor, he said, he will tell the Germans bluntly that the "relative brief period of peace in Europe” following the fall of the Berlin Wall is now over. A strong German military is needed, he said.

 

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That is particularly true now that Donald Trump has been elected president of the U.S., a man who is sure to demand higher defense spending from his European allies, particularly the Germans.

 

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Merz’s team is considering the possibility of another special military fund. But instead of another 100 billion euros, the group is focusing on a number closer to 300 billion.

 

2) Fix the migration crisis

 

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Nevertheless, he continues to view some of Merkel’s policies as misguided, and he is particularly critical of her decision to welcome so many migrants to the country in 2015 as the refugee crisis took hold of Europe. Merz intends to reduce irregular migration, if not eliminate it entirely. It is a project that will likely find widespread support in the country, with numerous municipalities complaining of being overwhelmed by the more than 1 million Ukrainians who have come to the country since 2022, in addition to hundreds of thousands of asylum seekers from elsewhere. And because the Dublin Regulation, meant to fairly distribute asylum seekers throughout the European Union, doesn’t work.

 

3) Fix welfare state, invest more in the country, address energy supply issues, and make it attractive for investment/business

 

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The next chancellor will have to fix the country’s aging infrastructure, prepare the welfare state for the future, ensure energy supply, strengthen Germany’s status as a place of doing business.

 

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As Merz surely knows, however, an increase to the defense budget of the kind he is contemplating would be virtually impossible without taking on new debt.

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Merz has announced his intention to cut taxes for German businesses and citizens alike. He has long been a critic of the significant tax burden in the country, with companies here having to fork over a greater share of their profits to the state than in almost any other industrialized country. And even skilled workers frequently find themselves in the top tax bracket, provided they are not married.

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How big would such a reform be? Merz argues that 1.7 million people in Germany are currently receiving welfare payments from the current system (called "Bürgergeld”) despite being able to work. CDU General Secretary Linnemann believes the number of people who completely refuse to work is "in the six figures” – people whose welfare payments would be completely eliminated. Which would result in significant savings: According to Linnemann, they could amount to 10 billion of the 50 billion in welfare payments disbursed by the state this year.

 

To add, I think he speaks Trump's language and will have a much better relationship with him than Angie. Germans might even get some good deals out of it

 

Edited November 25 by Dalal.Holdings

[Luke]

6 minutes ago, Dalal.Holdings said:

Well, for starters the election of Trump had some influence on Sholz's exit and he's been forced to hold elections sooner than he wanted (all because Trump is coming in late January).

Trump and many of his views are reflected in Merz. Germans acknowledge they need a stronger leader and more unified government to face Trump. It seems many governments around the world are moving in the Center-Right direction (I will quote Der Spiegel):

1. Scholzs exit was not because of Trump but because of the FDP planning their exit of the coalition in advance which forced scholz to fire the finance minister and destroying the current coalition. He wanted elections in late march but was forced by the CDU due to their presence in the parliament because without them they have no majority and are useless. The CDU pushing for elections faster is because they are likely to become the biggest party and can propose merz as a chancellor. Nothing of this was because of trump.

2. Trump is not reflected in merz: Merz wants further escalation with russia in ukraine, is thinking about a green coalition which will go through with the climate goals and further energy weakness and industrial problems. They are against loosening of the debt brake which will further lead to germany falling behind. The CDU is responsible for 16 years of 0 investments and 0 progress and now acts up as the new opposition which is highly questionable. The CDU is also not center right but sees themself as a middle (i have family members in the CDU).

6 minutes ago, Dalal.Holdings said:

https://www.spiegel.de/international/germany/germanys-new-elections-what-would-a-chancellor-merz-do-differently-a-12962697-685f-4067-b32c-465da1eb8332

 

1) By using NATO as a bargaining chip, force NATO members to boost their own defense (something Merkel resisted with Trump). There is a reason Finland and Sweden have the militaries they do

 

 

 

 

2) Fix the migration crisis

 

 

3) Fix energy supply issues, welfare state, invest more in the country, and make it attractive for investment/business

 

 

 

1) Escalating the war is the exact opposite of what trump promised.

2) The migration crisis was caused by the CDU with the AFD as the only opposition and now the CDU is marketed as someone who is apparently ready to solve it, ha.

3) I answered on this one, coalition with the green means game over for Germanies energy and industry, he is pro climate goals etc so you wont have any change in policies here. And russian ressources still off the table.

 

If you look at the planned well-fare savings 50b is a huge stretch and that would still only be 10% of our annual budget. He wont be able to do anything with this. Tax reductions for companies are mere cosmetics either.

[Luke]

Merz CDU+SPD or Merz CDU+Greens etc is basically the same policies as before with some cosmetic changes and maybe less migration. While China and the US spend trillions of USD in their infrastructure and also having way better energy basis i see no hope with these soft policies for a real turn around unfortunately.

 

I have 0 German stocks in my account, and I wouldn't buy any of them right now, also not with a merz next year.

Edited November 25 by Luke

[Dalal.Holdings]

8 minutes ago, Luke said:

1. Scholzs exit was not because of Trump but because of the FDP planning their exit of the coalition in advance which forced scholz to fire the finance minister and destroying the current coalition. He wanted elections in late march but was forced by the CDU due to their presence in the parliament because without them they have no majority and are useless. The CDU pushing for elections faster is because they are likely to become the biggest party and can propose merz as a chancellor. Nothing of this was because of trump.

2. Trump is not reflected in merz: Merz wants further escalation with russia in ukraine, is thinking about a green coalition which will go through with the climate goals and further energy weakness and industrial problems. They are against loosening of the debt brake which will further lead to germany falling behind. The CDU is responsible for 16 years of 0 investments and 0 progress and now acts up as the new opposition which is highly questionable. The CDU is also not center right but sees themself as a middle (i have family members in the CDU).

1) Escalating the war is the exact opposite of what trump promised.

2) The migration crisis was caused by the CDU with the AFD as the only opposition and now the CDU is marketed as someone who is apparently ready to solve it, ha.

3) I answered on this one, coalition with the green means game over for Germanies energy and industry, he is pro climate goals etc so you wont have any change in policies here. And russian ressources still off the table.

 

If you look at the planned well-fare savings 50b is a huge stretch and that would still only be 10% of our annual budget. He wont be able to do anything with this. Tax reductions for companies are mere cosmetics either.

 

I guess you must know more than these guys

 

https://www.dw.com/en/trumps-election-victory-is-a-nightmare-for-germany/a-70715626

 

https://www.bloomberg.com/news/articles/2024-11-10/germany-s-merz-open-for-deals-with-trump-calls-scholz-lame-duck

 

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“In Germany, we have never really articulated and enforced our interests well enough, and we have to change that,” Merz said in the Stern interview. “The Americans are much more on the offensive. It shouldn’t end with only one side profiting, but rather with us making good arrangements for both sides. Trump would call it a deal.”

 

To deny that the election of Trump is having influence over the happenings in Germany's government is wrong.

 

Merz sounds a lot like Trump when discussing migration, welfare, military spending, tax cuts, etc. 

 

But yeah, we'll see if this moves Europe in the right direction. There are many forces working against it/the EU. The environmentalists seem to be one of the biggest ones.

Edited November 25 by Dalal.Holdings

[Luke]

1 hour ago, Dalal.Holdings said:

 

I guess you must know more than these guys

 

https://www.dw.com/en/trumps-election-victory-is-a-nightmare-for-germany/a-70715626

 

https://www.bloomberg.com/news/articles/2024-11-10/germany-s-merz-open-for-deals-with-trump-calls-scholz-lame-duck

 

 

To deny that the election of Trump is having influence over the happenings in Germany's government is wrong.

 

Merz sounds a lot like Trump when discussing migration, welfare, military spending, tax cuts, etc. 

 

But yeah, we'll see if this moves Europe in the right direction. There are many forces working against it/the EU. The environmentalists seem to be one of the biggest ones.

Your articles have nothing to do with what i said. Where is the influence of trump on the moves by the FDP cancelling the coalition in advance? Trump wasnt even voted for, its totally unrelated. Merz is not a trump, he wants further escalation against Russia, he wont abolish climate targets and go drill baby drill, he will build a coalition with left socialist party or the greens?! Nothing trumpist here at all honestly. And the most important things are totally disregarded which is an uncompetitive infrastructure that needs hundreds of billions of annual investments. Money that is not there but could be there if they take on debt at meager 2-3%. But no...cutting taxes for corporations will do absolutely 0 because nobody wants to invest in a fundamentally broken industry. The CDU will further do pension gifts with the taxes because 50% of their voters are 60+. Its a fundamentally lazy and 20 years in the past party sadly.

Edited November 25 by Luke

[Dalal.Holdings]

4 minutes ago, Luke said:

Your articles have nothing to do with what i said. Where is the influence of trump on the moves by the FDP cancelling the coalition in advance? Trump wasnt even voted for, its totally unrelated. Merz is not a trump, he wants further escalation against Russia, he wont abolish climate targets and go drill baby drill, he will build a coalition with left socialist party or the greens?! Nothing trumpist here at all honestly. And the most important things are totally disregarded which is an uncompetitive infrastructure that needs hundreds of billions of annual investments. Money that is not there but could be there if they take on debt at meager 2-3%. But no...cutting taxes for corporations will do absolutely 0 because nobody wants to invest in a fundamentally broken industry. The CDU will further do pension gifts with the taxes because 50% of their voters are 60+. Its a fundamentally lazy and 20 years in the past party sadly.

 

So if you think Germany is in trouble, what does that bode for the EU as a whole ?

 

Yes I agree they need to take on debt and pursue a Keynesian strategy, but taking on debt seems to be a cultural anathema for Germans

[Luke]

The political future of germany looks horrible, until people vote for real change. Then new coalitions could be build and maybe new parties gain control but the incentives so far still look like that they will do further inventory management and make their 10-20k a month as politicians and move to the US in 2035 when germany totally collapsed They couldn't give an F really about the average joe in Germany and the majority of the party never did, as can be seen by 16 years of no progress under merkel. Do you think just because merz is a new face the member body changes? Nope. 

 

But politics in europe are such a disaster anyways that i dont see any hope for the continent unfortunately. There are people with no degree or work experience managing whole countries...we will just fall further behind the US and China with stalling growth, aging population, violent and unproductive migrants, expensive energy, unnecessary wars etc

Edited November 25 by Luke
Boomers being dead wont cause new coalitions actually because looking at young voter polls they support similar policies that lead to disaster

[Luke]

9 minutes ago, Dalal.Holdings said:

 

So if you think Germany is in trouble, what does that bode for the EU as a whole ?

 

Yes I agree they need to take on debt and pursue a Keynesian strategy, but taking on debt seems to be a cultural anathema for Germans

You know, what trump does is very correct. Cheap energy is the blood of an economy, these greens have a noble mission but can not be accomplished with sustaining competitiveness against india or china. There are some estimate of 500b annual investments for 20 years to redesign a supply chain towards co2 neutrality and then its still questionable if the outcome leads to competitiveness compared to china 10th gen nuclear powerplants with recycling yadda yadda.

 

As crazy as it sounds, germany or any other european country should abolish the EU, build new free trade zones with similarly wealthy countries (like the D-mark group before the euro, Netherlands, denmark, germany etc) and reinitiate trade with russia and China. The european continent together with russia and china has tremendous potential to be a counterweight against the US and could explode in wealth and progress if these countries work together. But nope, politicians further bow before the US and engage in war games, sanction games etc. To the detriment of progress and growth. J.D Vance knows this, trump knows this and i seriously hope they dont continue washington war games but press for neutrality, peace-building, mutual-trade etc.

 

But you also have those guys who want to go full war against russia and china and want to send young men to death in a fight to maintain the inequitable economic power relations. We can end up in WW3 and the ones who are the loudest proponents are 60+ and sit at home watching TV and have 0 stakes in it.

Edited November 25 by Luke

[Luke]

So no way am i going to be long stocks that are reliant on the European union market growth. ASML etc are global players based in the EU and are totally fine and great companies.

[Luke]

But is not true for all sectors right, some small cap software company in germany can still scale well when bought cheap etc so its not as black and white

[Dalal.Holdings]

Europe, particularly Germany, needs a wakeup call. I don't know what that is. Hopefully the new Merz government gets enough of a mandate in the election to change things.

 

Hopefully the problems of the EU are addressed...but these are massive problems and the Union looks weak on one hand (members don't really care for one another) and overly authoritarian on the other (regulations via Brussels).

 

It's a bizarre state of affairs. Seems like there is no real leadership of the continent and it's just a rudderless ship and the bureaucrats are left in charge with free reign

[Dalal.Holdings]

 

ein kleines Problem

[lnofeisone]

Thanks, @TB. Looks like a compelling reason to look to Israel for investing.

[Dinar]

2 hours ago, lnofeisone said:

Thanks, @TB. Looks like a compelling reason to look to Israel for investing.

I have owned Tel Aviv Stock Exchange since December of 2019.  I am not a buyer here, but I am not selling my shares either.

[james22]

12 hours ago, Dalal.Holdings said:

 

ein kleines Problem

 

Thought of this thread as I ordered a new build today.

 

There's still no substitute!

[lnofeisone]

2 hours ago, Dinar said:

I have owned Tel Aviv Stock Exchange since December of 2019.  I am not a buyer here, but I am not selling my shares either.

I remember you recommending it a year ago or so. Excellent call. 

[Dalal.Holdings]

https://www.ft.com/content/c4ddf3ab-94c6-41b3-95c1-1afd38d23704

 

People like Christine Lagarde represent in my view a lot that's wrong with EU governance. She's got all the "right" credentials and traveled through the revolving doors of various big institutions, pretty much unaccountable to the European people. She represents to me a lot of the bureaucrats running the show in the EU who all have the "right" education and walk around between Zoom meetings wearing lanyards while cooking up new regulatory schemes. 

 

The fact that she helmed these institutions during the past few decades of what she says can be argued as a 3 decade "crisis" for the EU speaks volumes.

 

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Yes, it [gap with the U.S.] has widened over the last 30 years. So you could argue that we’ve been in crisis for 30 years, which I don’t think has been the case. We have missed the transformative impact of the first IT revolution. In the 1990s, the United States rode with it and in that particular field, we have lost competitiveness. 

 

She seems to think the gap between EU and China/U.S. in technology is largely because of lack of financing which is ridiculous:

 

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That‘s the challenge for the European companies. Can we actually keep financing them, helping them and giving them the freedom and space to innovate and to continue to be champions in their respective fields? Just look at the trading rooms and the financial environment in London back in the 2000s — they were staffed with French people. Where did they come from? From the best schools in France that produced [people] who could invent algorithms and financial instruments, sometimes to their own peril. This shows that the brainpower — the capacity to focus on what is needed to produce those large language models and to run them — exists in our countries. We have people in the United Kingdom and France and other places. We just need to make sure that they stay here longer, that they get their financing from here and then expand here. That’s a challenge, granted. 

 

While she does admit regulations are part of the problem, I'm not sure she has the right solutions:

 

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It cannot be that companies — particularly small and medium-sized enterprises — have to produce a plethora of different disclosures on their environmental footprint. When I say that, I have colleagues who say: “Well, but SMEs are exempt.” No, they’re not, because the big corporations have to check with all the SMEs that are their subcontractors where these business partners produce, whether there is deforestation involved, whether they do this and that, in order to combine everything and then report back. We have to all agree with the standards and the direction we are heading, but we have to completely harmonise this massive burden of paperwork that exists.  

And overall, her response to one of the last questions just demonstrates a lack of urgency and enthusiasm to solve the problem. (That EU regulations like GDPR, AI Act, Deforestation stuff needs to have a hatchett taken to them: be repealed):

 

 

Imagine if Americans had a narrative that their country had "become a museum". There would be massive political push to make it not so. The lack of urgency among Europeans to address their problems is concerning...

 

 

Edited November 28 by Dalal.Holdings

[Dalal.Holdings]

It looks like the cumulative return gap of the past 10 years is considerably bigger than the 70s

 

 

Edited December 1 by Dalal.Holdings

[Dinar]

@Dalal.Holdings, why does that matter?  How would have that chart looked in 1918?  1960?  1976?  Similar, no?  Yet, the following 48 years did not see Europe outperform the US, eh? 

 

 

[Dalal.Holdings]

46 minutes ago, Dinar said:

@Dalal.Holdings, why does that matter?  How would have that chart looked in 1918?  1960?  1976?  Similar, no?  Yet, the following 48 years did not see Europe outperform the US, eh? 

 

 

 

That chart covers 1950 onwards so it's pretty easy to see...If you look at that chart, Europe strongly outperformed the U.S. two consecutive years after 1976: in 1977 by ~30 percentage points...

 

What's more important is that in 2024, unlike 1976, you look at the decade prior and see just about every single year the U.S. strongly outperformed Europe...that was not true in 1976. That means the U.S.'s cumulative relative outperformance to Europe is very large, likely larger than any time in modern history.

 

This is more in line with cumulative and you can see it clearly addresses 1960 and 1976. An investor would have done quite well selling U.S. and buying Ex-U.S. at the Nifty 50 bubble and even the internet bubble.

 

The relative performance since 1950 was in a band and we've broken out of that in the past decade. Is the sky the limit?

 

As to 1918, in between two World Wars but parts of Europe did well in the Roaring 20s (though obviously not Germany)

Edited December 1 by Dalal.Holdings

[Spekulatius]

35 minutes ago, Dinar said:

@Dalal.Holdings, why does that matter?  How would have that chart looked in 1918?  1960?  1976?  Similar, no?  Yet, the following 48 years did not see Europe outperform the US, eh? 

 

 

It matters because the much of the difference in stock market performance did not come from a differential in economic growth but from multiple expansion in the US and compression elsewhere.

 

Even the economic growth in the US is partly fueled by increased fiscal deficits that are much larger than Europe’s.