Is Europe becoming uninvestable?

[changegonnacome]

9 hours ago, Parsad said:

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

 

Cheers!

 

Low interest rates allowed Zombie companies to continue to operate......those Zombie's consumed the most important capital of all - human capital....while destroying the economics/pricing power of non-Zombie companies...the low/no growth of the 2010's can be seen in the context of a misallocation of that human capital.

 

Europe in some ways was the worst offender as they went literally negative on rates.

 

Capitalism is brutal - when allowed to operate - creative destruction recycles resources into activities that have merit.

 

It appears that Zombie's with debt stacks maturing into 2024 are finally going to have their moment. 

 

Europe is going to be at the forefront of this.

[Parsad]

8 hours ago, changegonnacome said:

 

Low interest rates allowed Zombie companies to continue to operate......those Zombie's consumed the most important capital of all - human capital....while destroying the economics/pricing power of non-Zombie companies...the low/no growth of the 2010's can be seen in the context of a misallocation of that human capital.

 

Europe in some ways was the worst offender as they went literally negative on rates.

 

Capitalism is brutal - when allowed to operate - creative destruction recycles resources into activities that have merit.

 

It appears that Zombie's with debt stacks maturing into 2024 are finally going to have their moment. 

 

Europe is going to be at the forefront of this.

 

I agree with you.  They just have to go through the pain.  And they aren't the only ones...I think most of the world is going to share a similar experience to some degree.

 

Cheers!

[changegonnacome]

2 hours ago, Parsad said:

And they aren't the only ones

 

Yep there are interesting industries that were just destroyed by low rates.... it did the opposite of what textbooks said it would cause it threw a lifeline to competitors who ordinarily would have gone extinct. Darwinian capitalism was paused for a decade plus - and certain industries were just ruined by this.

 

European telecoms IMO is an example of this IMO.......normal rates would have seen 5 player markets consolidate into 3 player ones where more rational pricing would have emerged. Low rates allowed the 4th and 5th player to continue to operate destroying the unit economics for everybody.

 

Normal rates are forcing function for this moving forward and heretofore terrible businesses will become less terrible....and that can be enough for excellent equity returns if you pick your spots. Europe is a good hunting ground for this - just given it was one of the worst ZIRP offenders.

[MxMI17]

https://www.wsj.com/economy/europe-regulates-its-way-to-last-place-2a03c21d?mod=hp_lead_pos4

 

“America innovates, China replicates, Europe regulates”

 

[CorpRaider]

IMO, they just need a little Regan revolution.  Stuff can change.  The wall fell.

 

I agree the ZIRP hurt them more.  The common currency doesn't make a ton of sense.  NEXIT would be a step.

Edited January 31 by CorpRaider

[mattee2264]

Not a huge amount of evidence of pain. Euro stocks have been on a bit of a tear lately with a 1 year return of almost 20% and that was without the benefit of having Mag7 or equivalent to do all the heavy lifting. While the eurozone narrowly avoided recession in 2023 their inflation rate is down to 2.9% so they will probably able to start cutting sooner than USA. And the interest rate transmission mechanism works faster in Europe so they've probably already felt a lot of the pain from higher rates and adjusted to them. Of course Europe has a lot of regulations and so on but it also has a high concentration of quality multinational companies. 

[schin]

On 1/23/2024 at 11:37 AM, changegonnacome said:

 

Low interest rates allowed Zombie companies to continue to operate......those Zombie's consumed the most important capital of all - human capital....while destroying the economics/pricing power of non-Zombie companies...the low/no growth of the 2010's can be seen in the context of a misallocation of that human capital.

 

Europe in some ways was the worst offender as they went literally negative on rates.

 

Capitalism is brutal - when allowed to operate - creative destruction recycles resources into activities that have merit.

 

It appears that Zombie's with debt stacks maturing into 2024 are finally going to have their moment. 

 

Europe is going to be at the forefront of this.

 

I concur -- those zombie companies are on life support.... Survival of the Fittest and Creative Destruction is held at bay for a while...  You can put parallels to Japan back in the day.... Europe is correcting and hopefully normalizes..but, their socialistic bend keep it from going quicker than the US.

 

There is some bad things happening in China... with real estate companies. 

[Spekulatius]

@schin Which zombie companies in Europe are you talking about? Care to mention specific examples?

[schin]

4 hours ago, Spekulatius said:

@schin Which zombie companies in Europe are you talking about? Care to mention specific examples?

@Spekulatius - I would say the zombie-ish companies are the banks in Germany.  Deutsche Bank and Commerzbank have fixed themselves up. But, there should be more consolidation in Germany for one. It is overbanked. The locally-government controlled savings bank - Spareassen-Finanzgruppe. Pricing is being held down by the weakness offerers like oil producers. It's just not rational. 

 

https://en.wikipedia.org/wiki/Sparkassen-Finanzgruppe

https://en.wikipedia.org/wiki/German_Cooperative_Financial_Group

https://en.wikipedia.org/wiki/List_of_banks_in_Germany

 

Many don't have scale and without government support, would be dissolvent. 

https://www.bankingsupervision.europa.eu/press/speeches/date/2017/html/ssm.sp170927.en.html

 

In Italy, I would say Monte die Paschi -- which they want Unicredit to take over.. but, they passed. Let it die.

 

 

 

[Spekulatius]

@schin  The Sparkassen and Raiffeisen banks resemble credit unions in the US and were designed as member  serving and state/city serving institutions , so they are zombies by design. They, as well as banks in general also have been hurt by ZIRP, which means that things should actually get better for them.

[james22]

A Quick Look at the 21st Century So Far

 

Since 2000, Europe has stagnated on many fronts -- anemic growth, a crashing birth rate, military disinvestment -- from which countries such as Belgium and Germany have still not emerged. Perhaps most worrying of all, according to criteria such as patents, capital investment, and stock market giants such as GAFA (Google, Apple, Facebook, Amazon), Europe has stopped innovating. People innovate in the United States; they still innovate in Asia, but in Europe – hardly at all.

 

If you add to this the European Union's obsession with the environment, which has become little more than a machinery for imposing constraints, vexations, punishments and taxes in the name of "energy transition", it appears that stagnation is a problem from which Europe might have the greatest difficulty in freeing itself.

 

As history shows, stagnation is an intermediate state. Over time, stagnation is almost always the prelude to regression (here, here and here). When Sparta stopped having children, Sparta wasn't defeated overnight. Sparta remained Sparta, for a time, with its glorious city and its military contingents. Afterwards, Sparta was not defeated: it simply gradually disappeared from the face of the earth.

 

https://www.gatestoneinstitute.org/20340/21st-century

[mattee2264]

GRANOLAS is the buzzword driving European indices to all time highs. Their version of the Magnificent 7. 

GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP and Sanofi

 

Internationally exposed quality growth compounders. Now account for around a quarter of the Eurostoxx 600. And are up 60% over the last three years keeping pace with Mag7. 

 

 

[formthirteen]

Weekly news from the EU. Everything is going as planned by the central committee, more sustainability and regulation:

 

https://www.reuters.com/technology/microsofts-deal-with-mistral-ai-faces-eu-scrutiny-2024-02-27/

 

 

Quote

Behind closed doors, Mistral lobbied for exemptions for some AI systems, warning that overly strict laws would hamper European startups' chances of competing with U.S.-based giants. Mistral's deal with Microsoft has led some lawmakers to question the company's motivations.

 

"What is emerging shows even more that it was good not to water down our ambition on the safety of GPAI (general purpose AI) models with systemic risks, following legitimate but strong lobbying from companies like Mistral," said Brando Benefei, a member of the European Parliament (MEP) who oversaw the drafting of the AI Act.

 

EUROPEAN CHAMPIONS?

 

Alongside Germany and Italy, France also pushed for exemptions for companies making generative AI models, to protect European startups such as Mistral from over-regulation.

 

"That story seems to have been a front for American-influenced big tech lobby," said Kim van Sparrentak, an MEP who worked closely on the AI Act. "The Act almost collapsed under the guise of no rules for 'European champions', and now look. European regulators have been played."

 

https://www.msn.com/en-us/news/world/eu-parliament-backs-contested-biodiversity-bill/ar-BB1iYkh9

 

Quote

The rules are a central part of the EU's ambitious environmental goals under the Green Deal -- a set of laws aimed at helping the bloc meet its climate goals -- but farmers say they threaten their livelihoods.

 

The legislation demands the European Union's 27 member states put in place measures to restore at least 20 percent of the bloc's land and seas by 2030.

 

They lament what they say are excessively restrictive environmental rules, competition from cheap imports from outside the European Union and low incomes.

 

 

https://www.reuters.com/business/basf-dials-up-cost-cuts-germany-flags-earnings-rebound-2024-02-23/

 

Quote

FRANKFURT, Feb 23 (Reuters) - Germany's BASF (BASFn.DE), opens new tab will slash another 1 billion euros ($1.1 billion) in annual costs at its Ludwigshafen headquarters, citing weak demand and high energy costs in its home market, highlighting the country's economic troubles.

 

 

 

 

[thowed]

32 minutes ago, mattee2264 said:

Novo Nordisk, ASML, L’Oreal, LVMH

 

I've corrected!  NALL?

 

I'm a bit less down on Europe than I was - structurally it's problematic in terms of regulation, but there are still some great companies.  The above 4.  Hermes of course.  Some Scandi compounders.  A bunch of Swiss mittelstand cos.  etc.