Is Europe becoming uninvestable?

[Dalal.Holdings]

You know things are coming to a head if Mario Draghi and the FT are getting all over this issue:

 

https://www.ft.com/content/47d28f39-6f9d-4c46-9e36-c45a9f398a62

 

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A big part of the reason is that the EU has fallen far behind the US (and even China) in the digital revolution. Only four of the world’s top 50 tech companies are European.

 

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The EU cannot change the world. But it can — and should — change itself, to cope with it. What comes out most clearly from this report are the common threads that connect these various ailments. The most important are fragmentation, over-regulation, inappropriate regulation, insufficient spending and undue conservatism. Of these, fragmentation is the most damaging.

 

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It notes that “Europe is stuck in a static industrial structure with few new companies rising up to disrupt existing industries or develop new growth engines. In fact, there is no EU company with a market capitalisation over €100bn that has been set up from scratch in the last 50 years, while all six US companies with a valuation above €1tn have been created in this period.” Accordingly, the list of the top three investors in research and innovation (R&I) has been dominated by automotive companies for 20 years. Europe risks becoming an industrial museum.

 

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Over-regulation is also a big problem. This is partly because of excessive conservatism, but also because of the tendency of member states to pile their own regulations on top of the EU’s.

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Unfortunately, the explanations for many of the problems Draghi describes, notably the fragmentation and conservatism, are also the reasons why his radical solutions are unlikely to be adopted. As he notes, “successful industrial policies today require strategies that span investment, taxation, education, access to finance, regulation, trade and foreign policy, united behind an agreed strategic goal”. For the EU to achieve this will require radical reforms.

 

 

Edited Wednesday at 12:41 AM by Dalal.Holdings

[Dalal.Holdings]

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I pointed out to a European friend that Hewlett Packard was started in a garage in Palo Alto. Apple Computer was started out in another garage in Palo Alto. Amazon was started in a garage in Seattle. My European friend said that this couldn't happen in Europe because there would be a rule against developing a business in a garage........and that's the message......bureaucracy kills.

 

Gotta love the comments to that FT piece 

[james22]

[John Hjorth]

@Dalal.Holdings,

 

Let me just say here, that  I do not understand what the existence [or not] of 'Unicorns' really has to do with topic. To me:

 

US GDP advance LTM : 3.1 per cent,

Euro area GDP advance LTM : 0.6 per cent.

 

What does that [the difference between those] have to do [by now] with 'Unicorns' and such?

 

Please review your own posts and mine, meaning :

 

Are companies such as :

 

# 14 : Novo Nordisk,

# 27 :  LVMH, &

# 29 : ASML

 

[Link]

 

subject to your statements about lack of European innovation?

[Kizion]

How much of the US GDP growth in past 10 years comes from increase in governmental debt/spending and money supply? I can’t undo myself from the idea that the US is just much more aggressive with these policies vs. EU and that US is just pulling growth forward. Question is if this is sustainable - if yes, very good for US and a missed opportunity for the EU. 
 

or is this PoV not relevant in the discussion? 

Edited Wednesday at 05:45 AM by Kizion

[LC]

To put the topic another way:

 

If you had a great business idea - where would you want to start it? 

 

US would be close to the top: low regulatory barriers, strong rule of law

Europe would be towards the bottom: high regulatory burden but you do have rule of law

China would be also be tough: rule of law exists only as long as the CCP wants it to

India? Can't even start there without citizenship/nationality

S. America? Low regulations but also not a lot of faith in the legal system

 

 

 

[UK]

2 hours ago, LC said:

To put the topic another way:

 

If you had a great business idea - where would you want to start it? 

 

US would be close to the top: low regulatory barriers, strong rule of law

Europe would be towards the bottom: high regulatory burden but you do have rule of law

China would be also be tough: rule of law exists only as long as the CCP wants it to

India? Can't even start there without citizenship/nationality

S. America? Low regulations but also not a lot of faith in the legal system

 

 

 

 

This is exactly the right question to ask! Only I would argue, that despite smaller capital availability, more regulations or even talent/language barriers sometimes, most countries in Europe would be in the second best place after US. Same with universities, demography, rule of law. On the other hand, in places like Russia, or perhaps even China recently (at least for not so well CCP conected), if you have great business idea, first thing you want to do is to run away with it to a first or second place country, before it is stollen from you or worse. US is in the league of its own, at least from a business making perspective.

 

Edited Wednesday at 08:17 AM by UK

[Dalal.Holdings]

7 hours ago, John Hjorth said:

@Dalal.Holdings,

 

Let me just say here, that  I do not understand what the existence [or not] of 'Unicorns' really has to do with topic.

Your unicorns today will give you GDP tomorrow. It’s as simple as that.

[John Hjorth]

4 hours ago, Kizion said:

How much of the US GDP growth in past 10 years comes from increase in governmental debt/spending and money supply? I can’t undo myself from the idea that the US is just much more aggressive with these policies vs. EU and that US is just pulling growth forward. Question is if this is sustainable - if yes, very good for US and a missed opportunity for the EU. 
 

or is this PoV not relevant in the discussion? 

 

At least I think it is, @Kizion .

 

Thanks.

[Sweet]

6 hours ago, Kizion said:

How much of the US GDP growth in past 10 years comes from increase in governmental debt/spending and money supply? I can’t undo myself from the idea that the US is just much more aggressive with these policies vs. EU and that US is just pulling growth forward. Question is if this is sustainable - if yes, very good for US and a missed opportunity for the EU. 
 

or is this PoV not relevant in the discussion? 

 

Maybe the last few years, but the past decade or more it has been comparable if not higher in the EU.

[formthirteen]

 

[Sweet]

53 minutes ago, formthirteen said:

 

 

On no planet is Thierry Breton funny.

[james22]

5 hours ago, UK said:

This is exactly the right question to ask! Only I would argue, that despite smaller capital availability, more regulations or even talent/language barriers sometimes, most countries in Europe would be in the second best place after US.

 

Thing is, if you've the choice, there's really no second place.

 

The lack of scale and risk-taking means that US sources of funds are far greater than those of the EU. As a result, “many European entrepreneurs prefer to seek financing from US venture capitalists and scale up in the US market”.

[no_free_lunch]

On 9/15/2024 at 3:51 PM, Spekulatius said:

I think valuations for European companies are lower than for comparable companies in the US. The best piece of evidence is the re-listing of companies  from  Europe to the US leads to a sometimes significant valuation boost. CRH is a very recent example. So in my opinion the market cap comparison is not something  should be taken in isolation  and looking at other numbers/metrics makes sense too. For example Europes GDP is lower than the USA by almost 50%, so what your really should do is compare $50B market cap companies to $100B market cap companies in the USA if normalized for GDP.

 

What if I tweeted that Austrian stocks market suck because Australia does not have even a single trillion market cap company ?

 

Again this does not explain the whole divergence and it easy to see that the US indices have performed better than the European ones, but I think the tweet is both factional incorrect and more importantly compares somewhat cherry-picked numbers.
 

I think you misrepresented my argument.  Again it's performance  of the index that matters.  We can try to discount and explain but it's the simple indexes which tell us how average investors are doing.  In Europe they are not doing well. 

[Spekulatius]

9 hours ago, Sweet said:

 

On no planet is Thierry Breton funny.

Can’t wait for the day that Elon and Thierry fly to Mars together. However Elon will never go there, because it will take him 6-45 min to reply to a tweet from there. The latency would kill him.

Edited Wednesday at 11:20 PM by Spekulatius

[Kizion]

11 hours ago, no_free_lunch said:

I think you misrepresented my argument.  Again it's performance  of the index that matters.  We can try to discount and explain but it's the simple indexes which tell us how average investors are doing.  In Europe they are not doing well. 

 

True, but the index is the market price - could we somewhere see or analyse what the earnings did for S&P500 (preferably excl. MAG7 as it's indeed true that Europe is lacking such quality) and what part of the index return is linked to P/E multiple expansion? I would like to understand the driver for the index performance, is it higher earnings growth for US companies (vs. EU) or is it mainly expansion of P/E multiple, or is it combination of both. 

 

S&P500 is trading at around 25x forward PE, while Stoxx600 is trading at around 14x forward PE. Is this discount big enough to make EU investments attractive? Probably it will come down to the growth assumptions for the MAG7. 

 

S&P500 equal weight is trading at 18x PE.

[Dalal.Holdings]

https://finance.yahoo.com/news/apple-faces-eu-warning-open-090111580.html
 

“Today is the first time we use specification proceedings under the DMA to guide Apple towards effective compliance with its interoperability obligations,” EU competition chief Margrethe Vestager said in a statement. “Effective interoperability, for example with smartphones and their operating systems, plays an important role in this.”

 

You gotta love these EU regulatooors throwing around their acronyms like it gives them power (no one gives a sh*t about DMA, DSA, GDPR, whatever other nonsense you make up). 
 

These people are not members of a legislature that were elected by the people they supposedly represent. They are unelected bureaucrats who exercise an inordinate amount of power. And in many cases what they are trying to force companies do amount to nationalization or simple theft of IP.

[thowed]

I agree that unelected EU bureaucrats can be a pain.

 

However I am also pro interoperability.  It just makes things easier.

 

(This is a generalisation - I'm not into interoperability if it weakens security, creates lower quality standards etc.).

[Dalal.Holdings]

1 minute ago, thowed said:

I agree that unelected EU bureaucrats can be a pain.

 

However I am also pro interoperability.  It just makes things easier.

 

(This is a generalisation - I'm not into interoperability if it weakens security, creates lower quality standards etc.).

The walled garden has its benefits that are often discounted. If people want a choice they have Android

[John Hjorth]

On 9/18/2024 at 2:36 PM, formthirteen said:

 

 

23 hours ago, Sweet said:

 

On no planet is Thierry Breton funny.

 

13 hours ago, Spekulatius said:

Can’t wait for the day that Elon and Thierry fly to Mars together. However Elon will never go there, because it will take him 6-45 min to reply to a tweet from there. The latency would kill him.

 

@formthirteen, @Sweet and @Spekulatius,

 

Actually, an embarrassing disgrace for both men, I would say, to engage in such ex cathedra more or less personal condecending mud slinging on X. A token of lack of format, and bad form, that does not dress any of the two gents well. I got a good laugh by reading  @Spekulatius's post above though. 

Edited Thursday at 12:52 PM by John Hjorth

[formthirteen]

More of Thierry's achievements as an EU bureaucrat superman:

 

 

His employees were a bit more productive:

 

 

And you say bureaucrats are not comedians?

[Luke]

Folks, I am patiently waiting yet to read ONE comment that speaks out for the need to regulate these mega-caps in their anti-consumer stances. The EU needs to downsize, but the IDEA itself is good. WHY is there this ridiculous iPhone lock-in with their lightning cables, why are the phones unrepairable and software locked etc. Have you ever dealt with this S***? 

[Luke]

The thread is called "Is Europe becoming uninvestable"? 

 

The answer clearly is: NO! 

 

 

 

Lots of good stuff!!

Edited Thursday at 01:15 PM by Luke

[Sweet]

27 minutes ago, Luke said:

Folks, I am patiently waiting yet to read ONE comment that speaks out for the need to regulate these mega-caps in their anti-consumer stances. The EU needs to downsize, but the IDEA itself is good. WHY is there this ridiculous iPhone lock-in with their lightning cables, why are the phones unrepairable and software locked etc. Have you ever dealt with this S***? 

 

Many companies, not just the big tech ones, will only allow themselves to repair a device and provide unique set of cables for their devices.

 

I disliked the lightning cable ban... I mean really, we can't have different ways to charge and move data onto our phone?  Imagine if the EU made this law years ago with USB cables, there would be no innovation to USB-c cables without regulation first.  No.

[Dalal.Holdings]

29 minutes ago, Luke said:

Folks, I am patiently waiting yet to read ONE comment that speaks out for the need to regulate these mega-caps in their anti-consumer stances. The EU needs to downsize, but the IDEA itself is good. WHY is there this ridiculous iPhone lock-in with their lightning cables, why are the phones unrepairable and software locked etc. Have you ever dealt with this S***? 

 

The idea may be good but the implementation is awful. For example, removing google maps results from search—how does this just not ruin the user experience? Same with asking about cookies on every website