Category: Europe

Ukrainians on the Ukraine situation

by philg

The situation in Ukraine is bewildering to those of us who received parochial American educations. The Wall Street Journal attempts to explain it in “Putin’s Endgame: Unravel the Post-Cold War Agreements That Humiliated Russia”:

The Russian leader is trying to stop further enlargement of the North Atlantic Treaty Organization, whose expansion he sees as encroaching on Russia’s security and part of the West’s deception and broken promises. He wants NATO to scale back its military reach to the 1990s, before it expanded east of Germany.

In sum, Mr. Putin seeks to undo many of the security consequences of the Soviet Union’s collapse in 1991, an event the Russian leader has called the “greatest geopolitical catastrophe” of the 20th century.

Looking back, many current and former Western officials say it is clear that the U.S. and its allies handled relations with Moscow poorly in the 1990s, and that the triumphalism over winning the Cold War was excessive.

“Although I think that Western diplomacy was arrogant and incompetent in the 1990s, and we’re paying the price now, that is not a reason for Putin to put himself in a posture that makes other people think he’s about to launch a war,” said Rodric Braithwaite, who was British ambassador to Moscow when the Soviet Union collapsed.

Yet in 1994, Russia joined with the U.S. and U.K. in committing “to respect the independence and sovereignty and the existing borders of Ukraine” and “to refrain from the threat or use of force” against it, a security guarantee that helped persuade Ukraine to give up its nuclear weapons.

Where are the US and the UK today with their “security guarantee”? (See the Budapest Memorandum.)

A successful friend who grew up in Ukraine:

Overheard young Swiss on a chairlift:
Guy 1: All this stuff with Ukraine is crazy. If World War III happened, it would be kind of cool. But also kind of not cool.
Guy 2: Yeah, it would not be. But you know, if we [Switzerland] manage to repeat what we did in WW2, we should be fine.

An American on the European response (putting the amazing new undersea pipeline on hold):

Man the Germans are sticking it to Putin. They are only going to buy half of their natural gas from him.

A Deplorable American with a Ph.D. in biology:

New sanctions are going to be about as effective against Putin and Russia as cloth masks were against the coronavirus.

From an aircraft mechanic:

If Putin takes over the Ukraine does Hunter still get his board of director payments?

An American passionate about free speech:

I am curious to see how long it takes for Twitter to suspend Putin’s account for spreading misinformation. Or does suspension apply only to “mean tweets”?

One question is whether the 44 million people who live in the Ukraine can qualify for asylum in the U.S. A person who says “my spouse is hitting me” qualifies for permanent residence in the U.S. and, if he/she/ze/they does not wish to work all that much, a lifetime of associated means-tested subsidies for housing, health care, food, and smartphone. As fearsome and difficult to escape as a domestic partner might be, a shooting war involving the powerful Russian Army is surely scarier. (Note that the New York Department of Health actually spends more than what the Russians spend on their entire military.)

I asked a friend who gets a paycheck from the refugee-industrial complex what would stop all 44 million Ukrainians from going to Mexico, walking across the Rio Grande, and saying “I request asylum”. His response:

They might qualify, but due to Trump policy that courts have not let Biden rescind, asylum seekers are being sent back across the border to wait in Mexico. Supreme Court recently agreed to hear the case. They might have a better chance of getting asylum if flew into NY on a tourist or other visa and then got a lawyer and filed asylum claim.

Me: “I don’t see how one can argue that Ukraine is not a dangerous place to be right now.”

Covid rule is different. That’s called “Title 42” and allows for immediate deportations due to health crisis. It also depends which city your hearing is held in. Rate along southern border is much lower than in NY. And if you have a lawyer, about 10x better chance. I would agree those fleeing Ukraine have a decent claim, but you’d still have to convince asylum judge. Being a political dissident or member of religious minority is better than just saying “I’m scared of war”. If Russians or Separatists declare that they’re looking for you that would help. You need to be able to convince a judge that you have a reasonable fear of persecution. Asylum seeker must show that they have a “well-founded fear of persecution in their home country on account of either race, religion, nationality, political opinion, or membership in a particular social group.” That’s the legal principle.

He pointed out that Temporary Protected Status would also be an option for Ukrainians who wished to be far away from any armed conflict.

Haitians had it after earthquake.

(“Temporary” for Haitians began in 2010 and was recently extended to at least 2023. Children born in the U.S. in when “temporary” began are now biologically capable of having children themselves.)

The question of 44 million Ukrainians being entitled to come here makes me wonder a bit about what kind of society the U.S. is building by giving immigration priority to those who say that they are at risk of being attacked somewhere else. In the 19th and early 20th centuries, for example, people migrated to the U.S. because they liked the idea of living in the U.S. Now we are filling the U.S. to a Chinese/Indian density with people who say that they don’t want to live wherever they’ve been living. It isn’t that they are attracted to what they perceive as American cultural values, for example, but they are repelled by threats against life and limb wherever they are. They might find American cultural values, such as hatred of Asians and discrimination against Blacks and those who identify as “women”, abhorrent, as Eileen Gu does, but living in the U.S. is nonetheless preferable to suffering inescapable domestic or gang violence in their home countries.

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Did banking leave London after Brexit?

by philg

Expert prediction was that Brexit would destroy London’s status as a financial center. Who knows more about London and economics than the Economist? A little over one month before the herd voted (June 2016), the educated elites told them what a terrible idea it would be to vote “leave”. A May 7, 2016 article titled “City blues”:

The Economist told the rabble that employment would fall, “total British trade would fall by [more than $100 billion] per year”, and “some firms would relocate to other EU financial hubs.” (Sadly, of course, because the elites forgot to take away their right to vote, one month later the rabble voted to leave.)

“How ‘Brexit’ Could Alter London, the World’s Banker” (NYT, May 11, 2017):

a large piece of London’s banking business depends on its inclusion in the European Union. Britain is now moving to exit the union, jeopardizing its status as a leading global financial center.

At the high end of estimates, as many as 80,000 finance positions could depart over the next two years.

Brexit was January 31, 2020. Have 80,000 finance positions departed for the greener pastures of the shrunken EU? (but maybe the NYT actually meant that 80,000 jobs would be lost through May 2019?)

“‘Brexit’ Imperils London’s Claim as Banker to the Planet” (NYT, also May 11, 2017):

Many of the transactions Citigroup oversees here are dependent on Britain’s inclusion in the European Union. Italian banks tap London’s vast pools of money to strengthen tattered balance sheets. German manufacturers borrow funds for expansion. Swiss money managers ply their fortunes. Citigroup and other global banks manage much of this activity, executing trades, and ensuring that money lands where it is supposed to, leaning heavily on their London operations.

In March, Prime Minister Theresa May set in motion Britain’s pending divorce from the European Union, starting talks with Europe to resolve future dealings across the English Channel.

[How is it a “divorce“? Will the EU never have to work again because they’re going to collect so much in child support or alimony from the UK?]

“It’s the British who will lose the most,” Mr. Macron said in a pre-election interview with the global affairs magazine Monocle. “The British are making a serious mistake over the long term.”

If a rupture across the channel results, global banks like Citi stand to feel significant consequences.

Somewhere between one-fifth and one-third of London’s financial undertakings now involve clients based in Europe. Much of this business is dependent on so-called passports that give financial firms in one European Union nation permission to operate in the others. Free of a deal preserving the essentials of passport rights, many of these trades would be effectively illegal. The rules and regulatory proclivities of 27 remaining European Union nations would have to be satisfied.

Brexit, as it is known, has jeopardized London’s status as banker to the planet. London will surely retain credentials as one of the world’s most important financial centers. Yet it is likely to surrender stature to European competitors exploiting Brexit as an opportunity to capture spoils.

We’re at the precise two-year anniversary of Brexit. What actually happened to the City of London’s status as Europe’s finance capital?

An academic paper titled “Resilience in the City of London: the fate of UK financial services after Brexit” says

Brexit has had no significant impact on jobs and London has consolidated its position as the chief location for financial FDI, FinTech funding, and attracting new firms. Most unexpectedly, the City has increased its dominance in major infrastructure markets such as over-the-counter clearing of (euro-denominated) derivatives and foreign exchange—although it has lost out in the handling of repurchase agreements and share trading.

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Why is the conflict over Ukraine happening now?

by philg

Please forgive my ignorance of everything that happens beyond the borders of the U.S. (and/or beyond the borders of Palm Beach County), but I’m hoping that readers who follow matters international, especially those who live in Europe, can explain the Russia-Ukraine-NATO-US situation to me.

Why now? What has changed to create this conflict? Why wouldn’t it have happened in 2018, for example?

The New York Times assured us that Vladimir Putin controlled Donald Trump. From 2019, for example, “Donald Trump: The Russia File” (a consensus piece from the entire Editorial Board):

Standing on the White House lawn on Monday morning, his own government shut down around him, the president of the United States was asked by reporters if he was working for Russia.

He said that he was not. “Not only did I never work for Russia, I think it’s a disgrace that you even asked that question, because it’s a whole big fat hoax,” President Trump said.

Yet the reporters were right to ask, given Mr. Trump’s bizarre pattern of behavior toward a Russian regime that the Republican Party quite recently regarded as America’s chief rival. Indeed, it’s unnerving that more people — particularly in the leadership of the Republican Party — aren’t alarmed by Mr. Trump’s secretive communications with the Russian president, Vladimir Putin, and reliance on his word over the conclusions of American intelligence agencies.

Given the direct control of U.S. politics that U.S. media asserted that Russia was exercising from 2016 through 2020, if Putin wanted to do something in Ukraine without American interference, wouldn’t it have made sense to do it while a Russian puppet (Donald Trump) was in charge in D.C.?

Russia annexed Crimea during the Obama administration (Wikipedia) and took a lot of heat for that. Unless we/NATO/Europe has done something recently to antagonize Russia, wouldn’t it have made sense for Russia to do whatever it is doing now back in 2014 so that it would have had to suffer only one round of sanctions?

Finally, given that the U.S. is packed with immigrants from both Ukraine and Russia, I wonder what the consequences for this dispute will be here. Our corner of Florida in particular is home to both Ukrainians and Russians (many had been living in New York, Connecticut, and Massachusetts, but moved when lockdowns and school closures were imposed). Can expats from Ukraine and Russia get along? I remember when Crimea was annexed, a Massachusetts immigrant from Crimea was vocal in support of Putin and the annexation (her father was a Russian military officer).

This is a big story in U.S. media recently and yet I have no idea what Americans are supposed to know about the situation.

Related:

  • New York state public and welfare health spending compared to Russia’s military budget: How much is $88 billion? Mexico spends about $1050 per person on health care. That includes health care for the rich, middle class, and poor. Mexico’s population is roughly 130 million so this works out to about $136 billion. In other words, with only 20 million people, New York spends close to as much on public health and welfare health insurance as Mexico does to care for its entire population, including cosmetic surgery for the richest people in Polanco. (How are the results in the Mexican system? Mexican life expectancy is about one year less than American life expectancy.) Comparisons between coronavirus and war are common. What if we wanted to have a military force with supersonic fighter jets, nuclear-powered submarines, an aircraft carrier, nuclear weapons, ballistic missiles, nearly 1 million active-duty troops, and 2 million reservists? Somewhere around $70 billion is what Russia spends. In other words, New York state spends more for public health and welfare health care than Russia spends to fund what might be the world’s most powerful military (let’s hope that we never find out who is actually the strongest!).
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Manufacturing a U.S. citizen in 9 months

by philg

The phenomenon of anchor babies merits a Wikipedia page: “a child born to a non-citizen mother in a country that has birthright citizenship which will therefore help the mother and other family members gain legal residency.” The term itself is hateful, according to the New York Times, and therefore used by haters such as Donald Trump (a 2015 article). Whatever these new U.S. citizens are called, it is popularly believed that the pregnant mom has to travel to the U.S., thus limiting production.

Would it be possible to produce an anchor baby remotely? The answer turns out to be “yes”.

While chatting recently with a European friend, I learned that many of the things that we cherish are illegal in Europe. Abortion after 12 weeks of pregnancy, for example, is generally illegal in Germany. Surrogacy is illegal almost everywhere in Europe, but it is not illegal to write a check to the U.S. industrial-reproductive complex and produce a baby via surrogacy here in the U.S. The resulting birthright U.S. citizen will have European genetic parents and be entitled to a U.S. passport.

A combination of a 19th century rule regarding former slaves and 21st century reproductive technology!

Related (mostly showing that I am late to learn about this!):

  • Payment for surrogate mothers: “Per month of pregnancy the surrogate mother is receiving about $2800. … the woman who seeks to get paid for having an abortion gets paid at least $83,333 per month of pregnancy, 30X as much as the woman who gets paid for having a baby.” (the post is from 2014, so it doesn’t highlight that men are just as likely to get pregnant as women.
  • “Whoa, Baby! Why American Surrogates Are in Demand for Chinese Families” (Hollywood Reporter 2016): Of course, any baby born via surrogate in the U.S. has birthright citizenship. “The Chinese couples really like that because a lot of them want to come back and forth,” says Molly O’Brien, a fertility lawyer with offices in Torrance who frequently travels to China to participate in information sessions for would-be parents, often sponsored by doctors offices or assisted-reproduction agencies. “Maybe they eventually want that child to be able to go to college here.”
  • “Coming to U.S. for Baby, and Womb to Carry It” (NYT, 2014): “… the situation is quite different in Portugal — as it is in most of the world where the hiring of a woman to carry a child is forbidden.” (Note the hurtful assumption, in which a prospective pregnant person is presumed to identify as a “woman”)
  • “Made in America” (The New Republic, 2017): “For years, we’ve looked to China for cheap labor. Now Chinese couples are coming to the U.S. for a new form of outsourcing: hiring American women to produce babies.” (Note the hateful language, in which pregnant people are referred to as “women”)
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Irish Vaccine Samizdat

by philg

A friend in Ireland sent me this meme, which is widely circulating on WhatsApp:

This is a counterpoint to Irish media pieces such as “Ireland will face severe Covid lockdown if people behave irresponsibly, O’Dea says”. See also “Irish Deputy PM says the 5% of the nation’s unvaccinated population is causing a problem” (CNN).

What has Ireland gained for its 21 months of trench warfare against SARS-CoV-2? On April 28, 2020, the New York Times used Ireland as a reference point for Sweden’s COVID-19-tagged death rate and they were roughly equal. On the COVID-19 death rate leaderboard, Ireland now sits 9 places below give-the-finger-to-the-virus Sweden. For folks who measure a society’s success by the single number of cumulative COVID-19 death rate, this makes Ireland’s 21 months of living under restrictions well worth it. The trend, however, is for Ireland and Sweden to converge on this grim statistic.

(Unlike Facebook, WhatsApp doesn’t seem to correct COVID-19 wrongthink. The 94% vaccinated stat above might look like it needs correction, but I think that, like many other Europeans, the Irish measure vaccination rate by looking at the percentage of people who are eligible for a vaccine, not by looking at the percentage of all humans, including those too young to be eligible, for example.)

Is meme consistent with official data? From the Google:

Note that “Irish lockdown” is pretty much the opposite of a Maskachusetts lockdown. In Ireland, schools remained open and generally unmasked while adults could not travel more than 2 km from their houses (enforced with police checkpoints), could not gather and drink alcohol, etc. In Boston, on the other hand, the public schools were essentially closed for 18 months while watering holes for adults, alcohol stores, and marijuana shops remained open. Adults could drive 30 miles from their homes at any hour of the day or night to meet a new friend from Tinder.

Related:

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Brexit fallout: Royal Dutch Shell moves its headquarters to London

by philg

We were informed that Brexit (January 31, 2020) would cause multinationals to move their headquarters to the EU. This week we learn, however, “Royal Dutch Shell has announced a plan to move its headquarters to the UK as part of proposals to simplify the company’s structure” (BBC):

The oil giant will ask shareholders to vote on shifting its tax residence from the Netherlands to the UK.

Shell’s chief executive, Ben van Beurden, will relocate to the UK.

The company’s chief financial officer, Jessica Uhl, will also move, alongside seven other senior employees.

Business and Energy Secretary Kwasi Kwarteng welcomed Shell’s announcement, tweeting that it was “a clear vote of confidence in the British economy”.

The Dutch government, however, said it was “unpleasantly surprised” by Shell’s proposal.

Stef Blok, economic affairs and climate minister, said: “We are in a dialogue with the management of Shell over the consequences of this plan for jobs, crucial investment decisions and sustainability.”

Shell has been incorporated in the UK and had a Dutch tax residence – as well as the dual share structure – since 2005.

The changes also mean the company will drop “Royal Dutch” from its title and be renamed Shell. This element dates back to 1890 when the Royal Dutch Petroleum Company was formed. That company merged with the UK’s Shell Transport and Trading Company in 1907.

“Carrying the Royal designation has been a source of immense pride and honour for Shell for more than 130 years,” Shell said.

Shares in Shell rose by nearly 2% on Monday morning.

How will the Dutch enjoy their new freedom from sharing a country with the top climate destroyers in the Shell executive suite? “Netherlands imposes lockdown measures as Covid cases hit new high” (Guardian, 11/12/2021):

The Netherlands will become the first western European country to impose a partial lockdown since the summer, introducing strict new measures from Saturday in the face of record numbers of new Covid-19 infections.

Gatherings at home would be limited to a maximum of four guests, all amateur and professional sporting events must be held behind closed doors, and home working was advised except in “absolutely unavoidable” circumstances, Rutte said.

“The virus is everywhere and needs to combated everywhere. I want every Dutch citizen to be asking, can I do more? Can I do better? We had hoped with the vaccines we wouldn’t have to do this, but we see the same situation all across Europe.”

Charlie is everywhere and this is his Tet Offensive. But if we put all of our resources into defense, the war is eminently winnable.

(I asked a Dutch friend about these situations. On the Shell move, in his view, it was as simple as cutting the corporation’s tax bill. Except for in Germany, which refuses to bend the rules for the politically connected, Europe is much like the U.S. in which states compete by offering special deals for the biggest companies and, in this case, Boris Johnson was offering Shell a better deal. On COVID, my friend said that the current outbreak is primarily due to immigrants in the Netherlands who were, in his view, both more likely to be infected with and less likely to be vaccinated against COVID-19. His perspective is confirmed to some extent by “What is the impact of the COVID-19 pandemic on immigrants and their children?” (OECD, October 2020), in which immigrants are roughly twice as likely to show up as a “confirmed case” (meaning they actually accessed the health care system and got a test) compared to the native-born. The government had previously reduced the number of hospital rooms per capita in the Netherlands as a cost-savings measure and if the hospitals now fill up it will discredit the government’s competence. World Bank data show that the number of beds per capita in the Netherlands is down by almost half since 1990, only partly due to population growth via immigration; the U.S. also has a reduced capacity per capita since 1990 (population growth from 250 million to 333 million combined with insufficient wealth to build new hospitals can explain much of this).)

In other European news, it looks like they’re getting closer to the proposal put forward here of rounding up the unvaccinated and placing them in Protection Camps. “Austria to impose Covid lockdown for the unvaccinated age 12 and older” (CNN):

Under the measures announced on Sunday, the unvaccinated are ordered to stay home except for a few limited reasons; the rules will be policed by officers carrying out spot checks on those who are out.

The lockdown plan which was agreed in September called for unvaccinated Austrians to face a stay-at-home order once 30% of intensive-care beds are occupied by Covid-19 patients. Unvaccinated people are already excluded from entertainment venues, restaurants, hairdressers and other parts of public life in Austria.

In neighboring Germany, ministers have ramped up their rhetoric towards those who are not inoculated. Its capital Berlin announced on Wednesday it will ban people who are not vaccinated from indoor dining, bars, gyms, hairdressers and cinemas from next week.

Now wouldn’t it be simpler if everyone had an RFID chip instead of relying on the police to “spot check” folks’ papers?

Returning to the main theme… gasoline was about $3.30 per gallon at the Shell station in Indiantown, Florida (when does that name get changed?) this weekend. And we used that gasoline to go to the Stuart Air Show where we saw the AeroShell Aerobatic Team (Canon R5 body and cheap/light 800/11 lens):

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German and Swiss restaurants refuse to accept CDC cards as proof of vaccination

by philg

I was chatting with a pilot friend who returned to his native Germany recently and reported that he’d been unable to get into restaurants. “They refused to accept my CDC card as proof of vaccination,” he said, “because they said it was too easy to forge one.”

I mentioned this at a pilot gathering in Palm Beach and one of the guys at my table said, “the same thing happened to me in Switzerland. Nobody would accept the CDC card.”

What papers do you need to show? “It’s called a European vaccine certificate,” my German friend explained. “You get this from a pharmacist [QR code with some text] then load in app or if you are old show on paper. It’s tied to a Europe-wide database and issued by the local CDC equivalent. It can only be put into the database by authorized pharmacists and some other designated officials, but not doctors.”

So enjoy your trip to Europe, but if you got vaccinated in the U.S., don’t plan to be indoors at museums, restaurants, etc.

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Portuguese stock picks

by philg

If you want some insurance against future Europe-US travel restrictions, want your children to have the flexibility to study/work/live in the EU, or just want to be like Eric Schmidt (support Biden and the Democrats’ plan to re-make U.S. society and the U.S. economy, but have the Gulfstream fueled and that second passport handy just in case!), the Portuguese Golden Visa program is an inexpensive path to an EU passport (less than $100,000 in fees and travel expenses). One requirement of the program is investing in real estate, which the Portuguese love and which I personally hate, or stocks, which the Portuguese hate and I love. The stock purchase approach requires more capital (1 million euro, versus as little as 280,000 for real estate that needs renovation), but is virtually guaranteed to be liquid.

(see Portuguese stocks or Lisbon real estate for the next five years? for some backgrond)

Friends of friends manage money or work in investment banking over in Europe. The general consensus was that Portuguese stocks aren’t mispriced and therefore there is no reason to expect them to do worse (or better) than German or U.S. stocks. That said, the stock market isn’t very developed in Portugal and it is perhaps easier for a management team to loot from shareholders.

Here are some notes from a guy who grew up in Portugal, but has spent his career as an investment banker in London and Spain….

Don’t buy real estate unless you want to use it. He bought in the center because he is fanatical about capital preservation. It took a long time to unload an apartment in Lisbon after the last crash.

Why has PSI-20 done so badly? Had same problems in 2001 and 2008 as everyone else. Bank blew up in 2014. Should be correctly priced now. They’ve survived hell and high water.

The PSI-20 has more exposure to Poland than Brazil or Angola, e.g., through JMT.

You’re in great shape with the large liquid components of the PSI-20.

  • JMT (10, great management, high growth) [the number is a rating from 1 to 10]
  • EDPR (world’s leading wind farm developer, incredibly management)
  • EDP (owns 65% of EDPR, cheapest right way right now to own EDPR)
  • GALP (4, local distribution company for oil, invested some into oil fields in Brazil, Angola, Mozambique, not especially well-managed)
  • BCP (6, only remaining bank, not especially well-managed, dirt cheap, too big to fail for system, largest shareholder is Chinese)
  • RENE (5, just the grid, regulated business, natural monopoly for electricity and gas, yield play)
  • SON (1, conglomerate, screw the minorities every single time, subsidiary is NOS and own that)
  • NVG (integrated paper manufacturer, Europe’s leader, very good management, very well run)
  • COR (10, one of the best companies I’ve ever come across, 50% of good wine[ry?])
  • ALTR (8, indirect way of owning, one of Europe’s most efficient [… something?])
  • CTT (6, post office)
  • SEM (85% of value is navigator, forget about them)
  • EGL (avoid)
  • PHR (avoid)
  • IBS (very nice company, KFC and Pizza Hut, they can grow)
  • Novabase NBA (great company, small IT provider, all software for Vodaphone, half of market cap is cash)
  • RAM (specialized steel and have a forest, properly managed and managed for you).

What if the Portuguese bank holding one’s securities fails? It is just like in the U.S. and the bank is only a custodian.

What did I decide to buy?

CompanySymbolWeight PSI-20Percent portfolio
J. MartinsJMT1325
EDPEDP1220
CorticeiraCOR417
NavigatorNVG610
AltriALTR410
IbersolIBS110
NovabaseNBA0.55
RamadaRAM0.33

The above is based on personal prejudice against banks (ruled out BCP), enthusiasm for Poland (overweight JMT), enthusiasm for electricity (overweight EDP; think of all the European douchebags needing to charge their Teslas!), belief that people are too lazy to cook and that table-service restaurants are unsustainable in a world of COVID-19 plus high labor costs (IBS).

Due to prejudice (observing the USPS!), I didn’t buy the post office, which is sad because they have great-looking trucks:

(2017 photo from the Azores)

Readers: Let me know if you need an introduction to attorneys and bankers over there.

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Should investors react to the change in Germany’s government?

by philg

After 16 years of rule by Angela Merkel and the Christian Democrats, the government in Germany is changing. I talked to some European bankers and a former hedge fund manager to find out what, if anything, investors should do about this.

The general consensus was that very little would change in Germany. As in the U.S., grand plans from a party can be derailed by an individual member of parliament who thinks that the grand plan will have a negative impact on his/her/zir/their own little corner of the country. For better or worse, this tends to make the German system stable.

Nobody said that Merkel would be missed. One banker pointed out that Merkel was likely voted out by the low-skill welfare-dependent migrants that she was instrumental in bringing to Germany (welfare in Germany is much less generous than in the U.S., but still leads to a better material lifestyle than trying to work for a living in a lot of countries). “They’re betting that the Social Democrats will increase the handouts,” he said. “The conservatives bring them in saying that they’ll work and they turn around and vote for liberals so that they don’t have to work.” (After five years in Germany, about 51 percent of migrants don’t work, which is considered an improvement and a success story by pro-migration Germans.)

Another banker said that Merkel was responsible for the UK leaving the EU. “The British could have just ignored the EU’s demands to accept migrants, as the Eastern European countries did, but they’re too bound up in being law-abiding,” he said. “The Eastern European countries just refuse and dare the EU to throw them out, but there isn’t really a mechanism for kicking a country out of the EU.”

The former hedge fund manager said that Merkel was an unprincipled follower of public opinion. While she initially told Germans that most would be infected with SARS-CoV-2 and therefore most resistance would be futile (e.g., masks and shutdowns would just slightly delay the inevitable), when people demanded lockdowns she locked them down.

How’s Europe doing? “Euro zone inflation hits highest level in 13 years as energy prices soar” (CNBC, October 1, 2021):

Headline inflation came in at 3.4% last month, according to preliminary data from Europe’s statistics office Eurostat. This was the highest level since September 2008 when inflation stood at 3.6%. It comes after German consumer prices rose by 4.1% in September — the highest level in almost 30 years.

The rise has been driven higher by surging energy prices, deepening concern among policymakers. The front-month gas price at the Dutch TTF hub, a European benchmark, has risen almost 400% since the start of the year.

What’s more, this record run in energy prices is not expected to end any time soon, with energy analysts warning market nervousness is likely to persist throughout winter.

France has become the latest country to step up measures to mitigate the costs for consumers. Prime Minister Jean Castex said Thursday the government would be blocking further natural gas price increases as well as rises in electricity tariffs. However, before these measures kick in, gas prices will rise by 12.6% for French consumers as of Friday.

I.e., France is copying Richard Nixon’s wage and price controls and hoping for a different result. (See also “Nixon Taught Us How Not to Fight Inflation” (WSJ): His price controls led to an exponential increase in demand, which caused a shock when they ended.)

I asked the hedge fund manager if the European inflation numbers were cooked like the U.S. numbers (e.g., food and energy costs are excluded from some measures, the cost of buying a house is excluded from all measures (the government comes up with a fictitious world in which people can rent their houses from themselves for a government-determined price)). “Completely fake of course,” he responded. “However, there is one reality of their own making. To ‘save the world’ (read: tax more) they recently yanked up taxes on natural gas and the such. Together with rising oil prices, this has created quite a bit of inflation as you can imagine.”

If the Europeans are inflating away the value of their currency just we are inflating away the value of ours, what is an investor to do? Move money to China, as BlackRock has recently started to do? That’s a bridge too far for a lot of non-Chinese investors. How about “Mining Stocks Offer a Cheap Play on Growth. Dig In.” (Barrons, September 17, 2021), in which we learn that iron and copper miners have P/E ratios of 5-7 (compare to over 30 for the S&P 500):

We have no idea where the euro and dollar will be after the politicians on both sides of the Atlantic are done with their manipulations of the respective economies. I’ve always hated gold as an investment because it isn’t productive. And, in fact, once you factor in dividends paid (“total return”), gold has underperformed U.S. stocks going back to the beginning of our galloping inflation (1971):

(black is the total return; silver is bumping along on the bottom; the S&P (without considering dividends), the Dow Jones, and gold are clustered in the middle)

Could mining iron and copper be considered a hybrid of gold’s inflation hedge and the return to be expected from investing in a productive activity? People will still need steel even if there is a lot of inflation in one or more currencies. On the third hand, aside from the low P/E ratio, why are raw materials miners better investments than upstream manufacturers? And if the P/E is 5 or 7, is that because a company is heavily indebted and can go bust (rather than simply slim down) in the event that demand is reduced?

Related:

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Best way to invest in Sweden?

by philg

As readers may have noticed, I’m a contrarian when it comes to COVID-19 (along with the 60,000 physicians and PhDs who’ve signed the Great Barrington Declaration). To me, the untested “experiment” is locking a country down and closing schools in hopes of winning a war against a respiratory virus. It is not an “experiment” to stay open, as Sweden did (and as the W.H.O. recommended through 2019), and continue to educate children, continue to go to work, continue to hit the gym, continue to socialize with friends and family, etc. I don’t think the U.S., for example, will be better off as a result of shutting down, closing schools, buying and wearing cloth masks that have been shown to be worthless, etc. I do think the Swedes will prosper in the long run due to superior mental health, a focus on something other than COVID-19, their kids having an extra year of in-person school compared to kids in U.S. cities, etc. I want to invest in Sweden with a 10-20-year horizon.

(Based on our devotion to the Vietnam and Afghanistan wars, we could still be fighting the COVID-19 war 10-20 years from now! Even if we aren’t, the misallocation of $trillions from the past 1.5 years, e.g., paying people to stay home for 1.5 years ($800 billion just from federal tax dollars), giving $3,600/year extra per child to successful child support plaintiffs, funding highway repairs in the least efficient states (the new “infrastructure” bill, which builds infrastructure everywhere other than in the states that actually need it due to growing population?), etc., will be a comparative drag on the U.S. economy.)

What’s the best way to invest in Sweden? My usual preference is for common stocks, but apparently a lot of these can’t be purchased in the U.S. There is an ETF that tracks the Swedish market: EWD from iShares. The dividend yield is medium (just under 3%), which I hope means that capital appreciation is expected. Somehow, 77 percent of the yield is classified as “qualified” (I’d thought that this was for U.S. stocks) and therefore subject to a lower federal tax rate (if the Democrats are successful with their latest federal tax increase, the result will be a dividend tax rate of about 50 percent for Californians (fed+state) and this will be on top of higher corporate taxes (i.e., something like 75% of a company’s profits that would have belonged to shareholders will instead go to pay taxes); things are a little less grim for residents of Florida).

The big negative of this iShares fund is a 0.51 percent management fee. They’re just trying to track the index, so it is unclear what you’re paying them for (how hard is it to buy and hold 53 stocks?). The fee for the Vanguard S&P 500 ETF is 0.03 percent, which is also the fee for the corresponding iShares S&P 500 ETF.

The big negative of Sweden as an investment, if you’ve been reading this blog, is that I don’t believe the prevailing American dogma that low-skill migrants make a country richer (if they did, Canada and European nations would be vying for and paying for the opportunity to fly low-skill migrants from our southern border to their respective countries). At 25 percent, Sweden has, I think, the highest percentage of immigrants or children of two immigrant parents, of any country in Europe. If these folks prefer not to work, that could be a drag on the Swedish economy (via welfare costs) for the next 100 years. See “‘New Swedes’ left out as economy powers through pandemic” (Reuters, March 17, 2021):

Sweden has powered through the COVID-19 crisis with an economy set to regain its pre-pandemic size by late-2021, but a surge in unemployment among its foreign-born citizens risks exacerbating social divisions for years to come.

Ajlan came to Sweden as a 17-year-old from Baghdad in 1993. Despite graduating with a degree in Middle Eastern Studies from Lund University – one of the country’s best schools – he only found work as a taxi driver.

A rigid labour market and a lack of low-skilled jobs means Sweden has been poor at integrating waves of immigrants, or “new Swedes”, since the 1970s – a social and economic divide that has been widened further.

Unemployment among foreign-born workers stood at 18% in the fourth quarter of last year, up 3.5 percentage points from a year earlier, according to Statistics Office data. For people born in Sweden, it was 4.1%, up just 1 percentage point.

Immigration has been running at high levels for the past two decades in Sweden, with a record 163,000 asylum seekers arriving in the country of 10 million in 2015.

The government has launched a raft of measures – some of which predate the pandemic – aimed at getting people into work, including subsidized employment, tax breaks for employers, on-the-job training schemes and its “knowledge-lift” programme that offers study opportunities for the unemployed.

In other words, the Swedes don’t have any better idea of what to do with low-skill migrants than we do. They’re on the same “provide free housing, free health care, free food, and then ask people nicely if they would like to work” plan (maybe the Swedes don’t offer an Obamaphone, but mobile phone service in Europe is much cheaper than in what we call our competitive market).

On the third hand, the U.S. and all of Europe are going to be packed with low-skill migrants for the foreseeable future. The only way to short the idea of a migrant-packed welfare state is to invest in Asian countries that are closed to low-skill immigration and that, in any case, don’t offer the multiple generations of free housing, health care, and food that the U.S. offers and that some European countries offer (albeit at a less generous level; see Hartz IV in Germany, of which 55 percent of the recipients are migrants or children of migrants: “According to the Federal Employment Agency … this was due to the migrants lacking either employable skills or knowledge of the language”).

Vaguely related… the Volvo-driving migrants arrive in Stockholm on the ferry from Finland (2016):

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