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  • German Wage: Creeping Optimism [View article]
    James - I call them as I see them. If there is any actual statistic on German GDP between 1991 and 2014 that measures 0.29%, it isn't nominal GDP and it isn't real GDP. It might be real per capital GDP if the German population is actually growing 1% a year over that stretch (which would seem to need immigration, since the domestic population is barely at replacement level). You saw some stat; I have my doubts that you are interpreting it correctly, is all. All the other sources put nominal GDP growth in Germany at 4% average over the longer period, and 3% over the shorter one. I know of no source that denies that the present German economy is $3.7 trillion and change. I sincerely doubt it was that large nominally in 1991 - it would have been bigger than Japan etc. Just doesn't pass the smell test, I'm afraid.
    Mar 5, 2015. 03:14 PM | 2 Likes Like |Link to Comment
  • German Wage: Creeping Optimism [View article]
    German GDP in 1991 was $1.867 trillion, so it has almost exactly doubled since then. That is a 3% average annual rate. You can just google "German GDP in 1991".

    If adjusted for prices, the move is more modest, but still isn't anything like the flat 0.29% you report. See -

    And change the first year to 1991. The move is from 510 billion to 685 billion in constant prices (1991), which is a 34% increase and 1.3% per year in real terms.

    I suspect you are just reading the position of the decimal point incorrectly, and your source is actually saying 2.9% (nominal) as an average annual rate with slightly different endpoints. Either that or it is also adjusting for more than prices in some manner or other (population too, perhaps?)
    Mar 5, 2015. 07:24 AM | 1 Like Like |Link to Comment
  • German Wage: Creeping Optimism [View article]
    James - German GDP in 1980 was $947 billion. German GDP now is $3.73 trillion. That is an increase of a factor of 4 and works out to 4% average annual growth over that 35 year stretch. Not 0.29%.
    Mar 3, 2015. 01:22 PM | 2 Likes Like |Link to Comment
  • German Wage: Creeping Optimism [View article]
    zonad -

    Scroll to the chart of real unit labor costs. Source OECD. Note this means they are adjusted for both prices and for productivity (the "unit" part).

    Yes German real unit labor costs fell modestly from 2003 to 2007. They grew after that, for a slight positive movement overall, since the Euro was created. It was other countries in Europe showing large increases in real unit labor costs - meaning their wages went up in real terms without productivity gains to match - that lead to their declining competitiveness, both compared to Germany and compared to the rest of the world, outside the EU. It was not unit labor costs in Germany outright falling over the full 15 year period.

    Germany is getting it right, net; the others went overboard on wage increases until their recent crises, which are (painfully) correcting that previous, unsustainable move. To truly cure their unemployment, they have to undo real wage gains that went so far beyond productivity increases. Otherwise the new jobs just get sited elsewhere. There has to be something in it for capital, or it just doesn't show up and play its part.
    Mar 3, 2015. 11:25 AM | 1 Like Like |Link to Comment
  • Bank Of America: An Overreaction Creates A Longer-Term Buying Opportunity [View article]
    kurioz - BAC is not the best run bank, or the best run large bank. (USB and JPM respectively, in my opinion). But then again, it is trading at tangible book value. Those others are not.

    YMMV, but that's the reason people are interested. It isn't as well run as those others, but the stock is objectively cheaper, as a result.
    Mar 3, 2015. 10:57 AM | 4 Likes Like |Link to Comment
  • Bank Of America: An Overreaction Creates A Longer-Term Buying Opportunity [View article]
    "significant increase in required in the CET1 will put pressure on the ROEs"

    Actually, it mostly just forces them to retain all of their earnings and leave the dividend low, around the 1.3% level it is now. The divisor "E" in its ROE will rise marginally, but not by enough to move the needle. You just won't get any of it back in dividends until they have enough in the till to satisfy the regulators. Then they can raise the dividend again. The capital news mostly just puts off the date of dividend increases by maybe a year.
    Mar 3, 2015. 10:55 AM | 2 Likes Like |Link to Comment
  • Bank Of America: An Overreaction Creates A Longer-Term Buying Opportunity [View article]
    Well it is at 1.03 times tangible book value right now, on a year of depressed earnings barely over breakeven. The consensus estimate for forward earnings this year would put its return on equity back up to 10% or so. If that happens - I admit it is an "if" and not a certainty - then buying one of the largest banks at tangible book, when it can earn 10% on its book value long term - is a indeed a bargain. We are in an environment in which 10 year corporates pay 3.25% and financial preferred stock pays 6%. If you actually get anything like 10% from common stock, long term, that's perfectly competitive.
    Mar 3, 2015. 10:51 AM | 3 Likes Like |Link to Comment
  • Bank Of America: An Overreaction Creates A Longer-Term Buying Opportunity [View article]
    Sure. He owns call options around a $7 strike price (effectively). He sure isn't selling them, though...
    Mar 3, 2015. 10:47 AM | 1 Like Like |Link to Comment
  • Bank Of America: An Overreaction Creates A Longer-Term Buying Opportunity [View article]
    Actually it is trading right around its net tangible assets - $169 billion market cap for the common vs $164 billion net tangible assets for the common. No you can't value it at its cash when the depositors have first call on that cash, not the shareholders.

    The real story here is that BAC has only about 2% return on equity over the past year but could have 10% return on equity in the forward year, without all the (seemingly endless) "extraordinary items" that have plagued it recently. Even the higher figure is no great shakes, but if it does see its earnings recover that much, the stock will probably rise modestly. They would need to get their return on assets back up to the 1% range - and thus return on equity into double digits - for the stock to fairly be worth a significant premium to its book value. That is certainly possible in 2-3 years, but they won't get all the way there in one.

    One man's opinion...
    Mar 3, 2015. 10:45 AM | 1 Like Like |Link to Comment
  • German Wage: Creeping Optimism [View article]
    zonad - "real unit labour costs on averege were falling in the last 15 years"

    This claim is simply false. The linked article shows the data series, and it has a net movement of plus 4-5% over that period, not any net move downward. The move up is so small that it is basically flat. That means that labor was gaining real wages as fast as productivity was increasing, but not faster.

    I can tell you that that is considered a technocratic optimal performance for that series. That is not a class interest statement, it is a sustainability of growth statement. Real wage gains entirely covered by productivity increases are real wage gains that can be permanently maintained without impairing national competitiveness, or "killing the golden goose", or driving capital elsewhere. It is exactly what one wants of that series, in a purely technocratic, grow the whole pie and maintain peace and concord, sense.

    The desire to instead see that series move upward is a desire for labor to increase its income share by expropriating capital. Which tends to deter investment, drive capital abroad, and in the long run cannot be sustained. It results in the sort of sharp checks to the series you can see in the case of Ireland - with associated high unemployment, lost input effort and thus completely avoidable dead losses, and falls in national income as those inevitable adjustments occur.
    Mar 3, 2015. 10:30 AM | 1 Like Like |Link to Comment
  • German Wage: Creeping Optimism [View article]
    I see the fluctuation toward the end of the period as cyclical - when unemployment was highest, the real unit cost series moves down slightly, when it is lowest, it rises somewhat. That reflects changing bargaining power, sure. But they are tiny changes compared to the massive institutional difference between the German series and the others.

    The other countries reveal what happens in true conflictual systems - wages skyrocket until they wreck the country's competitiveness, then they retrench - with high unemployment - as capital goes elsewhere and workers simply cannot get hired at all, in the now noncompetitive country. Those still employed and in unions that can enforce their high wage demands may do OK in that, but workers as a whole, the young especially, and the country as a whole, emphatically do not.

    The enlightened self interest of the parties are aligned, and can be realized mutually if they are realistic about where real wage gains come from and what is actually required to sustain them. When instead they just fight, they wreck things and cycle. Each has the power, objectively, to wreck the other side - labor by strikes, capital by shunning an noncompetitive country and just investing elsewhere. But either side being forced into the position where they use that power is purely destructive, compared to objectively measured cooperation right along.

    And yes, the rest of the countries in that chart can and should learn from and emulate Germany in the matter. Instead wishing that the Germans were as dumb as they are to level the playing field won't work. It will just ship net new jobs to Indonesia or wherever. Competitiveness is not optional.
    Mar 3, 2015. 09:24 AM | 2 Likes Like |Link to Comment
  • Missing The Anti-Inflation Central Bankers [View article]
    Markets are not infallible. Bubbles happen naturally. Central banks are not infallible either. Bad monetary policy can encourage bubbles and make them worse. There is no substitute for intelligent finance. When your central bankers are idiots, there is hell to pay. When your commercial bankers are idiots, there is hell to pay. When the investing public are idiots, there is hell to pay. When the government is run by idiots, there is hell to pay. Paying hell its entire earnings, however, is still cheaper than abolishing economic freedom, seeking a mythical "stability" that exists only in graveyards. It doesn't work and it destroys even more value in the long run than the entire parade of unforced human error.

    Straw men all around. Each pack of recurrent failures points at the next pack and says "he's worse than me". We aren't grading on a curve.
    Mar 3, 2015. 01:22 AM | 3 Likes Like |Link to Comment
  • German Wage: Creeping Optimism [View article]
    Marc - I refer you to this SA post and specifically to the chart showing real unit labor costs in various European countries since 1999, when the Euro formed.

    Note the lowest line on the chart is Germany. Note how there is virtually no net change in that series over a period of 16 years - the average change being under 0.3% per year. This doesn't happen because German wages never rise - they do, they are among the highest in Europe. It doesn't happen because the "real" part - prices - grow slower in Germany. It happens because German productivity rises, and it rises before wage increases are agreed between management and labor in Germany.

    That's the recent economic evidence. Beyond that, I can tell you that in the 1990s in poliitical science departments, comparative politics academics who studied Germany's institutions and practices in this area explained the economic and political strengths of the system, in a manner pretty convincing to me. The state basically referees labor and management in a three sides in the room way, and throws its weight against the side it thinks is making unreasonable demands.

    This is a technocrat process and bureaucratic, unlike the two sides with populist escalation through press or campaigns common in the US or UK labor traditions. Basically, if labor can show they have already delivered on productivity, and management doesn't agree to raise pay to match, government sides with labor. If labor asks for real wage increases well above productivity, government will generally back management if it resists.

    That is something of an idealization, of course, but the graph backs it up as a practical reality over the last 15 years. Labor may have marginally more bargaining power than typical right now, thanks to relatively low unemployment in Germany these days. But there is a deep institutional reason that German industry is dramatically more competitive than most of Europe. They have a better record of labor peace, objectivity, and fairness of sharing economic gains without hurting the incentives to produce those gains, than most of the world, let alone most of Europe. Frankly it is something they should be very proud of, and it really works.

    One man's assessment...
    Mar 2, 2015. 09:43 PM | 1 Like Like |Link to Comment
  • German Wage: Creeping Optimism [View article]
    "where employers keep the lion's share of productivity gains and increases in unit labor costs are fiercely resisted."

    There is a contradiction between the two clauses. The reality is Germany's corporatist model does resist increases in *unit* labor costs, but does so precisely by allowing *real* increases in wages *when and only when* productivity increases, to justify those wage increases. German workers share fully in actual productivity gains. They do not make wage demands that *exceed* achieved productivity gains. That is precisely what it means to avoid increases in *unit* labor costs, which is not the same as resisting increases in wages or in real wages.

    Rather than longing for real wage increases in Germany exceeding their productivity gains, other European countries - and even countries outside Europe - could learn a thing or two from that discipline. It aligns the interests of management and labor by letting both gain when the item that really matters - productivity - actually improves. And that is a big reason German productivity actually does improve, and improves by large amounts - while other countries don't focus on their actual productivity, and instead engage in endless political fights over income shares within an existing, tightly constrained "pie".

    Grow the pie. Share it fairly, sure, but first focus on what everyone at the table needs - for productivity to increase and grow what there is to share.
    Mar 2, 2015. 05:06 PM | 2 Likes Like |Link to Comment
  • It's A Bond! It's A Stock! It's... Preferred Stock (Part 2) [View article]
    Trust preferred is primarily a tax structure, designed to let the corporate issuer treat the issue as a debt and thus the interest expense for it as tax deductible, while the trust issues the preferred stock that the end investor actually owns, and he thus receives a dividend not interest, which can be more advantageous in tax terms on his end. But yes, this does mean there is a separate legal entity standing between you and the corporate issuer, which pretty much just owns the (typically, subordinated) debt the corporation issued while issuing the preferred series that you actually own. You don't have anything like "full faith and credit" of the underlying corporate issuer in that. If you have any independent reason to doubt the soundness of the underlying issuer, or the integrity of anyone involved, those are definitely reasons to stay away - from any fixed income investment, frankly, regardless of legal structure. But that tax treatment difference is the reason the structure exists in the first place. FWIW.
    Mar 2, 2015. 02:28 PM | 3 Likes Like |Link to Comment