“I will take ECB buying more debt for $200 Trebek!”
Yep, that’s the theme of 2019 – the ECB (European Central Bank) buying more debt to fuel a continent that refuses real reform.
Challenge: Name ten big tech companies in Europe. Send me an email if you can list five.
Europe has not created any real economic diversification over the last 30 years. That’s a strong statement, but for the most part, significant tech innovation remains in the USA or Asia.
This lack of significant innovation stems from a vastly different work culture. Don’t beat me up for saying that ‐ but it’s true! The USA has a culture embracing hard work. We crush Europe in GDP per hour worked.
One of the many reasons why we are more productive is the stark difference in days off per year. Below are the average work days off per country (statistics from OECD.org)
France, Sweden, Spain: 30 days off – this does not include the numerous national Holidays present in each nation.
Germany: 28
Italy/ Greece: 365 ...Haha.
Do not mistake this for a rail against the Euro Lifestyle ‐ numerous driven and hardworking companies are filled with creative and steadfast individuals. For example, the new BMW 3 series can go out of a parking garage in the automotive industry. Despite the particular example, the perception of work, productivity, and a lack of innovation due to mandatory lifestyle laws has created a monster of stagnation.
The only reason the continent has not imploded from socialism yet is because the ECB continues to find ways to stimulate the financial markets‐ forcing capital into their system.
Harkening back to the first sentence in this email, Draghi, the ECB chair, decided yesterday to start net debt purchases at $20 billion a month to help force capital into areas across Europe.
The ECB’s goal, per Draghi’s statement, is to help preserve favorable bank lending conditions and ensure smooth monetary policy to help lower the average interest rate across Europe.
Major sigh…Oh, Draghi, how much more can you print and buyback?
When I wrote this (9/12/19) at 10:00 am on Bloomberg.com, German bond yields were ‐.77% for two years, tapering higher to 0% interest for a 30-year bond.
I am going to stop here because I don’t understand the mechanics of how a European bank buys back bonds, that don’t even pay interest to begin with.
This is just another chapter in the European saga. They need fundamental reform to make it work. Financial engineering doesn't pay off.
That’s it! Cheers Chris
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