DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking:
(firmenpresse) - Silvia Quandt&Cie. AG, Merchant&Investment Banking / Forecast
02.06.2010 16:15
Dissemination of a Corporate News, transmitted by
DGAP - a company of EquityStory AG.
The issuer / publisher is solely responsible for the content of this announcement.
---------------------------------------------------------------------------
In-between the lines
1st June 2010
Silvia Quandt Research GmbH I Bernhard Eschweiler I
eschweiler(at)silviaquandt.de I +49 69 95 92 90 93 051I www.silviaquandt.de
Three lessons from Japan
Who's afraid of inflation?
ECB more likely to cut than to raise rates
Japan déjà-vu
Financial markets have not calmed since the announcement of the EUR750
billion European sovereign guaranty package. To the opposite, market
conditions have further deteriorated, spreading from Greek bond spreads to
all risky assets. Commodity prices have also fallen sharply and even bank
liquidity indicators are shifting from green to yellow (see LIBOR-OIS
spread). At the center of market concerns is the crisis in Europe, but
Chinese stimulus withdrawal and US financial sector reform are not helping.
Markets are pricing an increased risk of a double-dip recession in Europe
and perhaps beyond. Is this likely? Perhaps, but the cyclical rebound seems
too strong, especially in the emerging markets and the US, and Europe's
troubled sovereigns as well as the financial sector are for now protected
by the official safety net. The real risk is not recession but a prolonged
slump.
To better understand the dimensions and implications of Europe's adjustment
ahead, both markets and policymakers should study Japan's experience more
closely. The comparison is not perfect, but Japan's experience carries
three basic lessons:
First, Europe's looming fiscal and structural adjustment will not be over
within a few years, but take at least a generation. Japan has now been
bogged down for nearly twenty years and is still not out of the woods. This
means subpar growth and no inflation. In Japan, trend growth slipped from
4% to 1% and inflation dropped from 2% to zero. In Europe, growth and
inflation averaged both 2% before the crisis and may each drop to 1% or
less.
Second, policymakers should attack the problems head on and swiftly.
Japan's problems were undoubtedly made worse and prolonged by the
government's long inaction. The swift response to the financial crisis
shows that policymakers have learned something from Japan. Unfortunately,
they didn't read the full story. A key lesson from Japan is that refusing
to take the inevitable haircuts paralyses the whole system and makes the
adjustment longer and more costly. By guaranteeing the debt of Greece and
potentially other bankrupt governments, European policymakers are repeating
the same mistake. Moreover, cleaning up the fiscal act is not all. As in
Japan, Europe faces deeper structural problems that it needs to address,
particularly the poor competitive shape of the South.
Third, the pending fiscal consolidation, whether done swiftly or dragged
out, will become a huge drag on growth, threatening the political viability
of the whole adjustment. The only tool left to offset the fiscal drag is
monetary policy. In Japan, policymakers took too long to understand the
need for accommodative monetary policy. In fact, they tightened prematurely
before moving to the zerointerest-rate policy and quantitative easing.
Whether the ECB will learn from Japan's experience remainsto be seen.
To use a military analogy, this is not a short battle against speculators,
but a one-to-two decade-long war against fiscal prolificacy and structural
inertia. Indeed, cynics may welcome a recession, if it would force European
policymakers to take more decisive action.
Worry about taxes and not inflation
The build-up of large government debt has fueled inflationary concerns,
especially in Germany. The ECB announcement that it is buying government
debt did not help ease fears. Although long ago, memories of hyperinflation
post WWI, which was created by the monetization of government debt, are
still alive in Germany. But exactly because this memory is still so
present, the adjustment is likely to take a different path, namely through
higher taxes and not inflation.
What drove the German hyperinflation post WWI was the legal obligation of
the Reichsbank to exchange on demand government debt into bank notes. This
gave the government an incentive to increase debt and not save and forced
the Reichsbank to print ever more money (after a few years, the Reichsbank
held almost all government debt - see chart).
The ECB, in contrast, is under no obligation to buy government debt. The
decision to do so has been voluntary to ease market tensions. Moreover, the
operation is temporary and sterilized through reverse repos to withdraw
liquidity from the market. Most likely, the ECB will not fail the test and
prove that its anti-inflation stance and independence have not been
compromised. Still, some reputational damage has been done, made worse by
the poor positioning of ECB policy in the public.
So, if inflation is unlikely to do the trick and growth certainly neither,
Euro governments will be forced to save. This may get dragged out, but the
process has clearly started in the South, where governments have little
choice. Germany and much of the North are in better shape, but have to
consolidate their fiscal balances as well. Ideally, this should be done
through spending cuts and the removal of tax privileges. Political reality,
however, looks different. Thus, tax increases are set to come (see also
German fiscal adjustment: cold turkey versus piecemeal, Silvia Quandt
Research GmbH, 20.May 2010).
ECB to lean against fiscal drag
Going back to the Japanese experience, fiscal consolidation will be long
and depress both growth and inflation. Indeed, falling into a deflationary
spiral is the main risk. Good economic judgment and not political pressure
will compel the ECB to lean against the fiscal drag. As the Japanese case
has demonstrated, however, this requires a change in mindset, which may
take some time, especially as it may require a new policy approach.
Against this background, the next ECB rate move is more likely to be a rate
cut than a rate hike. With effective interest rates already close to zero,
cutting official rates further will be more symbolic for the direction of
monetary policy than have real impact. Real easing would mean quantitative
easing, which the ECB in contrast to the Fed and the BoE has so far
avoided. Indeed, this may mean buying more government debt. But if Japan is
a guide, this will probably not lead to inflation. Whether and how much
quantitative easing will be necessary remains open, but the ECB would do
well not to rule it out in advance.
Company disclosures
Article 34b of the German Securities Trading Act (Wertpapierhandelsgesetz)
in combination with the German regulation concerning the analysis of
financial instruments (Finanzanalyseverordnung) requires an enterprise
preparing a securities analysis to point out possible conflicts of interest
with respect to the company or companies that are the subject of the
analysis. A conflict of interest is presumed to exist, in particular, if an
enterprise preparing a security analysis:
(a) holds more than 5 % of the share capital of the company or companies
analysed;
(b) has lead managed or co-lead managed a public offering of the securities
of the company or companies in the previous 12 months;
(c) has provided investment banking services for the company or companies
analysed during the last 12 months for which a compensation has been or
will be paid;
(d) is serving as a liquidity provider for the company's securities by
issuing buy and sell orders;
(e) is party to an agreement with the company or companies that is the
subject of the analysis relating to the production of the recommendation;
(f) or the analyst covering the issue has other significant financial
interests with respect to the company or companies that are the subject of
this analysis, for example holding a seat on the company's boards.
In this respective analysis the following of the above-mentioned conflicts
of interests exist: none Silvia Quandt Research GmbH, Silvia Quandt&Cie.
AG, and its affiliated companies regularly hold shares of the analysed
company or companies in their trading portfolios. The views expressed in
this analysis reflect the personal views of the analyst about the subject
securities or issuers. No part of the analyst's compensation was, is or
will be directly or indirectly tied to the specific recommendations or
views expressed in this analysis. It has not been determined in advance
whether and at what intervals this report will be updated.
Equity Recommendation Definitions Silvia Quandt Research GmbH analysts rate
the shares of the companies they cover on an absolute basis using a 6 -
12-month target price. 'Buys' assume an upside of more than 20 % from the
current price during the following 6 - 12-months. These securities are
expected to out-perform their respective sector indices. Securities with an
expected under-performance to their respective sector index are rated
'avoids'. Securities where the current share price is within a 5 % range of
the sector performance are rated 'neutral'. Securities prices used in this
report are closing prices of the day before publication unless a different
date is stated. With regard to unlisted securities median market prices are
used based on various important broker sources (OTC-Market). Disclaimer
This publication has been prepared and published by Silvia Quandt Research
GmbH, a subsidiary of Silvia Quandt&Cie. AG. This publication is intended
solely for distribution to professional and business customers of Silvia
Quandt&Cie. AG. It is not intended to be distributed to private investors
or private customers. Any information in this report is based on data
obtained from publicly available information and sources considered to be
reliable, but no representations or guarantees
are made by Silvia Quandt Research GmbH with regard to the accuracy or
completeness of the data or information contained in this report. The
opinions and estimates contained herein constitute our best judgement at
this date and time, and are subject to change without notice. Prior to this
publication, the analysis has not been communicated to the analysed
companies and changed subsequently. This report is for information purposes
only; it is not intended to be and should not be
construed as a recommendation, offer or solicitation to acquire, or dispose
of, any of the securities mentioned in this report. In compliance with
statutory and regulatory provisions, Silvia Quandt&Cie. AG and Silvia
Quandt Research GmbH have set up effective organisational and
administrative arrangements to prevent and avoid possible conflicts of
interests in preparing and transmitting analyses. These include, in
particular, inhouse information barriers (Chinese walls). These information
barriers apply to any information which is not publicly available and to
which any of Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH or its
affiliates may have access from a business relationship with the issuer.
For statutory or contractual reasons, this information may not be used in
an analysis of the securities and is therefore not included in this report.
Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH, its affiliates
and/or clients may conduct or may have conducted
transactions for their own account or for the account of other parties with
respect to the securities mentioned in this report or related investments
before the recipient has received this report. Silvia Quandt&Cie. AG and
Silvia Quandt Research GmbH or its affiliates, its executives, managers and
employees may hold shares or positions, possibly even short sale positions,
in securities mentioned in this report or in related investments. Silvia
Quandt&Cie. AG in particular may provide banking
or other advisory services to interested parties. Neither Silvia Quandt
Research GmbH, Silvia Quandt&Cie. AG or its affiliates nor any of its
officers, shareholders or employees accept any liability for any direct or
consequential loss arising from any use of this publication or its
contents. Copyright and database rights protection exists in this
publication and it may not be reproduced, distributed or published by any
person for any purpose without the prior express consent of Silvia Quandt
Research GmbH. All rights reserved. Any investments referred to herein may
involve significant risk, are not necessarily available in all
jurisdictions, may be illiquid and may not be suitable for all investors.
The value of, or income from, any investments referred to herein may
fluctuate and/or be affected by changes in exchange rates.
Past performance is not indicative of future results. Investors should make
their own investment decisions without relying on this publication. Only
investors with sufficient knowledge and experience in financial matters to
evaluate the merits and risks should consider an investment in any issuer
or market discussed herein and other persons should not take any action on
the basis of this publication. Specific notices of possible conflicts of
interest with respect to issuers or securities forming the subject of this
report according to US or English law: None
This publication is issued in the United Kingdom only to persons described
in Articles 19, 47 and 49 of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2001 and is not intended to be distributed,
directly or indirectly, to any other class of persons (including private
investors). Neither this publication nor any copy of it may be taken or
transmitted into the United States of America or distributed, directly or
indirectly, in the United States of America.
Frankfurt am Main, 01.06.2010
02.06.2010 16:15 Ad hoc announcement, Financial News and Media Release distributed by DGAP. Medienarchiv atwww.dgap-medientreff.deandwww.dgap.de---------------------------------------------------------------------------
Bereitgestellt von Benutzer: EquityStory
" alt="Crocodile Gold Declares Commercial Production at Union Reefs Mill June 1, 2010 and Begins Portal Development at Cosmo Ahead of Schedule
Datum: 02.06.2010 - 16:15 Uhr
Sprache: Deutsch
News-ID 21875
Anzahl Zeichen: 0
contact information:
Kategorie:
Business News
Diese Pressemitteilung wurde bisher 284 mal aufgerufen.
Die Pressemitteilung mit dem Titel:
"DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking:"
steht unter der journalistisch-redaktionellen Verantwortung von
Silvia Quandt&Cie. AG, Merchant&Investment Banking (Nachricht senden)
Beachten Sie bitte die weiteren Informationen zum Haftungsauschluß (gemäß TMG - TeleMedianGesetz) und dem Datenschutz (gemäß der DSGVO).
