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Well, yeah actually Turkish, you smarta*se.
See, it's the German elections next month and the very future of the EU is at stake.
This time it really is different!
Are you hyped about German politics yet?
Nah, thought not.
But the election could matter to markets.
Perhaps more now than ever.
See, Germany basically finances the rest of the eurozone.
It's an over-simplification, but look at this chart and you instantly get the idea that Germany is a huge outlier...
What's going on?
We laid it out here before...
Germany are a net creditor to the rest of the zone.
For a single currency union to survive in a specific geographical area, there needs to be sufficient wage flexibility and labour mobility, sufficient price flexibility and capital mobility, a fiscal mechanism for redistributing resources from regions with trade surpluses to those with deficits, and for the different areas within the union to have broadly similar business cycles.
The reality is different.
Varied business cycles and inadequate labour and capital market flexibility within the Eurozone mean that systematic trade surpluses and deficits develop.
To deal with these trade imbalances, the more efficient economies in the Eurozone, such as Germany, need to recycle their trade surpluses back to deficit regions using fiscal transfers in order to keep the Eurozone economies in balance.
This is done via the Target2 mechanism, since there is no official method to redistribute these surpluses across the bloc (yes, a big failure in the design).
So we are left with the solution also being a problem.
To be able to rectify the issue, fiscal and political union would likely have to be enacted.
And that's the crux of it.
Fiscal and political union is still a (long) way off, but many saw the NextGenEU approval as a symbol of hope.
It's the first time any joint EU debt has been issued.
So, one of the key questions is whether Germany will want to repeat the trick...
Here are the important points (from a market perspective) for the German party manifestos (note the last line):
If NGEU is a one-off, what does that mean for the EU?
Continue muddling through.
If NGEU becomes a central fiscal capacity, will the German voters suddenly realise they're on the hook and rebel?
Taking a longer term perspective, what is the fate of the EU?
An ineffective gaggle, or a full union?
When the UK left the EU, everyone talked about the potential for a smaller nation to follow.
What if...? 👇
Polls are still ridiculously tight, so that's unlikely to be an immediate problem, but always worth bearing in mind.
From a market perspective any coalition that loosens the purse strings and is in favour of further union will be a good outcome.
Uncomfortable compromises or anything that heightens policy uncertainty, not so much.
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Making Hays while the sun shines...
I've got a bit of a soft spot for Hays.
I did some frankly excellent research on them back in May 2020.
I realised that all of the hype around WFH and the "this changes everything" coverage was probably accurate for once.
Slightly overexaggerated (the death of the office), but accurate in that it would change work dynamics.
Looking back to October 2008 Hays bottomed at 55. The share price then doubled in the following two years amidst the economic upheaval, hitting 132 by December 2010. Could we see the same thing happen again? It would certainly make sense.
Even if this relocation trend doesn't manifest fully, recruitment agencies will still be in demand as the economy reorganises. It leads me to think there’s good value here, with the potential for extra if we get the relocation catalyst adding fuel to the fire.
I would be looking for a return to the 135 area initially, and beyond there a return to the pre-covid-19 price in the 150-160 area before reassessing.
Let's see how it played out...
How did I know? Well I didn't. And to be honest, the timing was awful.
Six months later it was right back to the entry area. Could have put cash to far better use elsewhere...
Hays is beginning to shine agan, and today announced that they will resume dividend payments, citing a dramatic recovery in the global jobs market 👇👇👇
“Despite all the challenges presented by the pandemic we remained focused on our purpose, helped c.280,000 talented people find their next job and provided expertise, guidance and training to millions of others.
Overall, the strength of the recovery has been dramatic. We now see a clear route back to, and then exceeding, pre-pandemic levels of profit, faster than we envisaged even six months ago. With such confidence in our future, we are proposing to resume core and special dividends, paying a total of 10.15 pence per share to shareholders in November.”
One to keep an eye on. If the skills mismatches persist Hays is well placed to profit...
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R.I.P Ryanair? 👇
A British Airways spokesman said the airline was in talks with its union over the new subsidiary but that the company wasn’t able to comment further while the process continues. Successful union discussions are key to whether the airline moves forward with the plan.
I'm sure they'll be just fine.
What kind of madman would bet against this guy?