The Capitalist Share Holder
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Trading Features / Strategies from Simon Denham of Capital Spreads.
Talk of a Fed communication with the Nordic central banks on their state bailout of the banking sector in the mid nineties is the kind of rumour that had such a dire effect on HBOS. This one, though, is in the newspapers ‘so it must be true’! Unfortunately for the US, the Scandi countries are a minor player so the Nordic recession of the time did not influence the rest of the world and so, powered by external trends, the region was able to grow out of its problems. If the Fed is forced into a bailout of this scale the outlook will be far from such a rosy outlook. The US and European investment banks, for all of their demonising, are still the engine for investment growth for half of the planet. If we take away their entrepreneurial ability and shackle them with massive regulatory oversight who will take up the reins?
In the main, only banks and Investment Funds are willing to lend to build. Corporate’s will spend to increase their own potential (investment in plant etc) but are hardly likely to lend to a third person to build capacity.
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Whereas the German model of small to medium sized privately held companies will weather the current financial crisis very nicely thank you very much, it is essentially paternalistic and inward looking. Growth has been slow, steady and secure. Stories of profits of €25m twenty years ago and €50m now are common. Huge investments in research and development have kept them in the forefront of the technological space but at the expense of strong growth and with a serious exposure to a global slowdown. As was shown by the mild slow down of the early to mid nineties the economy was very slow to respond to the integration of East Germany and unemployment reached very high levels. If the world economy does contract, the strong balance sheets of many of these medium sized units will be swiftly eroded by the high cost of business in Germany.
The capitalist share holder requirements demand better growth patterns than this and whilst it may weaken companies in times of crisis it also creates far more growth and jobs in the wider economy. For all the bad press that the Private Equity funds have received over the past few years the fact remains that they have been the UK economy’s biggest creator of jobs for many years (if you exclude the Government). The desire to make money remains and will always remain a major human weakness/strength, the US model of unbridled capitalism may be under pressure at the moment but it holds within its ethos a better chance for recovery that a government inspired one.
The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
'The Capitalist Share Holder' edited by SD, updated 31-Mar-08
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