posted 06-16-99 10:39 AM ET        

An observation. Today in the WSJ's earnings digest, 27/38 companies reporting earnings yesterday showed an increase in earnings. This seems to indicate that earnings growth hasn't abated, despite a tight labor market (what the aggregate numbers tell us). I wonder how the 1.5% jump in interest rates will affect these earnings during the rest of the year.

posted 06-16-99 11:40 AM ET            

It's sabotage, I tell you, sabotage!

Btw, Roland probably would have titled the thread "Economics and Securities," but I suppose I'm quicker on the new topic trigger.

Yes, that's really bad... How dare you ?

An observation. Today in the WSJ's earnings digest, 27/38 companies reporting earnings yesterday showed an increase in earnings. This seems to indicate that earnings growth hasn't abated, despite a tight labor market (what the aggregate numbers tell us). I wonder how the 1.5% jump in interest rates will affect these earnings during the rest of the year.

There's a couple of caveats:

1. Did they also have a weighted average of earnings growth ?
2. As the tight labor markets have only lead to rather low wage increases, this isn't a big surprise.
3. Regarading interest rates: I don't know, but I'd guesss it takes a while for that increase to cut into earnings. Also: was the earnings growth quarterly ? If it was over the year, Q1 1999 to Q1 1998, there shouldn't be much difference in the rate levels. If we consider a certain delay in the effect, those figures might more reflect interest rates from Q4 1998 to Q4 1997, which should help earnings.

Not that I wouldn't like to see higher earnings... also, really good CPI news...

DC volume on the NYSE is running about 1-1.5 million shares.

I've seen a broad range from 0,4 to 1,5 million in New York, but the 0,4 was a blip to the downside. Frankfurt is constantly somewhere around the 2,5-3 million range, including XETRA trade. Is DC traded electronically in... ehm... instanet, or whatever it is called ?

Also on automobiles, I noted the strong surge of car sales in Europe this quarter (some 7% annualized).

Also rather good Q1 data for Euroland, especially in the underlying figures.

And a funny thing about VW: Tuesday saw the announcement of VW being included into the eurostoxx50 selection list. Volume monday: 770.000; volume tuesday: 3,3 million, up about 5 %. I think you're right about the destorting power of indices...

posted 06-16-99 11:40 AM ET            

It's sabotage, I tell you, sabotage!

Btw, Roland probably would have titled the thread "Economics and Securities," but I suppose I'm quicker on the new topic trigger.

Yes, that's really bad... How dare you ?

An observation. Today in the WSJ's earnings digest, 27/38 companies reporting earnings yesterday showed an increase in earnings. This seems to indicate that earnings growth hasn't abated, despite a tight labor market (what the aggregate numbers tell us). I wonder how the 1.5% jump in interest rates will affect these earnings during the rest of the year.

There's a couple of caveats:

1. Did they also have a weighted average of earnings growth ?
2. As the tight labor markets have only lead to rather low wage increases, this isn't a big surprise.
3. Regarading interest rates: I don't know, but I'd guesss it takes a while for that increase to cut into earnings. Also: was the earnings growth quarterly ? If it was over the year, Q1 1999 to Q1 1998, there shouldn't be much difference in the rate levels. If we consider a certain delay in the effect, those figures might more reflect interest rates from Q4 1998 to Q4 1997, which should help earnings.

Not that I wouldn't like to see higher earnings... also, really good CPI news...

DC volume on the NYSE is running about 1-1.5 million shares.

I've seen a broad range from 0,4 to 1,5 million in New York, but the 0,4 was a blip to the downside. Frankfurt is constantly somewhere around the 2,5-3 million range, including XETRA trade. Is DC traded electronically in... ehm... instanet, or whatever it is called ?

Also on automobiles, I noted the strong surge of car sales in Europe this quarter (some 7% annualized).

Also rather good Q1 data for Euroland, especially in the underlying figures.

And a funny thing about VW: Tuesday saw the announcement of VW being included into the eurostoxx50 selection list. Volume monday: 770.000; volume tuesday: 3,3 million, up about 5 %. I think you're right about the destorting power of indices...

posted 06-16-99 12:29 PM ET            

The earnings figures were year-over-year '98 Q2 - '99 Q1 v. '97 Q2 - '98 Q1, IIRC.

Re Instanet: I'll see if I can find the volumes for Instanet. I'm sure DC is traded there, I just haven't taken a look at it much (other than passing curiosity).

"I think you're right about the destorting power of indices..."

posted 06-17-99 02:58 AM ET            

So they should include the low-interest-rate phase of late 1998.

Re Instanet: I'll see if I can find the volumes for Instanet. I'm sure DC is traded there, I just haven't taken a look at it much (other than passing curiosity).

I don't even know what it is. Is it part of the NYSE ? Anything to do with NASDAQ/AMEX ?

Or we could just mark it up to the invisible hand of the market... Nah, I don't believe that...

Saaaaaaaarraaaaas!!!!

btw, where is he ?

It was the "special option" I chose when I posted the topic. Whenever an argument doesn't go my way... POOF!!!

So, you are the Pernicious Post Poofer, then ?

posted 06-17-99 03:44 AM ET            

I'm here. Yesterday was my final FINAL exam in IT, Marketing and Accounting (well, that's three exams, but all in 2 hours' time...). So my vacation from the forums is over.

I already know I got 10 for Accounting and 9 for IT. Marketing comes in today. I got raving drunk last night.

I get my Bachelors diploma on the 24th of June! My birthday is on 22nd! Long live the heavy drinks industry of Lithuania!!! Buy some calls on AB Vilniaus degtine (vodka makers )!!!

Serious:

There is an invisible hand in the market. It sometimes waits a little, but it ALWAYS shows itself. When I looked at the figures of some hight tech IPO's on FT.COM, I was stunned by the crap Americans can be persuaded into buying. 25 mil revenue, 9 mil loss. Gawd! These sh.its are begging for a correction. Crash and burn, baby. Thin air cannot and should not be traded on stock exchanges.

posted 06-17-99 05:06 AM ET            

There is an invisible hand in the market. It sometimes waits a little, but it ALWAYS shows itself. When I looked at the figures of some hight tech IPO's on FT.COM, I was stunned by the crap Americans can be persuaded into buying. 25 mil revenue, 9 mil loss. Gawd! These sh.its are begging for a correction. Crash and burn, baby. Thin air cannot and should not be traded on stock exchanges.

posted 06-17-99 05:21 AM ET            

"Congrats, Saras! What's next ? Master degree or work ?"

Wife 1.0 and Life 3.5i V6...

I think I'll wait with my master. Maybe earn a buck or two (or get one of those scholarships) and go to some fancy MBA school in US or Insead.

posted 06-17-99 06:16 AM ET            

Just kidding... would have been very surprised if you wanted a rule there.

...but not all of them, for Chrissake.

Of course not - just who but the markets should figure out which will make it ?

BTW: what's "Insead" ?

"Markets are efficient in the long run" - Saras
"In the long run we are all dead" - John Maynard Keynes

"Successful prophets are those who make their prophecies after things have happened" - Churchill ?

posted 06-17-99 06:55 AM ET            

just who but the markets should figure out which will make it ?

posted 06-17-99 08:49 AM ET            

No woman, no cry ?

posted 06-17-99 10:11 AM ET            

If I don't mess up the anglosaxon accounting standards and terms:

A company which has to invest massively in its assets and may have big write-offs, eg to keep up with new tech, could have a huge cash flow, but little earnings - and it would be likely to stay that way. The significance of cash flow depends a lot upon the respective sector.

A company which is in an expansion phase may have low earnings now, but a big cash flow will translate into earnings after that phase.

posted 06-17-99 09:42 PM ET            

You might be experience a period of... ummm... negative cashflow once Wife 1.0 is installed. From what I have heard, Wife 1.0 has a related internet bot that automates the credit card purchasing process.

"Does money from a spin-off count as cash flow, or is it only the cash flow from other business activity (called "gew�hnliche Gesch�ftst�tigkeit" here, something like "usual business activity")?"

I don't know all of the ins-and-outs of spin-off recognition. I will see what I can find tomorrow on this. At any rate, IIRC most spin-offs can still be accomplished tax-free to both corporation and individual. There was some talk a couple of years ago about closing this loophole.

"By no earnings - no buy I mean that I am sceptical about "stories" of future growth if I am not an expert in their field of business."

Quite so, and especially with the internet, since it changes at a breathtaking pace. No way of knowing if company X will make a killing or will die a painful death 3 months from now. If you're looking at fundamentals, internet stocks are not the place to be.

However, the assumption is that the internet will cause enormous change in the way business is done. Somebody is going to make a god-awful boatload of money. Amazon is an example of a business that isn't showing much in the way of earnings, but look out even 2 years and you find the company romping in the fields of the land of milk and honey. Sales growth at ~300% a year. Also, US internet advertising surpassed outdoor advertising. Roughly $2 Billion last year.

But I agree with you. Even if you know the business, it's not a place for fundamental or buy-and-hold investors. We still don't know if it's a good business to be in or whether it will end up like memory manufacturing--a vast DRAM wasteland.

"The EuroStoxx50 has set a new closing high at 3.806,55. I think I can afford a beer or two now..."

You mean you couldn't before this? Austrians must not have discovered the future technology "Class Action Lawsuit" yet.

posted 06-17-99 09:57 PM ET            

Believe me, the potential markets and cost/scale benefits on some of these small $25 million companies make the purchases tempting.

posted 06-18-99 04:40 AM ET            

The question is just: is it so much ahead of the competition, and will it still be in two years, and for the years to come after the break-even (does it have earnings now at all ?) that it can have the margins needed to get the earnings to justify the current evaluation... (now that's a lot of a sentence... )

You mean you couldn't before this?

It's a lot easier with the wealth effect..

Austrians must not have discovered the future technology "Class Action Lawsuit" yet.

And ridiculous tort claims, ridiculous damages and punitive damages... there was a study claiming that the costs of the US legal system are 4-6 times the percentage of GDP of what they are in Europe... not good for me...

In a way, these prices may be self-fulfilling promotions and a huge boon to the American economy. Before anybody knows there's a game on, we've already taken the ball and locked it in a safe.

posted 06-18-99 04:41 AM ET            

[RANT]

Cashflow from operations =
+ net profit
+ add back depreciation (it is a non-cash expense)
-/+ cash used/extracted from working capital
+ add back provision expenses (it�s non cash, too)
+ add back interest expenses (optional; depends on what are you going to use the cashflow analysis for)
+ net borrowing (also optional)

This is the raw amount of cash your business produces. You can now use it to:

- Pay shareholders (lenders) dividends (interest)/buy back shares (repay loans)
- Invest in equipment
- Acquisitions, takeovers

The decisions on what to do depend on what would be the best to use of the cash. If the IRR (internal rate of return) on new investments (acquisitions) is lower than the company�s WACC (weighted average cost of capital), you should be returning money to shareholders.

On making the assumption that the managers will not go destroying value in unprofitable projects and that the firm will live indefinitely, we can determine the fair value of business by discounting the cashflows to firm (cashlow from operations) far into forever; to get the fair value of equity you should subtract debt from the amount you got afer discounting.

It us true that in the long run profit ~ cashflow. But as Mr. Keynes once said...

posted 06-18-99 07:10 AM ET            

You wrote:

posted 06-18-99 08:40 AM ET            

Back to the cashflow:

So, net profit=

Cashflow
- back depreciation
-/+ cash used/extracted from working capital
- back provision expenses (it�s non cash, too)
- back interest expenses (optional; depends on what are you going to use the cashflow analysis for)
- net borrowing (also optional)

It's easier for me to look at it this way...

Of course, earnings can be manipulated, but the problem I see with cashflow is:

posted 06-18-99 09:08 AM ET            

Let's assume that Amazon starts making big profits. Why shouldn't somebody else immediately jump into the marketplace and start undercutting their prices, taking a slightly lower profit, but still making much better profits than any other investment? Why shouldn't a hundred companies do so? All they have to do is take out banner ads all across the web (just like Amazon) and they're in business.

posted 06-18-99 09:31 AM ET            

"It's easier for me to look at it this way..."

It shouldn't be. Profit is opinion, cashflow is fact. We are talking about comparing actual performance, not differences in cashFlow between sectors. It is a proven fact (although I can't give you an online source, my textbooks and some research material of one London merchant bank say so. It must be true then, right? Right?) that cashflow is a better representative of actual performance and returns to capital providers. Net profit is just a component (sometimes a rather small one, but most of time the biggest, hence the confusion).

"Businesses in sectors with higher depreciations (capital intensive and/or fast technological development) will have a higher cashflow to pay for it so that they can still yield "normal" net profit per unit of capital"

I made a mistake - in valuing the company, you have to subtract capital expenditure from operating cashflow. In a perfect world (=efficient market) CapEx=Depreciation, but since most businesses are somewhat cyclical, there are times when companies return cash to shareholders (CapExDepreciation). I hope this answers your question; plus companies have to plan ahead, so if they really think their sector sucks, they don't do any CapEx and buy back shares, then liquidate happily. Cashflow depends solely on the company's ability to earn money. Depreciation is not "earned", it is just subtracted from profits (and cuts taxes!!!), plus when you restore the depreciated value of assets (you have to have some assets to run a business, don't you?) you spend money. Plus it also depends on the cycle the company is in -

================

startup, VERY negative CF due to heavy CapEx

fast growth, CF positive, but small, Capex > depreciation

mature, CF rich, capex=depreciation (I love these...)

declining, CF mostly ok, but falling due to falling profit margins, capex============================

So the answer to your question is - if you are in a business, you price your goods so that they cover your direct costs (0 profit), capital costs (0 profit + return on invested capital) and allow you to maintain a desired rate of growth (0 profit + return on invested capital + planned capex). If you can't get that price, close down with as little pain as possible or "restructure" (=fire lots of people - would mean something close to a civil war if done in France...)

"While p/e ratios also differ from sector to sector, the same applies to an even bigger extent for price/cash flow."

This is new. Can you give a link? It might be that they are using some other kind of cashflow... There's free cashflow to firm, to equity, operating and what have you. They might not include CapEx.

posted 06-18-99 09:35 AM ET            

"It's easier for me to look at it this way..."

It shouldn't be. Profit is opinion, cashflow is fact. We are talking about comparing actual performance, not differences in cashFlow between sectors. It is a proven fact (although I can't give you an online source, my textbooks and some research material of one London merchant bank say so. It must be true then, right? Right?) that cashflow is a better representative of actual performance and returns to capital providers. Net profit is just a component (sometimes a rather small one, but most of time the biggest, hence the confusion).

"Businesses in sectors with higher depreciations (capital intensive and/or fast technological development) will have a higher cashflow to pay for it so that they can still yield "normal" net profit per unit of capital"

I made a mistake - in valuing the company, you have to subtract capital expenditure from operating cashflow. In a perfect world (=efficient market) CapEx=Depreciation, but since most businesses are somewhat cyclical, there are times when companies return cash to shareholders (CapExDepreciation). I hope this answers your question; plus companies have to plan ahead, so if they really think their sector sucks, they don't do any CapEx and buy back shares, then liquidate happily. Cashflow depends solely on the company's ability to earn money. Depreciation is not "earned", it is just subtracted from profits (and cuts taxes!!!), plus when you restore the depreciated value of assets (you have to have some assets to run a business, don't you?) you spend money. Plus it also depends on the cycle the company is in -

================

startup, VERY negative CF due to heavy CapEx

fast growth, CF positive, but small, Capex > depreciation

mature, CF rich, capex=depreciation (I love these...)

declining, CF mostly ok, but falling due to falling profit margins, capex < depreciation, maybe even capex<0 (asset sales).

So the answer to your question is - if you are in a business, you price your goods so that they cover your direct costs (0 profit), capital costs (0 profit + return on invested capital) and allow you to maintain a desired rate of growth (0 profit + return on invested capital + planned capex). If you can't get that price, close down with as little pain as possible or "restructure" (=fire lots of people - would mean something close to a civil war if done in France...)

"While p/e ratios also differ from sector to sector, the same applies to an even bigger extent for price/cash flow."

This is new. Can you give a link? It might be that they are using some other kind of cashflow... There's free cashflow to firm, to equity, operating and what have you. They might not include CapEx.

Saras
Damn, I graduated - why do I go through all this?

posted 06-18-99 10:24 AM ET            

I would agree with your assessments, Saras. Only I would point out that there are some distorting effects on cashflow when you start talking mergers and goodwill, for instance (not to be confused with a pooling of interests, which have been all the rage for quite some time here in the US). But all things being equal (which they are, on average), modified discounted cash flow is a good gauge of performance for mature companies.

Start-up companies are a whole other kettle of fish. Here you really have to look at (1) the potential market, (2) how quickly the company will penetrate the market, (3) how much cash is on hand, and (4) what the run rate is, in that order.

posted 06-18-99 10:38 AM ET            

Free capital is really a good thing and a whole other kettle of fish.

Just who decides which companies have to earn their existence and which don't? I mean, there are methods of evaluation different *cosmetically* from DCF (for startups you might use option pricing models), but you have to HAVE *SOME* CASHFLOW in some 15 years, at least, and secured financing for the potential hard landings before you actually hit the jackpot. In other words, "do not try to cover up bad business with buzzwords. Show me cash and make me believe." That's what I'd be saying to those sweet tongued Goldman Sachses if I were a fund manager.

posted 06-18-99 11:16 AM ET            

Ehmmmm...Do I have the right to remain silent or something?

As long as you pay, you have every right to remain silent.. or stat singing.. or whatever...

"It's easier for me to look at it this way..."

It shouldn't be. Profit is opinion, cashflow is fact.

Just as a matter of counting down from cashflow, rather than counting up from profits. In my accounting book, cashflow comes before net profit, and I know so little about accounting that I have to rely on those little things...

It is a proven fact .... that cashflow is a better representative of actual performance and returns to capital providers....

Though I don't know how to prove those things, I share that opinion. Just that I consider cashflow to be a better, yet still a rather unreliable indicator.

I made a mistake - in valuing the company, you have to subtract capital expenditure from operating cashflow....

In that case, I rest my main objection...

(=fire lots of people - would mean something close to a civil war if done in France...)

I'm always wondering what people have against the French ?

"While p/e ratios also differ from sector to sector, the same applies to an even bigger extent for price/cash flow."

This is new. Can you give a link? It might be that they are using some other kind of cashflow...

The p/e ratios of automakers are about 10-13 over time, in sectors with big growth they are higher. (Not that I think you don't know it, but it seems you misunderstood me there). The same applies for cash flow, and would apply more if we wouldn't correct for CapEx (love that abbrev ).

Damn, I graduated - why do I go through all this?

How on earth should I know ?

Dan:

In any event, Instinet is a private network that allows for after-hour trades and big block moves.

Knew the after-hour thing, but that they are not associated with NYSE is a surprise to me... I thought it was a first attempt of NYSE to get to electronic trading, but I never cared...
BTW, the 8 european bourses are making some progress in getting together. Seems they struck a deal on harmonised trading hours. Our Vienna Stock exchange (with probably less volume than its Lithuanian counterpart) is adopting XETRA. Will be interesting how this plays out...

posted 06-18-99 11:19 AM ET            

Agreed about the buzzwords. You weren't talking about my posts, though, were you?

posted 06-18-99 11:34 AM ET            

No (trying to be nice )

"Our Vienna Stock exchange (with probably less volume than its Lithuanian counterpart)"

Are you trying to mock me? If so, that was BAAAD

The pathetic Vilnius Stock Exchange

"I'm always wondering what people have against the French ?"

They have socialism in their genes. But they make good wine (damn expensive!); and crappy cars. And they "fight wars with their feet and make love with their face". God, what a bigot have I become!

"Just that I consider cashflow to be a better, yet still a rather unreliable indicator."

Show me a better one (not the crystal ball) If you have a lying CFO, nothing will help. Wait, an indicator of what?

"As long as you pay, you have every right to remain silent.. or stat singing.. or whatever..."

posted 06-18-99 12:00 PM ET            

"Should" as in "justified", or "should" as in "I'm looking for a damn cheap buy" ?

The frogs are evil, evil beings. I wish there was a Frenchman to kick around. Now French women...

Strange... how many Frenchmen have you met in your life ?

"Our Vienna Stock exchange (with probably less volume than its Lithuanian counterpart)"

Are you trying to mock me? If so, that was BAAAD

No, our stock market is so pathetic, that I wouldn't be surprised if that were the case, though it's rather unlikely. I've got the URL somewhere, but it's not worth posting.

They have socialism in their genes.

No, no, no! Repeat after me:

SOCIALISM IS A SOCIAL DESEASE!
SOCIALISM CAN BE CURED!!!
SOCIALISM IS A SOCIAL DESEASE!
SOCIALISM CAN BE CURED!!!
SOCIALISM IS A SOCIAL DESEASE!
SOCIALISM CAN BE CURED!!!
Etc...

But they make good wine (damn expensive!); and crappy cars.

Crappy cars ? No, that's long time gone...

Show me a better one (not the crystal ball) If you have a lying CFO, nothing will help. Wait, an indicator of what?

An indicator of hot air in share prices ? Uhmm... Legal reply: "Keep a close look at all indicators and base your decisions on a combination of those." Translation: "Blah"...

Sh1t, my mom always said - never invoice a lawyer...

That's what you get from not listening to your mom!
Hey, I just got an unjustified invoice from another lawyer... this could be fun!

Ok, I'm gone for the weekend. Last thing:

RBR (Roland's Beer Report):

EuroStoxx50 at 3.823,25, up 0,44 % - after intra day high of 3.854,90. Sigh... I had hoped I could afford _two_ beers today...

posted 06-21-99 05:37 AM ET            

Really, 3 or 4 ? That's extremely low... why ?

Yeh, French wine is damn expensive. For me, I normally drink a good, young Alsacian Riesling or Gewurtzraminer. Lucien Albrecht, $12-14/bottle.

Riesling and Gew�rztraminer from the Alsace area ? Ever tried Riesling from the Mosel area, or Gew�rztraminer from southern Tyrol ? They can be of the same quality, but should be a lot cheaper...

I prefer red wine, like those from northern spain (Rioja, Navarra) - about E 4 /bottle. (Yes, I have an inexpensive taste... )

Back to business: Frankfurt had a funny close Friday, with the XETRA Dax down 2-2,5 % (to 5337) in the last ten minutes. First I had thought it's an error, but now they are looking for explanations. Anyway, it's back to 5485, and the CITI-DAX has been at 5440 something throughout the weekend... strange.

posted 06-21-99 09:47 AM ET            

Another excellent alternative is a New Zealand Riesling. Slightly fruitier than Alsacian Rieslings, but most often a much better buy.

I would like your recommendation on a red wine for combination with pot roast w/potatoes and carrots. I probably have access to many of the more common wines, but if you would be so kind as to include 2 or 3 just in case, I would be most grateful.

"Really, 3 or 4 ? That's extremely low... why?"

Growth prospects were negative. Maybe 3 is a bit low, but anything above a 6 or 7 needs serious justification.

"With options expiring, Friday volume has been extremely high (DCX: almost 14 million)."

posted 06-21-99 10:29 AM ET            

From what I've tasted, the Rieslings from points south of Alsace are especially fruity. I much prefer a drier wine.

Hmm... then maybe "Rheingau" or maybe "Rheinhessen". Some of them can go pretty low on alcohol (but that's more for Mosel area, IIRC - below 10 %... doesn't hurt them).

Another excellent alternative is a New Zealand Riesling. Slightly fruitier than Alsacian Rieslings, but most often a much better buy.

As I don't mind fruity, a chilenean or south african sauvignon blanc is a good idea for me...

I would like your recommendation on a red wine for combination with pot roast w/potatoes and carrots.

Thanks for way overestimating my knoweldge on wine... ehm.. "pot roast" ? Please sepcify...

Business:

Growth prospects were negative. Maybe 3 is a bit low, but anything above a 6 or 7 needs serious justification.

DC's target is 10% growth, so if they can meet that, anything in the 10 region doesn't look too bad.

Weird stuff always goes on.

posted 06-21-99 11:16 AM ET            

So it's more cooked... as I guess its taste is not too intense, I'd say a heavy red wine (like the spanish ones) doesn't go too well with it; it might kill the flavour "personality" of the meat.

Then, I'm not a fan of lighter red wines. Maybe a more "northern" Cabernet Sauvignon... if you can find it, Suedost-Steiermark (Austria) 1997...
Though it might violate some rules (which I ignore all the time with regard to wine), a ros� might be a possible compromise as well.... ok, I'll think about it. I have to find out what our version of that "pot roast" is...

I seriously doubt they can grow revenues at 10% over the long run if they stick to their core business.

posted 06-21-99 01:01 PM ET            

If you include development, esp platform development, into those "central functions", that's a pretty good advantage. This will take time, but hey, it's over 10 years...

posted 06-22-99 06:14 AM ET            

For the US market, not for Europe; this would be overall neutral for DC, I guess...

Anyway, the original point of the debate was: International, European/German or American company.

I still say International, predominantly European.

What were the Pro-American arguments?
1. Accounting standards - granted, but that's not unusual for international companies
2. Volume - From the figures I'm getting this looks very much like going to Frankfurt
3. Anything else ?

posted 06-22-99 05:29 PM ET            

Especially if they keep DASA, the growth rate is way too ambitious. Look at the problems Lockheed-Martin is having, for instance. The aerospace business sucks, mainly because there hasn't been a huge build-up in military hardware. In any event, I remember the old rule-of-thumb that P/E should equal revenue growth. A resonable P/E might be slightly higher in Europe due to lower borrowing costs, etc. (and therefore lower bond yields as an alternative).

"this would be overall neutral for DC, I guess"

The Chrysler half may have obtained a better deal because of it (I don't know, I never really examined the offering documents). We'll have to see what the P/E settles into for the combined entity.

"Anyway, the original point of the debate was: International, European/German or American company."

You didn't list one that I originally thought was in the American column. Ownership. You might cite the current ownership structure as irrefutable proof of a German-leaning institution. I'm still convinced it's at least partially temporary.

Certainly it will be an international company, but I will hold out for more indications of a German or American tilt.

posted 06-23-99 03:29 AM ET            

A fund manager asked about DC's performance said that the stock price is still below its highs as US institutions are still selling. And I can't see a reversal: US international funds don't have the volume; on the other hand, DC is still predominantly german, but it's a domestic stock for the Eurozone where europewide funds are growing fast, so I'd rather expect other EMU countries piling up rather than the US.

Certainly it will be an international company, but I will hold out for more indications of a German or American tilt.

In favor of german/european:

- Current ownership
- Legal foundation
- Euro as company currency
- Exchange volumes a lot stronger in Frankfurt

In favor of US:

- GAAP (see below)
- English as internal language

Both are more indicators of internationality....

Re European usage of GAAP... This might not be atypical now, but only a couple of years ago it was atypical. I assume this is to appease American investors and at least speaks to the overall American influence on a company, DC included.

Not really... if they wanted US investors so much, they wouldn't have risked being expelled from the US indices by making it an "AG" under german law...

The only other alternative reasoning would be that GAAP is better than the existing European standards. I suspect you might have some arguments with that.

Getting closer. It is better as compared to the _different_ national standards. GAAP is known internationally as the US accounts for maybe 40-50 % of world market cap with a lot of international investment, so it's the natural choice for an internationally operating company.

posted 06-23-99 10:34 AM ET            

"That's my bike, give it back!"
"No, it's mine! If you try to take it, I'll call my mom!"
"Waaaaahh!"

posted 06-23-99 11:18 AM ET            

Do I see another peeing contest developing?

"That's my bike, give it back!"
"No, it's mine! If you try to take it, I'll call my mom!"
"Waaaaahh!"

But when it _IS_ my bike !?!? Ah, let me enjoy this little US vs Europe thing...

Can you AGREE to a plain fact that it is the FIRST (perhaps the only) truly global stock? Its documentation is rigged so that it can be traded almost everywhere (IIRC).

First truly ? Hmm...

Rigged ? In which way ?

Dan:

German/European tilt, though, we still need to wait to make any conclusions (or at least I do). These things take quite a bit of time, as is evident by U.S. domestic funds still winding down their positions.

Oh well... how long do we ave to wait ? Please don't say "in the long run..."...

I wouldn't be surprised to see DC's stock plummet. If not soon, then in a couple of years. Even though the U.S. institutional investors may only account for 20% of the stock ownership, they may kill DC's market as they wind down their positions.

Ok, let's see... in the beginning, maybe about 50-70 % of the Chrysler shares were owned by US institutions (which is about the share for Ford or GM), this gave them maybe 20-30 % of the merged company.

Those march figures show a shift of 20 % (now maybe a bit more) towards europe, so they have done most of the damage (which was quite limited). CNNFN's stock quote on DC says only 6 % are owned by (I suppose: US only) instititutions. Does add up quite nicely.

The remaining 6 % won't kill the share...

The first and only? Strong words! Let me think a little about whether or not this applies.

Aaargh!!! We agree! No!

You guys better not make me bring out the cheerleaders!

posted 06-23-99 11:29 AM ET            

1.5 years. A full year as DC, a combined annual report, and a half year for the US international funds to make their investing decisions. I'm patient.

"The remaining 6 % won't kill the share..."

Shoot, if it's only 6%, you're probably right.

"Aaargh!!! We agree! No!"

Surely we can find some ground over which we can fight.

"You wouldn't commit such an atrocity, now would you ?"

posted 06-24-99 03:07 AM ET            

DCX 6%

Ford 47%

GM 62%

Surely we can find some ground over which we can fight.