KWG Kommunale Wohnen AG

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BIW, Conwert Immobilien Invest, CWI, European sovereign debt crisis, German bunds, Germany, Grand City Properties, Hans-Peter Haselsteiner, home ownership, income/dividend bubble, Karl Ehlerding, KWG Kommunale Wohnen, Net LTV, residential property, Sirius Real Estate, Stavros Efremidis, Torsten Hoffmann

It’s six months now since I did a write-up on KWG Kommunale Wohnen AG (BIW:GR) (the ultimate post in a 5-part series). Actually, a recap’s in order here & probably the best introduction for this post:

Part I & II:   German residential property has been (recently) described as:

‘Perhaps one of the safest & most attractive asset classes in Europe, or even the world‘.

Its attractions include:

– Demographics:   German population growth is broadly neutral, but is experiencing pronounced trends in favour of urban migration, smaller households & increasing floor size per capita. Investor horizons are often limited when it comes to property – they’d do well to note Germany has the largest population in Europe, the 16th largest in the world & Berlin is the EU’s 2nd largest city with 3.5 million inhabitants!

– Supply & Demand:   Annual housing demand’s around 250-350 K pa, well ahead of housing completions which are now accelerating but only recently bottomed out at 175 K pa in 2009-10. Germany’s second-hand property also trades at a major discount – e.g. in Berlin, existing housing stock can be purchased at a 30%+ discount to new building costs.

– Home Ownership:   German home ownership is a lowly 46%, in stark contrast to the usual Western market rate of 60-65%+. This reflects the government’s long history of housing provision & rent subsidies/suppression, but in recent years authorities have increasingly opted for privatisation. Couple this with rising prices & rents, plus the desire for a safer long-term investment alternative (vs. equity/bond markets) – I think we can be confident of a slow & steady convergence towards Western home-ownership levels.

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Hitting The Century (XII – The Distressed Consumer)

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ATMs, consumer receivables, correlation, credit checks, debt agreements, discount stores, distressed assets, distressed consumers, distressed investing, European sovereign debt crisis, gold, healthcare, home shopping, life settlements, litigation, marijuana, Mosney, pawn shops, payday loans, pre-paid cards, scratch cards, student loans, sub-prime, trailers, unsecured loans, vice stocks

Continued from here (& here). In this post, we’ll turn our attention to the distressed consumer.

You may just consider this exploitation of the great unwashed – but in reality, they’re often the most expensive customers (pro rata) to acquire & service. (Illegal) immigrants also fall into this category – a fairly unavoidable cost of freight they pay in light of their status. [As US-listed Hispanic plays become increasingly touted & expensive, distressed consumer businesses are a cheap back door play on a sub-set of that population]. Also, the amounts involved with these customers is (inevitably) small. Actually, businesses are really targeting a much bigger & more lucrative opportunity – the democratic exploitation of an enduring human frailty:

Financial stupidity…

The obvious place to start here is with the usual vices – drinking, smoking, gambling, luxury goods… 😉 But these sectors are huge & everybody’s doing ’em – I’m going to skip anything so mainstream (but I’m fascinated how highly rated they are!). I probably should consider drugs too, with marijuana access now increasingly legal & convenient across the US – but the real stupidity here might actually be investing in marijuana stocks!?

While I’m at it, we could make a case for including healthcare – people who make poor financial decisions surely make even worse decisions about their long-term health? [Especially with the communist approach to healthcare in the US & most other developed nations: All good deeds go unrewarded, and the worst 20% consume 80% of the resources… Which simply encourages everybody to race to the bottom (of the ice-cream tub). Look, I’m all for providing a safety net, but not when it’s stuffed with cheese burgers!] Let’s skip healthcare as a whole other mess… In similar vein, a trillion dollars of US student debt could have mutated into the biggest distressed consumer play around – since everybody seems to have now decided they can’t/won’t pay any longer – but that’s underwritten by a suckered population also.

Right, let’s move on – picture you’re an average distressed consumer:

Cyprus & Argo Group

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Andreas Rialas, Argo Group, Argo Real Estate Opportunities Fund, Cyprus bail-out, EU economy, European sovereign debt crisis, Eurozone, fiat money, Greenspan/Bernanke put, intrinsic value, Kyriakos Rialas, Lehman Brothers, Price/Cash, The Argo Fund

Obviously, I’ll be returning to Argo Group (ARGO:LN) in greater detail another day, but news of a Cyprus bailout deal has prompted scads of emails & questions to me about Argo. A post is certainly justified…

OK, Cyprus – what a God-awful mess… At this point, years into the European debt crisis, it’s hard to believe EU politicians can attain new heights of stupidity. Whenever politicians: i) do something on the cheap, ii) kick the can down the road, or iii) (perhaps the worst) enforce some obscure point of principle, haven’t we learned it comes back to bite you far more savagely & expensively?

I have to concede the US is pulling ahead of Europe – they’re much quicker to recognize failure & to learn from mistakes. The collapse of Lehman can be ascribed pretty much to one man (Paulson) & his pig-headed intention to prove a point. Oh boy, and what an expensive point it was… Of course, everybody ignored it, lessons were learned & the Greenspan/Bernanke put was accordingly (and infinitely?!) strengthened.

Argo Group – Awaiting Results

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% of AUM, alternative assets, Andreas Rialas, AREO, ARGO, Argo Group, Argo Real Estate Opportunities Fund, asset managers, distressed assets, distressed investing, emerging markets, European sovereign debt crisis, Expected Value, intrinsic value, Kyriakos Rialas, Price/Cash, share buyback, shareholder activism, tender offer, The Argo Fund

Argo Group’s (ARGO:LN) Final Results should be released shortly (I’ll try confirm the exact date). In my most recent Argo posts, I published two letters I’ve sent to Kyriakos & Andreas Rialas (CEO & CIO, respectively). I encourage you to review both letters before continuing:

Here’s the first letter (from Nov-2012)

Argo’s share price rallied +6.2% in the following week.

And the second letter (from Dec-2012)

This was sent on behalf of myself, Guy Thomas & some other (smaller) shareholders, representing an aggregate 5% shareholding in Argo. The letter focused on a single specific shareholder distribution proposal. ARGO subsequently rallied +6.5% (in the following week). [In fact, the share price is now up an impressive +36% since my November letter. Despite the rally, I believe Argo remains just as compelling an investment proposition – I currently have a 5.4% portfolio stake].

My recommendations & proposal require little (further) explanation, and I expect shareholders will enthusiastically support all efforts to realize & enhance Argo’s intrinsic value. But I will revisit them in the context of an upcoming results preview – plenty of current & prospective shareholders have emailed me about Argo, so I hope you’ll find this useful. Let’s first consider Argo’s existing funds:

Argo – Escape from an Evil State!

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% of AUM, activist investors, alternative assets, AREO, ARGO, Argo Group, Argo Real Estate Opportunities Fund, Colony Financial, distressed assets, emerging markets, European sovereign debt crisis, Fortress Investment Group, intrinsic value, Investor Relations, Kyriakos Rialas, Livermore Investments, Mello Central, Price/Cash, Rialas brothers, share buyback, special situations, sub-advisory, The Argo Fund, Universe Group

OK, sorry to disappoint… This definitely isn’t a review of Ben Affleck’s new movie ‘Argo’! [I haven’t seen it yet, but it’s on my list – the reviews are uniformly good, and Affleck displayed a sure hand with ‘The Town’.]

No, this post is about Argo Group Ltd. (ARGO:LN), whose share price is also trapped in a rather evil state… Specifically, the price has steadily declined 35% in recent months to GBP 10.125p – when the company is profitable & has net cash/investments on hand of GBP 20.9p per share! Operational execution & performance ultimately offer the best escape route for Argo. [I’m delighted to see Argo has now launched a new liquid emerging market debt fund. This offers attractive exposure, I’m sure it will clock up a good performance, but real success will come down to the level of fund-raising that’s achieved.] But there a number of additional actions & strategies that may offer considerable assistance in making this escape. Here’s a copy of a recent letter I sent to Kyriakos Rialas, CEO of Argo:

‘November 07, 2012

FAO:    Kyriakos Rialas, CEO

Cc:       Andreas Rialas, CIO

Cc:       Michael Kloter, Chairman

Argo Group Limited

33-37 Athol Street

Douglas

Isle of Man

IM1 1LB

German Residential Property (Part II)

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arbitrage, Berlin, commercial property, correlation, Debt/GDP Ratio, Deutsche Mark, Eurobonds, Europe, European sovereign debt crisis, Eurozone, GDP growth, German bunds, German property, Germany, Highway to Hell, Leverage, Manhattan, Margin of Safety, Net LTV, quantitative easing, rental yield, residential property, safe-havens, unemployment rate

Continued from here.

Economy:

Germany’s by far the largest & strongest (major) economy in Europe, with an average real GDP growth rate in excess of +3.3% in 2010 & 2011. Growth remains positive in 2012, while 2013 GDP growth’s forecast to be +1.7%. Far better than most EU growth rates in the same period…

It’s one of the few countries with a primary budget surplus. Actually bested by Italy, what a surprise! Germany’s Debt/GDP ratio at 81.6% isn’t much better (also surprising) than the EU average of 88.2%. But the majority of citizens (& investors) remain supremely confident in Germany’s ability to manage its own finances – and rightly so, I believe. [An important point to make: Now, really, an 88% Debt/GDP ratio? What crisis..!? I think not. I’d venture we can trace the current market hysteria squarely back to the bumbling & foot-dragging of Europe’s politicians. A clear message for US politicians as they merrily race down their own fiscal/debt Highway to Hell. An inability to learn from history’s unfortunate, but perhaps forgivable – an inability to learn from today’s headlines, however, just makes you a complete f**king idiot,sir!]

So, Where’s The Bloody Inflation..?!

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baby boomers, banks, Bernanke, budget deficit, capital ratios, de-leveraging, debt monetization, Debt/GDP Ratio, ECB, Europe, European sovereign debt crisis, Fed, financial crisis, fiscal deficits, Flub-Med, GDP growth, Hunt brothers, income/dividend bubble, inflation, Japan, multiplier effect, Occupy Wall Street, politicians, quantitative easing, real assets, risk aversion, savings rate, stagflation, US, Volcker

I was beginning a new post in my recent Hitting the Century series (and here), and realized my next 3 investment allocations were to real assets – Natural Resources, Agri & Property. This v quickly got me thinking about inflation, enough to devote myself to this post instead:

Along the way, dear reader, you may have noticed my pronounced distaste for fiscal & monetary policy in the developed world. Particularly in the US... That’s not intended to be a US slap-down…and certainly not praise for Europe either! It’s simply a pretty inescapable conclusion if you compare the US & (the hard-core of) Europe over the past 4 decades. Jesus, I struggle to think of somebody with any real power in the US who truly gives a flying f**k about their accelerating debt burden, debt monetization, or the long-term external value of the dollar. In contrast, the ECB & certain Eurozone countries still actually exhibit a painful reluctance to take that road to monetary & fiscal oblivion – even in the face of a European sovereign debt crisis!

Hitting The Century (V – Ireland)

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% of world GDP, Andrew Langford, COR, default, Emerald Isle, Europe, European sovereign debt crisis, Event Driven, Fairfax, FBD Holdings, Greece, home bias investing, Ireland, Irish value investing, ISEQ, Prem Watsa, Price/Book, Return on Equity, taxes, Thatcher, Total Produce, Trinity Biotech, UK, Wilbur Ross

Continued from here. OK, let’s take a look at my next investment allocation:

Ireland (16%):   So much for all my rabbiting on about home-bias, what a terrible job I’ve done here..! Ireland accounts for a whopping great 0.3% of world GDP, and yet I’ve got 16% of my portfolio invested in the Emerald Isle (yes, please visit, all tourist revenues gladly accepted)!? OK, so, in my defence:

i) C’mon, everybody’s doing it! I’m confident 16% is far lower than the average Irish investor (and US investors are just as bad – how many realize US GDP is now just 22% of world GDP?).

ii) As Philip O’Sullivan (taking off the green jersey?!) reminded me, these stock picks are not that Irish anyway! Total Produce (TOT:ID/LN) is essentially pan-European, Trinity Biotech (TRIB:US) operates primarily in the US (& Europe) – I guess FBD Holdings (FBD:ID, FBH:LN) is my only true Irish exposure!

A Greek Tragedy…?

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austerity, Big Brother, budget deficit, citizenship, Debt/GDP Ratio, default, Europe, European sovereign debt crisis, Greece, Occupy Wall Street, politicians, remittance economy, tragedy of the commons, US, venality

Two key (related) themes echo through recent articles about the Greek sovereign debt crisis. I’ve the distinct & nagging feeling something’s missing here? Hmmm… Anyway, the first theme is the expression of outrage at Greek politicians, their profligate ways and their general shiftiness. Sure, it’s always fun to criticize politicians, but why bother really? What exactly did you expect of them? I’m bemused by the air of superiority displayed in some articles – nah, nah, nah, my politicians are better than yours! Rubbish, there’s nothing unique about Greek politicians in a global context – they’re just a little further down the road to hell…

Let’s think about what makes them tick: Well, they say politics is an unpredictable business – true, you just can’t second-guess stupidity sometimes. But otherwise, you mostly just need to consider the actors’ motivations. Depressingly, this seems to boil down to Money, Power, or both! OK, Duty’s another possibility – reluctant leaders are often the best leaders. But how often, in the past decade or two, have you seen a politician consistently serve out of a clear sense of duty?

Hitting The Century: It’s Pretty Panties Time..! (I)

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alpha, catalyst, developed markets, emerging markets, EUR/USD, European sovereign debt crisis, foreign exchange trading, foreign stock listings, frontier markets, FX rates, Human Capital, macro perspectives, Margin of Safety, portfolio allocation, portfolio performance, stock screener, value investing, value investing bloggers

Oh Gawd, when will I learn..?! Last time ’round, the ‘pretty panties‘ phrase grabbed a whole new wave of (doubly) frustrated web searchers & readers. Who knew? But perverts¹ are people too! A majority even have jobs, I suspect. And many of these hand shandy artists are probably good savers (limited range of interests, they stay home a lot…). They might just appreciate some investing insight! In fact, gentlemen, we can rebuild them. With their powers of concentration, and attention to detail, surely they’d make excellent value investors?! My dear mother would be so proud if I converted even one of these bishop buffers…

So we’ve reached Post 100 – time to show off my pretty panties a little?! This blog’s mostly been about my stock picks and, more recently, I’ve stepped back to write more about macro perspectives. What’s perhaps been missing, as I’ve noticed with many other blogs, is a closer look at portfolio construction, allocation and metrics. This is a big oversight on my part – if you’re a regular reader, you already know this aspect of investing is actually v important to me!