Friday, 30 March 2012

Dividend stocks. Firewall. Spain.

Dividend stocks and other retail products
The stock market is ever busy in the eternal search for new “themes”, i.e. stories that can persuade investors to buy and sell and thereby generate the commissions needed for the business.  As interest rates have fallen, one particularly hyped theme has been “dividend stocks”.

The story has been that if you could not count on stocks to appreciate steadily each year, then at least you could borrow money at low interest rates and invest in stocks that would give you a better cash flow, i.e. dividends. I have never met any theoretical explanation that could make me understand why “dividend stocks” should be more attractive than any other stocks.

In Germany a group of researchers have now worked for a bit on the “dividend stocks”. Their verdict is clear: dividend stocks do not offer a better return on investments over any relevant time horizon than any other group of stocks. But for sure the many new products based on “dividend stocks” have generated a nice commission (plus loan margins) for the finance sector.

Caveat Emptor. We’re just saying.

Another “new-new thing” is investment in volatility. For private investors who do not even know what it is all about! With the predictable results.

The EU summit in Copenhagen seems set to decide that the total emergency facility to help troubled countries (and banks) will end up at EUR 800bn as the Germans finally seem to understand that the larger the facility, the smaller the probability that it will ever be used.

Yesterday, I referenced a study from the Swiss National Bank. There you would find a chart indicating that the Spanish residential property market is still significantly overvalued, and we are NOT talking holiday property here. When that information is combined with PM Rajoy’s new inititatives to cut the public sector deficit by a whopping 3.2 per cent of GDP we have all but a guarantee that Spain will remain mired in recession for a while. Personally i have a hard time believing that Spain will meet the German-imposed deficit targets in 2013. When will they ever learn?

At the same time Spanish trade unions are demonstrating against reforms that would actually make it easier to create new jobs.

Not funny at all. We will hear more of that story soon.

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