07 Feb The Brandenburg Gate

The Brandenburg Gate

On days like this it gives you time to reflect on world issues. Whilst stock markets were down over the last 2 business days, today they have rebounded which is not unusual. What is of more significance though is that the Berlin Wall has now been down for a longer period of time than when it was standing up.

Some of you may remember Ronald Reagan on the 12th June 1987 making a speech at the Brandenburg Gate asking the Soviets to tear down the wall. The Brandenburg Gate is one of the best-known landmarks in Germany, a neoclassical building in Berlin, which was constructed in 1730. Throughout its existence, the Brandenburg Gate was often a site for major historical events and is today considered part of the tumultuous history of Europe and Germany (you can think Napoleon, Nazi’s & Cold War), but today is recognized as also being a symbol of European peace & unity.

Reagan said “We welcome change and openness; for we believe that freedom and security go together, that the advance of human liberty can only strengthen the cause of world peace. There is one sign the Soviets can make that would be unmistakable, that would advance dramatically the cause of freedom and peace. General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization, come here to this gate. Mr. Gorbachev, open this gate. Mr. Gorbachev, TEAR DOWN THIS WALL !!”

Later on in his speech, President Reagan said, “As I looked out a moment ago from the Reichstag, that embodiment of German unity, I noticed words crudely spray-painted upon the wall, perhaps by a young Berliner, ‘This wall will fall. Beliefs become reality.’ Yes, across Europe, this wall will fall. For it cannot withstand faith; it cannot withstand truth. The wall cannot withstand freedom.”

This has personal meaning for Silvia & I as for some of you may know Silvia’s parents and oldest brother were born in East Germany and lived in a little village called Zeitz before escaping the communists in the mid 1950’s with basically the clothes on their back and moving to the West and settling in Tüttlingen another village/town just south of Stuttgart, before 3 other siblings including my darling Silvia were born. I can still remember the night at home we watched on TV the fall of the Berlin Wall in 1989

We visited Silvia’s family in Zeitz in 1993 4 years after the fall of the Berlin Wall & 3 years after reunification. At that time whilst they had some brand-new roads and gleaming shopping centres you would also drive past buildings that had been bombed in WWII or other potholed roads and basically had just been left there since 1945.

Some of Silvia’s family really enjoyed reunification as they were able to freely get goods and services that they never could before, whilst others despised it as their village went from virtual full employment to 50% unemployment overnight as the whole eastern bloc & their industries collapsed. Young people left town seeking their futures in the West. Prices rose and their Ossi (the old East Mark) was devalued significantly against the West Mark (Deutsche Mark) in July 1990. Some of Silvia’s family thought that there may be a civil war or at least some form of civil unrest over these moves at the time.

What does this have to do with investment markets ? Well things always change & markets move both up & down and after a significant period of little volatility there has been some reasonable prioce movements in the last 3 days.
” The US Stock Market fell as overbought or overvalued companies all were sold off (think Amazon which trades on currently a Price/Earnings ratio of 225 !!), or companies like Tesla or Netflix which don’t make actual profits, but which burn cash
” Stocks were sold off because of underlying positive news on the US & Global economies. Unemployment is down, wages are rising, inflation is healthy. These things mean the US economy is strong enough for the US Federal Reserve to consider further rate rises or to move interest rates back to a more normal level. Last week the World Bank upgraded Global Economic Growth (GDP) to 3.1% – all major parts of the developed world (Europe, China, USA) are all experiencing synchronized economic growth for the first time for ages
” Yesterday the broad US Stock market (represented by the S&P 500) had its largest drop since September 9, 2016. Everyone remembers that day clearly and has it marked in their diary don’t they ? Today prices increased approx. 2%
” Stock prices will go up and down in the short-term, but business profits and the dividends that they pay out will keep coming in. Business profits haven’t changed one iota since yesterday, but the price someone is prepared to pay for that business has
” Our markets like all world markets have been caught in the crossfire, but has our economy or business environment changed in the last 2 – 3 days ?
Let me use a couple of examples of businesses that you may be familiar with today – firstly Magellan Financial Group. Many of you hold investments in the Magellan Global Fund and others of you will recognize that Magellan was the sponsor of the Ashes Tests & One Day Series this year. Yesterday Magellan the listed company (ASX Code MFG) announced to the stockmarket: –

” A rise in normal profits of approx. 25%
” An increase in their interim dividend payment of 16% (to be paid by end of February 2018)
” Capital invested in their business was achieving a return of > 20% !
” Purchase of a distribution business in the USA & and also an Australian Funds Management Business as well, offering further tangible evidence of a healthy and growing business expanding it’s scale

What happened to their share price – well it went down 5% (and today it has increased 3%). Now would I be betting against Magellan, I hardly think so. Will their share price fluctuate – absolutely, but are they are good business executing on their business plan – a resounding yes.

Rio Tinto today have announced that not only are they going to pay a record dividend but also further reward their shareholders through buying back more shares on market. Rio & Magellan are miles apart in the style of business they run but gives you some indication of the business environment that we live in.

Not only is Magellan & Rio flourishing, but so is Silvia’s parent’s original town of Zeitz. Today the old Cold War state owned enterprises have been transformed. Zeitz’s economy is dominated by small and medium-sized companies, which represents a great variety of industries, ranging from the food and agriculture sector to the construction industry, logistics, trade and services. Zeitz also has a 220 ha industrial park which includes housing a factory which converts wheat into bioethanol – an environmentally friendly fuel.

So we too can take great solace from this as the world is not going to come tumbling down on our heads & yes friends and comrades alike businesses will continue to prosper.

PS – I have at home a Beer Stein that we bought in West Germany in 1993. At the time they tried to sell me one which “apparently” had a bit of the Berlin Wall on the top, but it looked like a piece of cement to me – Needless to say that I bought the one without the cement on top !!

PPS – The most powerful Woman in the World (no it is NOT Oprah) Angela Merkel hails from East Berlin – whilst she was born in Hamburg, her Father who was a Lutheran Priest moved the family to Berlin when she was a small child. The Berlin Wall’s construction in 1961 was Angela Merkel’s first political memory: “My father was preaching on that Sunday. The atmosphere was horrible in the church. I will never forget it. People cried. My mother cried too. We couldn’t fathom what had happened.”

So if Angela can from living under Communist rule, working as a Research Scientist become the Defacto leader of Europe and one of the Leaders Of The Free World, then anything is possible !!!