Welcome to Thursday's edition of Profit Watch. I'm Beat Erni. If you have just joined us, I'm part of the Profit Hunter team. I'm the Swiss guy and I'll be writing to you most Thursdays - when I'm not travelling. If I'm away, one of my colleagues will be in touch.
My job here - along with Andreas Ettl and the rest of the team - is to look out for opportunities and pitfalls in the international stock markets. When we find them, we tell you about them - and if we find anything really special, we write full, in-depth reports on them.
We've got an awful lot that we're looking into at the moment. Some real off-the-beaten path investment ideas that nobody else is looking at. That makes them very undervalued - and great for getting into before their individual 'stories' take off and drive the share price up.
We'll tell you about them as we complete our research. This week, let's start with the fotball...
It's almost all over
The Football World Cup 2006 in Germany has been three weeks of emotional ups and downs... both for the teams and for their fans. I’m sure you felt it yourself.
Now it’s all coming to an end as Italy and France prepare to take centre stage in the final on Sunday. It’ll soon be just a memory.
A couple of weeks ago I reported on the excessive prices being asked for World Cup tickets. Many fans paid many times the original ticket price through internet portals or even just before the game on the streets outside the stadiums.
But not all tickets kept their high level prices to the quarterfinals. I’ve heard that tickets for several matches – including those for England-Portugal and Argentina-Germany - were traded at or even below the original ticket price.
Volatile times in the ticket market
You could say that football ticket price movements are similar to those on the stock market. At first many investors (or football fans) want to enter a fairly tight market, even at quickly rising prices.
Of course, this was - to a certain extent - fuelled by speculative buyers probably less interested in the actual football games – ticket touts. Then the reverse effect pushed down the prices - an oversupply of tickets for games the true fans were no longer that interested in. At a moment’s notice the tickets were nothing but regular goods again, lacking the initial magical flair and outlook for future profits.
As the tickets obviously lose all their value if they're not sold by the time the game starts, the closer the kick-off time is for the ticket, the more ready the speculator becomes to sell it - at almost any price.
The analogy to the investment market is striking - as I’ll show you now, using one of my previous investment stories about the real estate boom - fuelled by German banks.
Is the German Eagle losing its wings?
After a headline grabbing speech by German Chancellor Angela Merkel in which she called her country "in serious need of restructuring" (and was heavily criticised for doing so), several of our northern neighbour states have turned a bit sceptical about Germany's financial strength.
Apart from the silly season, or "summer gap" as the Germans call it, there is a more serious gap, big enough for several "summer gaps" to hide within it: The German budgetary deficit.
Luckily for the German politicians, the German Football National Team played excellently - well, up until Tuesday night, I guess - and thus deflected attention from the real issues that Germany is undoubtedly facing.
The biggest post-war tax increase coupled with difficult reformations has been getting lost in endless stadiums and cheerful singing accompanied by an ocean of colours comprising red, yellow and black. Well, until Italy spoilt the party, that is.
As long as the German Football team advanced through the stages of this major world sporting event, everything else was secondary.
And now... in a couple of days... it's back to reality for Germany, while the partying will no doubt carry on night after night in cities and towns all over France or Italy. But not the other.
A new wave of bureaucratic reforms, likely to make things worse than better, is about to make it into the final, and, from the political viewpoint, probably "win". Ordinary Germans will soon wake up to a new scenario, one that might well host unpleasant surprises for them. And by that time, it will be too late to get a substitution in to improve the game already going downhill...
"Aus der Traum" - the dream is over - Not just the sports bit
Personally, I was a little shocked by Mrs. Merkel’s comments. Is it really THAT bad in Germany? Once the World Cup is over, Germany face a more serious issues than the questions surrounding Messrs Klose and Ballacks’ goal shooting performances.
Germany needs to prove that it can not only play football, but also play in the top league of international business. More pressing questions will be whether Germany keeps to its limits in spending, and comes up with more creative ideas for rectifying the situation other than just raising more money from tax payers. Otherwise, the positive effects of this World Cup will soon (again) give way to the lethargic mood of pre-World-Cup Germany.
At first sight, Germany and its stock and real estate markets appear to have an "inexpensive valuation". And certainly, we’ve seen some fairly astonishing share price increases since the beginning of this year. But I have to say that, as an international investor, I would be cautious and wait for a clearer picture of where Germany is heading.
The grand coalition was formed as a last resort thing. By now it is clear they are struggling to get along and find a common direction. To the people, and to investors, this creates uncertainty, and that, as we all know, is never good for the markets.
The Dubai crash we warned you about has happened
Back in November 2005 I reported in the Profit Hunter Files about the "Oriental Income Dreams" based on Dubai investment certificates issued by Deutsche Bank. I warned that it was clearly an overheated market and my scepticism about the wisdom of investing in these certificates proved right.
At the time, the Dubai Financial Market Index had reached a lofty 1200 points. For me, the "expected capital gains of 1000 percent within three years” sent alarm bells going off around me.
The best warning signal remained the fact that otherwise conservative Swiss investors were being pushed into high-risk Dubai investment certificates. And whilst the local investors sold off to the investors in Western Europe, they put their earnings into safer havens around the World. In Switzerland, for example, as the increase of assets under management by Swiss private banks proves.
Personally, I consider it risky when large banks offer products for "trendy" investments (like Dubai at that time). Often the markets are saturated or offer little leverage. The people in the know are likely to exit whilst the mass of uninformed investors are driven into territories that in reality have little left to offer.
The products are often heavily marketed in order to suggest a high demand. Sometimes investment products bundle companies and or investments which, by themselves, would never make it into a decently managed portfolio.
Those investors who did go ahead and follow Deutsche Bank’s advice, investing in the stock-listed certificate (DB5281), are currently stuck with the dramatic fall of the local financial markets. Since its introduction in October 2005, the certificate is now trading 60 percent BELOW the advertised value!
50% down
Since our coverage in November 2005 the Dubai stock market has lost 50 percent of its value. The only comfort European investors can find with their Arabian miss-investment is the fact that a lot of local investors are in the same boat. According to press reports, tens of thousands of Arabian couples have called off their planned weddings for 2006 - in line with the aforementioned stock market crash, the wedding market is down by 50 percent.
In Kuwait, we even saw demonstrations in the streets, something we haven't seen in decades. The dream of quick wealth is over for many.
Next week I'll write about another certificate that should ring alarm bells. The Profit Hunter team will again unveil exciting and promising news before the "normal" certificate investors hear about it. We also hope to bring you some more positive investment ideas.
Until then,
Best regards,
Beat Erni Profit Watch - Profit Hunter Files
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