Weekly Newsletter

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Volkswagen apologized and promised full investigation into the automaker’s emission-cheating scandal. Although VW said to repair all 11 million affected cars until the end of next year it presented no schedule yet. Erwin Lasshofer and his INNOVATIS team think that total costs from the scandal will be a multiple of the 6.5 billion euros set aside so far. However this will not put the company at risk. Volkswagen has EUR 15 billion in cash available and could raise another EUR 11 billion from shareholders. This would have to come from preferred stock holders since common stock holders are not expected to participate in a secondary offering. This weighs on VW preferred stocks and increases the spread versus common stock – see chart attached. Thus investors in the market for a recovery bet should prefer the preferred stock.

Earnings. Tonight Alcoa kicks off earnings reporting for 3rd quarter 2015. S&P 500 companies are expected to report about 4% decline in upcoming 3rd quarter earnings reports which is the biggest decline in 6 years. Also German exports slumped the most since 2009 recession in a sign that Europe’s largest economy suffering from weakening global pain. While foreign sales declined 5.2% imports slid 3.1%.

Growth by migration. According to the World Bank large-scale migration of people from poor countries to richer ones could be an ‘engine of economic growth’ and boost battle against global poverty. While more than 90% of global poverty is concentrated in lower-income countries with young and fast-growing population, more than 75% of global growth occurs in higher-income countries with fewer children and increasing proportion of elderly people. Most of the evidence suggests that migrants will work hard and contribute more in taxes than they consume in social services. The report promotes legal migration flows to counteract the decline in working-age populations in aging countries and to relieve pressure on countries where labour is abundant.

Syria. At the same time the situation in Syria is getting worse. Russia joined the fighting parties that consist of Assad regime, Syrian rebells, Islamic State, Iran and more. Apparently Assad turned to Russia after his friend and most important protector Iran is claiming more and more influence and converts Syrian peoples to Shiites. While Alawites (Assad), Shiites (Iran) and Sunnis (IS) fighters are driven by religious motivation Russia might turn out to be more loyal to Assad. The tragedy is that Syrian people suffer even more while Assad, the U.S. and now Russia are dropping their bombs.