Kurzarbeit and Caesar

Dear rss free blog,

Australia again followed Israel, raising its bank rate 0.25% to 3.75%.

Here
is a message about Kurzarbeit‘s benefits and costs from Marc
Chandler, of Brown Brothers Harriman, the surviving US
investment bank linked to a NY Governor; Lehman Bros. was the other.

His analysis is
important because many economists feel the need for
US measures to cut unemployment, including a revival of the New
Deal’s WPA (suggested by Paul Krugman in the NY Times.)

The
WPA hired people to work for the government
itself. They built dams and roads, post offices and elementary
schools throughout the US. Where the Blue Eagle flew, there were
political payoffs and waste, graft and boondoggles, and lots of
left-wing murals. Rather than a return to the 1930s, here is a Euro alternative way to tackle rising joblessness:

Germany
reported today that Nov. unemployment fell 7000 instead of rising
5000-10,000 as the market expected. This is the 5th consecutive month
that the number of unemployed has fallen in Germany. It offers a
stark contrast to the US jobs picture, where another net 125,000 are
expected to have lost their jobs last month. But does it?

There
are two drivers behind German labor market developments.

The
first applies strictly to today’s report. There was a one-off change
in methodology of calculating the unemployed totals. The German Labor
Office says without this change, unemployment would have risen by
10,000. The second is a government subsidized scheme that
encourages employers to cut hours but not jobs. In effect, a business
pays an employee for the hours worked and these could be cut to half
time. The government grants an allowance to make up the bulk of the
difference. In essence, an employee can draw roughly 80% of his/her
salary and work half the time.

The
Labor Office says this program, which has local variations in other
European countries including the Netherlands and Austria, saved
400,000 jobs. The latest figures (from Sept.) show about 1,050,000
German workers were participating in this scheme, which also gives
employers a tax incentive.

Prior
to the onset of the crisis, Kurzarbeit could subsidize a cut in hours for 6 months, but near
mid-2009 the program was extended for up to 24 months until the end
of the year. Last week, the Labor and Social Affairs Minister Dr.
Franz Josef Jung announced that the 24-mo subsidy would be extended
until June 2011. It is possible for a worker who joins the scheme in
June 2011 to still be subsidized until June 2013.

There are
benefits from the program. It socializes and shares the costs. It
preserves the important relationships between employer and employees.
It also help preserve aggregate demand by maintaining to a greater
extent purchasing power of employee[s who] can still consume even if
not working full time.

The drawback of the program becomes
more evident the more protracted the economic downturn and the longer
it take to return to sufficient strength to boost hours worked. In
addition, not all jobs lend themselves to shorter hours or what is in
effect job sharing. The skeptics will also say that this simply
delays but does not solve the labor market problems. On the other
hand, it shows a kind of flexibility in the labor market, while
different than the flexibility of the US labor market, may produce
better economic results in at least the short-term.

News
for paid subscribers follows. It will explain what Caesar is telling us.

*None
of us was able to buy the Dubai DP World shares yesterday.
There was US trading but it dried up almost as soon as my article
hit, and the marketmakers stopped making a market.

To
own Emirates, there are still exchange-traded funds. Van Eck is in
the process of creating one to invest in Eqypt and Kuwait, according
to the Wall St. Journal. Egypt plunged yesterday; it was the
only regional market open for business and it depends on Gulf buyers.

The
existing ETFs were sold off yesterday. WisdomTree
Middle East Dividend Fund(GULF) with 17.5% of its
assets in the UAE fell 6.4%. PowerShares Mena Frontier Countries (PMNA) with 22.6% of its assets in the
Emirates, fell 2.1%. Market Vector Gulf States (MES) with 25%
of its assets in the UAE fell 5%. Volumes in these funds are always
low, about 7000 shares according to Cleve Rueckert of Birinyi
Associates who was interviewed by the WSJ.

Readers
who absolutely insist on getting exposure to DP World can buy T.
Rowe Price Africa and Middle East Fund, an open end fund, which
the Journal says had 25% exposure to the Emirates at the
close of Sept. The fifth largest holding of TRAMX was DP
World. Not recommendations.

*In partes tres Gallia divisi est. Julius
Caesar provided the solution…