Big Problems, Big Opportunities & German Automakers

Yesterday Volkswagen AG announced that it would pay $14.7 billion to get 480,000 emissions cheating diesel vehicles off of US roads:

LINK: VW settlement

This is a very heavy settlement.

One thing to remember, however, is that Volkswagen is 20% owned by the German state of Lower Saxony. It also bears a very large imprint on German manufacturing. As such, we decided that Volkswagen debt was to be considered as quasi-sovereign German debt and decided to buy on the heavy sell-off that occurred when the scandal broke in September.

Here’s a chart of the Volkswagen bond that we purchased:


We managed to buy in around 100. We should have bought a lot more.

Volkswagen shares, however, continue to suffer from the scandal as well as from the general weakness in automaker stocks:


Brexit or no Brexit, I doubt that the damage done to the stocks of other German automakers is completely rational.

Let’s take a look at Daimler. One one hand, 5 year Daimler Eurobonds are trading at a .19% yield and have performed very well:

dai bond

On the other hand, Daimler shares have a negative 33% return over the past year and now have an indicated dividend yield of almost 6%:

dai stk

Time to make a switch?