What Is Important in the Financial World (4/18/2013)

One German research firm expects the nation’s economy to rebound this year and next. However, the rebound will be very modest. It will not be anywhere near those expected in the United States or China. The European Union’s troubles will be too much of a drag. Ifo says of the German economy:

An upwards tendency re-emerged in the German economy in spring 2013. The situation in the financial markets has eased thanks to subsiding uncertainty regarding the future of the European Monetary Union. The headwind in the world economy has also tailed off somewhat. The institutes expect gross domestic product in Germany to increase by 0.8% this year (68%-projection interval: 0.1% to 1.5%) and by 1.9% next year. The number of unemployed should continue to fall to an annual average of 2.9 million this year and 2.7 million in 2014.

Student Loan Burden

Students with large loan burdens, because of the debt taken on for their educations, likely are not buyers of expensive items such as homes and cars. Perhaps all of their debt makes them less attractive candidates for loans. Or, they may believe their obligation will leave them bankrupt. The results of a study by the New York Fed show what almost everyone with a high school education knows about student loan debt:

Student loans have soared in popularity over the past decade, with the aggregate student loan balance, as measured in the FRBNY Consumer Credit Panel, reaching $966 billion at the end of 2012. Student debt now exceeds aggregate auto loan, credit card, and home-equity debt balances—making student loans the second largest debt of U.S. households, following mortgages. Student loans provide critical access to schooling, given the challenge presented by increasing costs of higher education and rising returns to a degree. Nevertheless, some have questioned how taking on extensive debt early in life has affected young workers’ post-schooling economic activity.

The population of these people is large enough that their troubles could be an economic headwind in the next several years, particularly because so many of them also have been unable to find jobs.

Disappointing Nokia Earnings

Nokia Corp. (NYSE: NOK) had another rough quarter. The numbers show the company still cannot make progress against powerful competition from Apple Inc. (NASDAQ: AAPL) and Samsung. The new Window’s phones from Nokia and Microsoft Corp. (NASDAQ: MSFT) have not sold well, which is a blow to the fortunes of both companies. Microsoft’s success in the PC sector has begun to disappear, leaving mobile as one of the few industries in which it can grow. According to the Nokia earnings announcement:

Nokia Group non-IFRS EPS in Q1 2013 was EUR -0.02; reported EPS was EUR -0.07.
– Nokia Group achieved underlying operating profitability for the third consecutive quarter, with a Q1 non-IFRS operating margin of 3.1%.
– Devices & Services achieved underlying profitability for the second consecutive quarter, with a Q1 non-IFRS operating margin of 0.1%. Devices & Services benefitted from a strong focus on cost as well as the reversal of approximately EUR 50 million of previously recognized inventory related allowances in Q1.
– Nokia Siemens Networks achieved underlying profitability for the fourth consecutive quarter, with a Q1 non-IFRS operating margin of 7.0%. Nokia Siemens Networks benefitted from strong gross margin performance in Q1.

Nokia Group net sales in Q1 2013 were EUR 5.9 billion
– Devices & Services Q1 net sales decreased 25% quarter-on-quarter to EUR 2.9 billion.
– Lumia Q1 volumes increased 27% quarter-on-quarter to 5.6 million units, reflecting increasing momentum.
– Mobile Phones Q1 volumes decreased 30% quarter-on-quarter to 55.8 million units, reflecting competitive industry dynamics and an estimated higher than normal seasonal decline in the market addressable by Mobile Phones.
– Nokia Siemens Networks net sales decreased 30% quarter-on-quarter to EUR 2.8 billion, reflecting industry seasonality

Those numbers were below expectations.