Pioneer Briefing US Edition

The Fragility of Germany's Pension System & Why the Stock Market is the Alternative


Good Morning,

The introduction of the stock market-based pension (Aktienrente) in Germany is underway, and it's being greeted with a great deal of skepticism. Politician Sahra Wagenknecht refers to it as a "casino pension"— play at your own risk. And "Bild am Sonntag" expressed deep concerns, stating:

If a financial crash occurs, the house of cards, which is the 'generational pension,' will collapse.

Sahra Wagenknecht at the federal press conference talking about the founding of her party © imago

German fears about the stock market-based pension are a long-standing habit but mostly irrational. However, these fears must be and can be addressed.

Here are five key facts to consider:

#1 The Generational Pension as a House of Cards

The most uncertain aspect for future generations is the pay-as-you-go pension system, which has been precarious for decades and is mainly supported by taxes. Chancellor Konrad Adenauer famously said in 1957, "People always have children," laying the foundation for what became known as the intergenerational contract.

Konrad Adenauer, 1957 © dpa

However, Adenauer's assumption overlooked the impact of the birth control pill and changing family dynamics, which led to a decline in birth rates.

Helmut Kohl with his wife Hannelore and sons Peter and Walter (1973) © imago

Today, the number of newborns is just half the average during the baby boomer generation of 1964.

As a result, the pension system has become overburdened, requiring more than €100 billion a year from taxpayers.

Old couple out for a walk © imago

#2 Stock Market as the Engine of Capitalism

Boom and Bust: Highs and lows are inherent in financial capitalism. However, these downturns should not impede the overall upward trajectory of capital markets.

Wall Street in New York © imago

Investors have seen remarkable returns over time. Since the inception of the German stock index in 1988, the DAX has risen more than 1,500 percent.

Similarly, the Dow Jones, a leading index in the United States, has increased a remarkable 1,835 percent over the same period. The NASDAQ-100, which is dominated by tech giants such as Apple, Amazon and Alphabet, has seen an astounding increase of over 9,000 percent.

Eine Infografik mit dem Titel: Dream Returns on the Stock Market

Performance of the Dow Jones, Dax and NASDAQ-100 since July 1, 1988, in percent

#3 Financial Crises as Opportunities

Financial crises aren't random events but necessary corrections following periods of speculation or collective miscalculation. Investors must understand that a correction is typically followed by a rebound, not necessarily for each individual stock but for the major indices.

Warren Buffett © imago

Famous investors such as Warren Buffett and global fund managers eagerly anticipate these corrections, as they provide cheap entry opportunities. After the collapse of Lehman Brothers and the ensuing global financial crisis, it took 27 months for the Dow Jones and 19 months for the DAX to recover to pre-crisis levels.

Eine Infografik mit dem Titel: Recovery of the Stock Markets

Performance of the Dow Jones during the recovery of the index after the impact of various crises

#4 Avoiding Bankruptcies

Institutional investors typically avoid the risk associated with investing in individual companies for good reason. Even astute analysts couldn't foresee major corporate collapses like Lehman, Wirecard or Enron.

Former Wirecard CEO Markus Braun in court (2023) © Imago

To minimize the impact of individual bankruptcies, these investors prefer to invest in entire markets, such as the DAX 40, Dow Jones or MSCI World. These indices collectively represent around 1,400 companies, reducing the risk of exposure to individual failures.

Moreover, the risk of a systemic collapse is minimal. If a company like Wirecard collapses, it's immediately replaced by a viable and profitable company within the DAX, ensuring that DAX 40 certificate holders remain unaffected.

#5 Model State Funds

Norway is a pioneer in using the capital market to secure its citizens' retirement. Since 1996, revenues from domestic oil production have been channeled into a capitalistically managed sovereign wealth fund.

This strategy has proven highly successful, with Norwegian managers achieving an average annual return of 6.1 percent (nominal) or 3.8 percent (real) since 1998. As a result, the fund has grown to an impressive $1.6 trillion today. Sovereign wealth funds in Abu Dhabi and Saudi Arabia have also had remarkable success with similar approaches. German generational capital managers are striving to replicate these models.

Eine Infografik mit dem Titel: Norway as a Role Model

Price performance of the Norwegian sovereign wealth fund, in trillions of US-Dollars

Conclusion: The German government finally embraced the capital market after a considerable delay. Concerns about the stock market pension are unwarranted. Germany's pension system has to go from Main Street to Wall Street. To put it simply, go with the flow.

  • Chancellor Scholz has answered questions from parliament for the first time this year.

  • Nvidia board members have sold shares worth millions.

  • Billionaire Clive Palmer is planning to build Titanic 2.0.

Robert Habeck at the Future Day for SMEs © imago

Home Game Away from Home. Currently, there might be few places more uncomfortable for Robert Habeck than gatherings of entrepreneurs.

Avoidance strategy: Lately, he has more often than not skipped such meetings or sent representatives instead, except for yesterday in Berlin at the "Future Day for Small to Medium Enterprises (SMEs)," where my colleague Marc Saha was present.

Habeck said:

Germany relies on its SMEs. So, it's not entirely accurate to label SMEs as just the backbone of the German economy; they're also its heart and pulse. If SMEs cease to thrive, the very essence of our economy and, consequently, our nation will be at stake. The well-being of SMEs is paramount to the well-being of Germany.

Praise also came from the host: Christoph Ahlhaus, Managing Director of the SME Association, commented:

Habeck struck the right note; he did not sugar-coat the problems. Now, all we are waiting for his action.

Olaf Scholz at the interrogation of the federal government. © dpa

Facing Questions: Chancellor Scholz took the floor in the German Parliament (Bundestag) for the first time this year, ready to address questions.

Gaining momentum: This is an opportunity for Scholz to regain voter support. While his stance on supporting Ukraine has alienated large parts of the FDP (Free Democratic Party) and the Greens, public opinion favors him on Taurus deliveries.

Taurus: During the hour-long session, the Chancellor was asked three times about Taurus deliveries. However, applause from the Greens and much of the FDP was conspicuously absent.

Olaf Scholz speaks on the Taurus wiretapping scandal. © dpa

Each time the issue of the delivery of the weapon system came up, Scholz reiterated his firm opposition:

It's a long-range weapon, with a reach of up to 500 kilometers. I do not consider it responsible to make it available without involving German soldiers in the mission. This is a very clear statement.

Scholz wants to present himself as moderate. Despite criticism for a perceived passivity that some see as Western weakness, Scholz asserts his role as the Chancellor of prudence:

Prudence is not something you can call weakness, as some do. Rather, prudence is what the citizens of this country are entitled to.

Norbert Röttgen © Anne Hufnagl

Opposition: Chancellor Olaf Scholz held a particularly heated debate with Dr. Norbert Röttgen. Röttgen is known as an expert in foreign politics and is a long-standing member of the German parliament for the CDU (Christian Democratic Union). The night before the debate, I spoke to him about his views on the current government's strategy regarding financial and military support of Ukraine - which decidedly oppose those of Scholz:

The West objectively does not deliver enough. It does not deliver what it has so that Ukraine can defend itself.

Röttgen speaks of the ethical and political guilt of the West in the Ukraine war.

He says:

Morally, we are abandoning the attacked, innocent country. And it is historical because if this war is successful, it will shape our Europe for years if not decades. The war will spread.

Deterrence vs. Appeasement: Considering the potential consequences, it is thus crucial to not let strategy be guided by fear, Röttgen finds. He believes that we are unfortunately already on the path of doing so and that the effects of these policies from Germany and the United States, for example, may be fatal:

The only strength that Putin has left is the weakness of the West.

Our discussion also turned to the situation in the Middle East. Mr. Röttgen believes that "Israel is trapped in a tragic dilemma." He speaks of the trauma in Gaza and of the role that different parties, Arab countries, Germany and the United States may or may not play in this conflict.

You can read the full interview in English here.

Nvidia CEO Jensen Huang © dpa

NVIDIA board members have sold millions of shares. According to filings with the Securities and Exchange Commission (SEC), four insiders parted with their holdings in multiple transactions:

  • Tench Coxe, a longtime board member, sold $170.5 million worth of shares in March.

  • Mark Stevens, who has been on the company's board since its inception, sold shares worth $43 million.

  • Mark Perry and Harvey Jones, other experienced board members, sold shares worth $12 and $53 million respectively.

New York Stock Exchange © imago

Analysts closely watch insider transactions as management typically has the best understanding of business trends. They've long warned that Nvidia's stock price no longer reflects the company's true value.

Bjørn Gulden, Adidas CEO © imago

CEO Bjørn Gulden expressed optimism during Wednesday's earnings conference at Adidas' Herzogenaurach campus. The DAX-listed company aims to be back on track by 2026, targeting a 10 percent EBIT margin. Adidas last achieved this in 2019 before facing a crisis under former CEO Kasper Rorsted. In 2023, the operating margin was at 1.3 percent.

Profit Expectations: Gulden aims to demonstrate initial successes beginning this year, setting his sights on a mid-single-digit percentage increase in revenue for the current fiscal year. Profits are anticipated to reach approximately €500 million.

However, the numbers are still disappointing. In the past fiscal year, Adidas reported a loss from continuing operations of €58 million, compared to a profit of €254 million in the previous year. Revenue declined by 4.8 percent to €21.4 billion, with a flat currency-adjusted performance. Operating income decreased by around 60 percent to €268 million.

Adidas CEO Bjørn Gulden © Claudia Scholz

Market Anticipation: The stock market has displayed confidence in Norwegian-born Gulden's leadership in steering the company toward success. Since taking office on January 1, 2023, Adidas' stock price has surged by over 40 percent, contrasting with a decline of 20 percent for Nike's shares and 32 percent for Puma's. These trends indicate growing investor confidence in Adidas under Gulden's guidance.

Volkswagen CEO Oliver Blume © imago

Volkswagen can look back on a successful year in 2023. Sales increased by 15 percent to €322 billion, and net profit rose from €15.8 to €17.9 billion. However, sales of electric cars declined towards the end of the year, partly due to the discontinuation of government incentives for electric vehicles.

Once again, the main profit driver was the internal combustion engine.

Volkswagen CEO Oliver Blume announced a major product launch. Thirty new models are planned to be added this year alone. Blume emphasized that this would be financially demanding.

However, it remains to be seen how this launch will convince buyers. Vehicles in the price range of up to €25,000, necessary for a mass market, will not be available until at least the end of 2025.

Volkswagen is also expecting another drop in profits this year in China, its most important market. China contributed €2.26 billion to operating profit last year - a fifth less than in 2022. Due to fierce competition in China, profits are expected to fall by another 40 percent.

Investors are turning away: Many investors see Volkswagen's problems as structural rather than temporary. The stock price lost more than five percent of its value during the day.

Computer-based drawing of the Titanic II © dpa

The new world premiere: Billionaire Clive Palmer's Titanic 2.0 may have sunk before it was built, but he's not giving up! The Melbourne-born billionaire recently announced his intention to rebuild the luxury liner that sank in 1912—for the second time. So far, however, these are just empty words.

Construction failed: Palmer attempted to build the Titanic 2.0 ten years ago, but it failed due to payment disputes with a Chinese company involved. Palmer assures that this won't happen again as he has much more money now.

Clive Palmer, Australian businessman and billionaire © imago

Design plans: He still needs to get a shipyard for his vision, but he has some ideas in mind and supposedly the best designers on board. The ship will have the same interior and cabin layout as the original Titanic, complete with a ballroom, swimming pool and Turkish baths. Estimates range from $500 million to $1 billion. Palmer modestly says:

Planning the Titanic is a lot more fun than sitting at home counting my money.

Titanic movie poster with Kate Winslet and Leonardo DiCaprio © imago

Wishing you a wonderful start to your day. Stay informed. Stay with me.

Best wishes,

Pioneer Editor, Editor in Chief, The Pioneer
  1. , Pioneer Editor, Editor in Chief, The Pioneer

Editorial Team

Eleanor Cwik, Alexia Ramos, Alexander Wiedmann, Nico Giese & Louisa Thönig

With contributions from: Philipp Heinrich, Jan Schroeder, Marc Saha & Claudia Scholz

Translation Team

Eleanor Cwik & Alexia Ramos

Graphics Team

Julian Sander (Cover Art)


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