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Thursday, 17 March 2011

Wanna know about the economy? Watch the ‘roadsigns’

The Netherlands remain looking like a beacon of peace and quiet. Although our current government promised €18 bln in cutbacks for the coming 4 years and tax pressure will be rising as always, the average Joe in the street (in this case called “Jan”) doesn’t seem to care. The credit crisis almost seems to be finished in the eyes of the Dutch, seemingly without leaving its marks and scars on Dutch society, as if it didn’t even start overhere. But did the credit crisis really finish indeed in The Netherlands? It’s hard to believe…

Unfortunately a lot of official data on the state of the economy overhere is incomplete, coloured or otherwise unreliable.

-     The official unemployment figures for instance exclude:
o        Freelancers that don’t have an assignment, but have no right to Unemployment Benefit
o        People that received Parttime Unemployment Benefit (special government measure: instead of being fired, these people receive a substantial part of their salary from the government for about a year and remain at their company)
o        partially handicapped people that don’t have a job;
o        people younger than 65 that are forced to be retired
o        people that live from other kinds of community benefits.

If these people are counted into the unemployment figures, the number of unemployed is rather 10% than 5%. Those are recession-like figures

-         Data on income, consumption, savings and purchasing power (a very popular concept in The Netherlands) can be hard to analyze as they may be subject to subjective accounting/measurement methods, inflation/deflation, changes in the buildup of the population and other influences.

-         Figures on the Dutch housing market are in my opinion coloured. It didn’t implode (yet), as I predicted in April 2009 , but housing prices have been in a slow-but-steady glide, while the housing market remains totally locked-up in the meantime. The current situation remains virtually unaltered as houseowners, government, banking world and interest groups (realtors and the houseowner association) are scared sh*tless for the consequences of negative price action and therefore fail to take necessary decisions: lowering houseprices, write-offs on bad mortgages and getting rid of the mortgage deductibility tax break. In the meantime everybody is hoping and praying for good news.

But what ARE figures that tell you something on the state of the economy in The Netherlands and our neighboring countries without being coloured for political or strategic reasons? Maybe we should just have a look at the “roadsigns”: what the streets, roads and highways are trying to tell us when we look at them.

The Netherlands is a very densely populated country with many commuters that depends heavily on domestic consumption and export of goods to our neighbouring countries (especially Germany). The lion share of all transport is still done by trucks, as graph 1 shows (underlying data, unless indicated otherwise, courtesy of the Central Bureau of Statistics(CBS) in The Netherlands). Therefore looking at the roads and highways may give some useful information on the state of the economy

Graph 1, Transport of goods within The Netherlands, measured in Metric Tons
The graph shows that after the implosion of the dotcom bubble in 2002 and the countermeasures of the FED and European Central Bank (ECB) the domestic road transport went through a period of wild growth, probably caused by consumption of surplus value on homes due to extremely low interest rates and further introduction of Just-In-Time-Delivery within the logistics business.

There was also a steady increase in the number of cars on the road and initially the average number of driven kilometers per car, as shown in graph 2

Graph 2, Number of passenger cars in The Netherlands 
vs the average driven kilometers per car per year

The combination of increased road transport and passenger traffic lead to roads and highways that were constantly overcrowded, as shown in graph 3:
Graph 3, Annual aggregated Traffic Jams measured in 1000 kilometers 
(about 650 miles) . Copyright:
After the beginning of the credit crisis (in The Netherlands mid-2008), however, one could notice a clear decrease of the number of trucks on the road. Less visible but probably even more important is the substantial decrease of the average number of driven kilometers per car since 2005. As a consequence there has been a dramatic decrease of the number and length of traffic jams in 2009, that is not at all compensated in 2010. Although the official figures from the CBS about road transport in 2010 are only presented in December 2011, a prognosis based on the core data of SME (Small and Medium Enterprise) showed an increase of 3.5% for road transport (see graph 1). This is clearly growth, but the total is still well under the total of 2007, the last year before the credit crisis.

Looking at the transport growth figures over the last three years (see graph 4), it shows clearly why the highways were less crowded, with especially 2009 being a disastrous year.

Graph 4, Transport growth as a percentage 2008 – 2010

These figures, tell-tale signals as they are, are backed-up by another roadsign: the Baltic Dry Index (BDI). This index that handles the cost of shipping goods per metric ton is at about the lowest point since the beginning of the credit crisis in 2008.

Especially this roadsign shows us that the credit crisis is far from over yet: although the export from The Netherlands to its neighboring countries is increasing and the German export is also doing well, the international export has clearly not grown so much that the BDI is at a peak level.

This might have also to do with a sharp increase in the number of Chinese container ships that suppresses the cost per ton, but a sharply growing economy would increase the BDI anyway.

Baltic Exchange Dry Index (BDI),
exponential average in red.
200 day exp. avr. green (copyright:

Baltic Exchange Dry Index (BDI)Recent,
exponential average in red

And please take notice: these BDI ratings were put together well before the events in Japan. This means these figures might be much lower when they would be measured today.

So if you have a nest egg and you want to invest it: hold your horses and be careful where you invest in, in these very trying times, as there is a lot of risk priced in in every investment at the moment.

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