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Tuesday, 23 August 2011

American worries on liquidity European banks justified? In aftermath of Lehman default, Dutch banks alone borrowed a total amount of $45.5 bln from the Fed. Thank you, America!

On Sunday, August 21, I wrote an article on the growing mistrust between the US Federal Reserve and the large European banks with branches in the US.

In that article, I stated that the Fed might be slightly panicking, by demanding minimal amounts of cash money to be held at the American branches of these banks. The Fed demanded maintaining these amounts, in order to prevent cash, held by the American branches, to be siphoned out to the parent companies in Europe.
However, I must admit now that the Fed might have a point after all: 

Bloomberg published on August 22nd a list of the Fed loans that large banks received during the aftermath of the Lehman crisis. The amounts on this list are staggering

The largest loan that a European bank received, was $84.5 bln for Royal Bank of Scotland. This bank, one of the three companies that took over ABN AMRO, still has large subsidiaries in The Netherlands and can therefore be considered to be partially Dutch.

For the sake of this article, I further only show the banks with a Dutch background: Fortis, Rabobank,  ING and ABN AMRO:

Fortis bank: $26.3 blnFortis Bank SA/NV, the banking unit of Brussels-based Fortis, was broken up after getting 7.2 billion euros ($10.3 billion) of capital from the governments of Belgium and Luxembourg in September 2008. It was later nationalized. Belgium sold a 75 percent stake in the bank to Paris-based BNP Paribas SA in an all-stock transaction that took seven months to complete. In a 2009 report, Fortis disclosed borrowing as much as 58.7 billion euros from the emergency liquidity lending facilities of the Belgian and Dutch central banks in October 2008. Data show Fortis Bank also tapped the U.S. Federal Reserve's discount window, taking a $7 billion overnight loan on Sept. 29, 2008, and as much as $26.3 billion in February 2009 from the Commercial Paper Funding Facility and Term Auction Facility.
Rabobank: $9.1 bln 
ING Bank: $8.6 bln 
ABN Amro: $1.5B 
Aegon Insurance NV: $248mln
These aforementioned data and the other data in Bloomberg’s overview show the unequalled amounts of loans that these non-American banks received to stay afloat. Amounts that the Dutch and European taxpayers were never aware of. What makes these American loans extra controversial is the fact that the same banks also siphoned billions of Euros out of the European taxpayers.

If these banks would have bankrupted after all, the European and American taxpayers would have been on the hook for hundreds of billions of dollars. Therefore I suggest, that instead of acting like they are on top of the world again and handing out bonuses by the billions, the banks mentioned in the article should reward the American generosity with a big ‘thank you’.

I will do so now on my own behalf: thank you, American people, for helping these (sometimes reckless) banks to stay afloat. I appreciate it very much and I know that Americans all over the country are now suffering for this decision to help the European banks.

It was surprising for me to see that there were also a number of automobile companies present on this list:

Automobile company
Borrowed amount
Ford Motor Company

I just wonder why these companies were ´too big to fail´?! Saving the banks might have been necessary, but saving Toyota and the Bayerische Motoren Werke? Anyway, these companies were saved and that has been good for unemployment in Germany and Japan. will be updated again from September 6th

Sunday, 21 August 2011

Mistrust is clouding the atmosphere between European banks and US officials, as contagion hazard lurks.

Last Thursday August 18th,  the Wall Street Journal writes an interesting story on the growing mistrust between the US Federal Reserve and large European banks with large American branches.  

The Fed is afraid that the enduring debt crisis in the Euro-zone makes that these European banks with American branches have increasing difficulties to roll-over their debt. Other parties that want to lend money to these banks, might not be sure of their counterparty’s asset quality; especially if they suspect large exposure to sovereigns bonds from the PIIGS countries or other troublesome investments. This could lead to increased interest rates that are well above the Euribor / Libor level, making borrowing of large sums of cash very expensive.

To avoid these higher interest rates, the parent companies in Europe could choose to withdraw cash from their American branches instead, to fulfill their European liquidity needs. This could lead to a shortage of cash at the American branches,  and thus to contagion from the European debt crisis to the US. In order to prevent this from happening, the Fed of New York held meetings with representatives of these European banks.

Here are the pertinent snips of the WSJ-article:
Fed eyes European Banks
Federal and state regulators, signaling their growing worry that Europe's debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe's biggest banks, according to people familiar with the matter. 
The Federal Reserve Bank of New York, which oversees the U.S. operations of many large European banks, recently has been holding extensive meetings with the lenders to gauge their vulnerability to escalating financial pressures. The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S. and, in some cases, pushing the banks to overhaul their U.S. structures, the people familiar with the matter say. 
Officials at the New York Fed "are very concerned" about European banks facing funding difficulties in the U.S., said a senior executive at a major European bank who has participated in the talks.Continued lack of resolution over the sovereign debt crisis as well as disappointing earnings reports caused Italian, German, Spanish and French indexes to drop over the day. 
Regulators are trying to guard against the possibility European banks that encounter trouble could siphon funds out of their U.S. arms, these people said. Regulators recently have ramped up pressure on European banks to transform their U.S. businesses into self-financed organizations that are better insulated from problems with their parent companies, a senior bank executive said. In one sign of how European banks may be having trouble getting dollar funding, an unidentified European bank on Wednesday borrowed $500 million in one-week debt from the European Central Bank, according to ECB data. The bank paid a higher cost than what other banks would pay to borrow dollars from fellow lenders. It was the first time for that type of borrowing since Feb 23. 
Anxiety about European banks' U.S. funding comes amid broader concerns about whether Europe's struggling banks will be able to refinance maturing debt in coming years. Investors, wary of many European banks' holdings of debt issued by troubled euro-zone governments, are shunning large swaths of the sector. While top European banks already have satisfied about 90% of their funding needs for 2011, they still need to raise a total of roughly €80 billion ($115 billion) by the end of the year, according to Morgan Stanley.
The banks mentioned in the article were Deutsche Bank, Société Générale en Unicredit. Also Rabobank, the Dutch bank, has a large American operation.
I doubt, if the Fed has much to worry about, at this moment. For now, it seems more a hypothetical than a real problem and you might even think that the Fed is panicking.

What this article proves, however, is that the ‘extend and pretend’ policy of the Euro-zone countries towards the sovereign debt crisis of the PIIGS-countries, is turning into a catastrophe. The Euro-zone´s failure in finding a thorough solution for the European debt crisis, leads to a spreading mistrust in the financial world and subsequently to mistrust between Europe and the US. 

European banks that formerly had a rock-solid reputation in the US, are now suspected of being ‘future liquidity risks’, due to ‘cash being siphoned out’.

The Euro-zone must not wait until September with finding a further solution for the European debt crisis. There are about two credible options for the Euro-zone:

·         If the Euro-zone seriously wants to bail the PIIGS-countries out when these are in need, they need to have more bullets in their EFSF bazooka: maybe about €1,5 trn.

·        The other option is to take a 50% voluntary haircut on Greek debt and hope that that doesn´t lead to a financial meltdown, inside and outside Europe. Of course, this would only solve the Greek problem and it might even bring Spain, Portugal and Italy to the idea that they could do the same. The latter would in fact be the ´car crash´, as advocated by Todd Harrison of Minyanville ( debt destruction on a giant scale.

However, doing nothing – still the option of choice for politics in the Euro-zone, currently – seems like playing with fire: the forest fire that is now spreading from Europe to the US.

Friday, 19 August 2011

Rabobank RRE Quarterly review: The Dutch housing market remains… firmly locked.

The Rabobank presented today its quarterly review on the Dutch housing market. As the regular readers of this blog would expect: the news was bad.
Here are the pertinent snips of the summary of Rabobank’s quarterly review. 

People that understand Dutch can find the whole review behind the link, as it is a informative  read.
The market for existing private housing in The Netherlands suffered from a bad second Quarter. Both the price level and the transaction numbers reached a new low. 
The decreasing transaction numbers and the further increase in the number of houses for sale show that sellers and buyers cannot reach an agreement currently. From a buyer´s point-of-view, this is caused by a lower borrowing capacity, general government cutbacks and the increased mortgage interest. The lower borrowing capacity is a consequence of an advise by the Nibud (Netherlands´ Institute for Budget information), effectively limiting the maximum borrowing amount on mortgages. 
Also the debt crisis in Europe is bad for confidence in the housing market, which leads to a diminished demand for private housing. Many sellers are not willing yet to adapt their sales prices to the current market circumstances. The sluggish housing market development was a reason for the Dutch government to reduce the conveyance duty. We expect that because of this measure, sellers and buyers will more often reach an agreement. We expect a total housing sales in 2011 of 125,000 and in 2012 133,000. 
The increase in transaction numbers is good news for sellers as well as buyers, as both parties can move more quickly to a house that meets their housing desires. Also for real estate agents, notaries and removal firms this is positive news. However, the reduction in the conveyance duty will not cause a turnaround in price development. 
As a consequence of this measure, the supply will increase more rapidly compared to demand, which fuels the competition between sellers. Also the borrowing capacity of buyers will remain under pressure, due to cutbacks and a new reduction of the allowed interest burden percentages. This is bad for the affordability of houses. 
It can be expected that the housing prices on a national level will drop by 2% in 2011 and by another 2% in 2012. 
The newly built housing sector will suffer from the lowered conveyance duty in the long run, as newly built houses will become relatively more expensive, compared to existing houses.
The good thing about this Quarterly review is that it monitors that the housing market is still locked up. The bad thing is that the Rabobank kicks the can further down the road as far as it concerns the excessive prices and mortgages of Dutch housing. Besides that, the bank is overly optimistic on the numbers of sold houses for 2011 and 2012, while there is no reason whatsoever to be that optimistic.

The main reason that sellers and buyers can’t meet each other at the right price, is:
  • The sellers are forced to ask a price for their house that is too high, due to the enormous mortgage that needs to be paid back.
  • The buyers can’t borrow the money to pay this price, as their bank won’t allow them.
Both parties can’t change their price and so the perfect stalemate emerges. A mere four percent of conveyance duty reduction won’t change this stalemate. I stated this on July 1 in my article Dutch Finance Minister De Jager partially cuts conveyance duty, and I will state it here again.

To unlock the Dutch housing market, the housing prices need to be lowered. As this is not in the interest of the Dutch government and the Dutch banks, pension funds and insurance companies, this won’t happen very soon as far as they’re concerned.

The association of Real Estate agents NVM and the homeowner association ‘Vereniging Eigen Huis’ THINK it is not in their interest to lobby at the government and the banks for lower housing prices. And the homeowners wanting to move: they wait and wait and wait, but the perfect buyer, paying their desired price doesn’t show up.

The government could change this stalemate by abolishing the Mortgage Interest Deduction as an utter market disturbing measure and by making transitional arrangements in order to help homeowners to lower their mortgages. But the government won’t do this.

But even if this doesn’t happen: there comes a time when the Dutch house owners that live in a too expensive house can’t pay their mortgages anymore: when their labor situation changes for the worse or when the interest rates on mortgages go up. In the end, something has got to give and that something are the housing prices.

The Dutch housing market is definitely a bubble in my opinion, but it is the kind of bubble that everybody is struggling for to keep inflated.

Thursday, 18 August 2011

Strange days indeed: socionomic mood all over the world has some nasty side-effects.

Nobody told me there'd be days like these
Strange days indeed
most peculiar. Mama. 

Although I unfortunately got used to the cruelty of humans and human gloating during my 45 years of age, there are limits to my tolerance: American PoW’s (Prisoners-of-War) being decapitated-on-video in Iraq or Afghanistan and other videos of human perishing and suffering or videos of cruelty to animals are way beyond my limits.

But unfortunately, I know that there are people that watch and (sometimes even enjoy) these video’s. The German’s have the beautiful word ‘Schadenfreude’ (roughly translated: ‘misery pleasure’) for it

It is my opinion that these videos are a reflection of the socionomic mood that we are currently suffering from and I want you to look at the following news item in this light. The Dutch newspaper ‘Algemeen Dagblad’ ( reports:
A serial-killing bull [a real one – EL] made another victim.
A 29 year old man died on Saturday, as a consequence of the wounds that the 500 kg (1000 Oz.) heavy bull Ratón caused him during a city fiesta in the town Xativa (East-Spain).Ratón, Spanish for mouse, butchered two other spectators during the last decade . 
Due to his murderous reputation, Ratón’s owners let themselves pay €10,000 before showing their premium animal. Festival organizers are gladly paying this amount, according to the owners. When Ratón performs, spectators are happy to pay the double amount for an entry ticket. 
On video footage, it can be seen how the infamous bull swung the man into the air in the arena and subsequently smashed him to the ground. According to local newspaper Las Provincias, eyewitnesses declared that the man was drunk and was previously led back to his seat at the grandstand.
Of course this news item shows the video footage of the poor man. I didn’t look at this footage and I don´t want to add it to this message. Everybody is of course free to click the aforementioned link and to watch it himself.

I from my point-of-view ask myself if it will ever get better with this world, as long as people enjoy footage like this. And even are willing to pay a double entry price, for the chance of seeing someone being butchered by a wild animal with a very sad past.

And before you call me that: I don’t consider myself a hypocrite by writing on this story. I just want to tell it as an illustration of the strange days we are living in.

Everybody for themselves and God for us all: a story on idiocy to the third degree in the European Union.

The Finnish government shocked the other Euro-zone members last Tuesday by asking a collateral of €1 bln, stored at a trusted third party, in return for their share of the emergency loan to Greece. When this loan would not be paid back by the Greek, the collateral would be handed over to the Finns.

The Finnish collateral clause was  negotiated earlier in the preparation phase of the July 26, EU-meeting. For Finland this was a ‘take it or leave it’-clause. To prevent the other Euro-zone members from reading about it, the clause was hidden in paragraph 9 of the July 26 agreement on Greece, far away from the always vigilant eyes of a.o. Dutch Finance Minister Jan-Kees de Jager.

And of course, De Jager was shocked to hear of this Finnish deal, but instead of accusing the Finns of treachery or loansharking (in of course more diplomatic terms), he decided: ‘If Finland wants a collateral, we want it too’. 

And Austria, Slovenia and Slovakia all screamed in harmony: ‘We also want a collateral’.

It is like ‘Snow White and the Seven Dwarfs’: if you give money to one dwarf, the rest will follow. And the Greek get stuck in the situation that they receive ‘promises of money’ in one hand and hand out real money with the other. ‘Everybody for themselves and God for us all’, is the Dutch proverb that says it all.

It is the utter stupidity of EU politics, enough to keep the financial markets sleepless at nights. And at the same time, politics is blubbering about the financial markets that don’t understand the political process. Yeah, right.

The Financial Times writes on this shocking story. Here are the pertinent snips:
Greek rescue package faces further hurdles
Two of the eurozone’s key creditor countries said on Thursday that their backing for Greek bail-out loans may be contingent on securing concrete collateral from Athens, a move that would create fresh hurdles to the new €109bn Greek rescue that may be difficult to surmount. 
The announcements by Austria and the Netherlands, two of the eurozone’s six triple A rated members, follow a tentative deal reached on Tuesday between Athens and Finland, another triple A eurozone country which for months has demanded collateral in return for its support for the bail-out. 
The Greek bail-out deal reached last month allowed for such bilateral agreements as a way to placate the Finnish government. Senior eurozone finance ministry officials started a two-day meeting to review the deal in Brussels on Thursday. 
But approval of the Finnish side agreement now appears set to open a Pandora’s box, with as many as four other countries that face a bail-out backlash at home seeking to strike similar deals with Athens. 
According to Jutta Urpilainen, the Finnish finance minister, Greece agreed to make a cash deposit to Helsinki matching the size of Finland’s loan guarantees in the new bail-out, money that would then gather interest after being placed in highly secure investments. 
Ms Urpilainen’s Social Democratic party campaigned against another Greek bail-out during this spring’s national elections. It only agreed to join the governing coalition after Jyrki Katainen, the new Finnish prime minister, agreed to make such collateral arrangements a prerequisite to Helsinki’s support. 
Harald Waiglein, a spokesman for the Austrian finance ministry, said that while Vienna did not view a collateral deal as a prerequisite for its support, it would seek such an agreement if the Finnish plan was approved. 
“There cannot be a model just for one state,” Mr Waiglein said. A spokesman for the Dutch finance ministry said that The Hague would request the same if the Finnish deal was approved. 
Other smaller countries are expected to follow suit. European diplomats said Slovenia had indicated during technical discussions that it might seek a collateral deal, and the finance minister of Slovakia, which opted out of the first Greek bail-out, told a press conference Thursday that he would also request a bilateral agreement. 
The broadening demands for side deals could siphon away much-needed cash from Athens as it attempts to meet tough debt and deficit targets in its bail-out programme. In addition, further delay in finalising the Greek rescue could wreak havoc with what has already been a highly fraught process. European officials have been pushing for the new deal to be in place before Greece’s next aid payment, a €8bn ($11bn) loan due late next month.
If I would be the Greek Prime-Minister Giorgios Papandreou, I would say: ‘Shove this emergency money. We don’t want it anymore. Instead, we decide to pay only 50% on every sovereign bond at maturity’. 

Because it seems that Greece is playing a losing ball game anyway. And then at least, they can decide to play it according to their own rules.

The consumer feels that the economic circumstances are deteriorating… and raises his white flag.

The economic growth monitor of Tuesday, August 18, supplied by the Dutch Central Bureau of Statistics ( showed already that the economy of the Netherlands had stalled. Also the economy of the other important Euro-zone countries – not belonging to the PIIGS-group – showed zero or even negative growth.
My conclusion based on these figures was, that we are heading into a new recession. Yesterday, I decided to drop a brick, as I even offered that we never really came out of the depression that started at the end of 2008 in Europe, but just have had a little upswing, totally caused by government spending and stimulus.
After the latest publication on ‘consumer confidence’ in The Netherlands by the CBS, it becomes clear that the consumer is very much aware of this. The text is a translation of the pertinent snips of the CBS-release. My charts are all based on the CBS-data, although the presentation differs from the CBS-presentation.
I must remind you that these findings are not based on solid data, but on a weighting of the rates of positive and negative answers of Dutch people:
The consumer confidence was smashed in August, 2011. The indicator of consumer confidence went down for a massive 9 points and landed on -21.  Not as much the willingness to purchase durable goods, but the confidence in the economical climate evaporated.
The consumer confidence indicator is based on the following five data:
·    Economic situation for the last and the next 12 months
·    Financial situation for the last and the next 12 months
·    An indicator showing whether it is a ‘favorable time for large purchases’.

The consumers were very pessimistic on the economic climate in August, 2011. The confidence in the economic climate for the next 12 months was the figure that dropped the most: 25 points. This drop was the second within a short period: in June, there had already been a drop by 10 points. Also the economic situation during the last 12 months dropped substantially with 21 points, compared to July.
In contrary to its view on the economic situation, the consumer’s willingness to purchase changed little. Consumers were a little more negative on their own financial situation, but considered the time more favorable for the purchase of durable goods. The partial indicator ‘willingness to purchase’ dropped one point to -10, which is still very low.
And then the CBS prints an important disclaimer:
The mood of consumers is normally closely connected to the development of stock rates. This is now also the case.
The following 3 charts show the figures on consumer confidence in a different setting than the CBS does. As I find this setting more informative, I must warn you that this makes it harder to compare the CBS data in the press release with mine:
Financial and economic situation last 12 months (
Click to enlarge
Although the figure on the economic situation is subjective, I consider it highly informative: the objective deterioration of last month’s economy supplies a subjective, negative feeling on the last 12 months, that was much stronger than only one month ago. And how people feel on the past and the future decides largely how people will financially act in the coming period.
The most remarkable thing is that the feelings on the own financial situation hardly changed over the last two years, but the spread with the economic situation changed enormously: first for better and now for worse again.
Financial and economic situation next 12 months (
Click to enlarge
The same is true for the expected economic and financial situation for the coming 12 months. People expect that their personal financial situation will hardly change in the coming months, while their expectance for the economy drops through the floor. This is a strange discrepancy, but this discrepancy will probably decide the financial behavior of people in the coming months.
Consumer confidence vs willing to purchase durable goods
(; click to enlarge

This also becomes clear in the last chart: during the last four years, you can clearly see that the willingness of people to do large purchases is often lagging the consumer confidence, for better and for worse. As the consumer confidence deteriorated over the last month, I expect the ‘willingness-indicator’ to do the same, during the next months.
These figures are all very negative. And according to me, it would be too easy to describe these feelings as ‘being mainly driven by the stock markets’, like the CBS does.
In my opinion (which is formed by findings of a.o. professors Todd Harrison and Kevin Depew of Minyanville (; both extremely smart people), the socionomic mood drives the direction of the stock markets; not the other way around.
People get a tendency of becoming more negative when the news is negative, but it goes too far to state that the stock markets are the mainly responsible party for the negative attitude.
I would rather say that mood has been deteriorating, due to the clear unability and/or unwillingness shown by Europe and the US, to solve the political problems surrounding the PIIGS-countries and the debt ceiling. People are smart enough to understand that these events have implications for the economy of The Netherlands, but are also smart enough to notice that their personal, financial situation will probably not suffer from this very much.
However, caution pays: that is the reason that the willingness to do large purchases follows the consumer confidence quite closely.

Wednesday, 17 August 2011

Is the world heading into a recession? Or were we never really out of the depression, to begin with?

At this moment Europe and the United States seem to head into a recession. The continuing attacks of the financial markets on the sovereign bonds of the PIIGS-countries in the Euro-zone and the bleeding heart-solution for the debt ceiling, disclosed the weakness, dividedness, shameless self-promotion and even egoism of our current leaders: in the US, as well as in Europe. The leaders rather ‘kill’ the economy in their country than giving in to their opponents: the other party (US) or the other countries (EU). In the meantime everybody tries to play the blame-game.

But think of it: if the aforementioned events would not have happened and if the Republicans and Democrats would have been sworn friends, would we not have been in a recession? And if Greece, Italy, Spain, Ireland and Portugal would have been ‘role model countries’ without serious debt issues, would the situation have been much better?
Probably yes, as there would have been much less debt to recover from.

But I doubt if there would not have been a credit crisis: such a crisis is a cleansing process, where people say goodbye to extravagant behavior and excess spending and return to normal, more austere behavior.

Therefore one of the most reliable signals on the state of the economy is formed by the mood of people. The recession is not only in the wallets of people; it is also in the heads and hearts of people. That is one of the valuable lessons I learned from Minyanville (

And although you can’t see (easily) what people think and how they feel, you can see what they do and don’t do. And the main thing that they don’t seem to do since the end of 2008, is consuming like they did before the credit crisis started.

It would take too much time for me to collect significant consumer data from all over Europe. Therefore, I took the data of a country that seemingly wasn’t very impressed by the credit crisis and that was one of the first and most succesfull in the recovering process: The Netherlands. If there would have been a full-blown recovery, the consumption would have returned to 2005-2006 levels, I guess?!

To show these consumer data, I make yet again usage of the Dutch Central Bureau of Statistics ( All presented charts therefore are based on CBS-data:

Sales development retail business Food
(all data courtesy of

Foodstores (other than supermarkets) maintain a positive level compared to 2005, but the swings are much bigger than in the period before the credit crisis. I consider this an austerity signal. The same is the increased sales for supermarkets: these can be considered to be cheaper than foodstores and therefore rising sales is an austerity signal.

Especially if you consider the loss of sales at the specialty food stores: specialty food is often much more expensive than normal food. Scrapping it is a clear austerity signal.
Sales development retail business Non-food
(all data courtesy of
The non-food retail showed clear growth above 2005 levels since the start of 2006. Since the credit crisis set in, the growth is anemic: a clear austerity signal.

Sales development food and beverage industry (no hotels)
One of the biggest victims of the credit crisis is the food and beverage industry (restaurants and café’s). Since the beginning of 2008, its sales imploded, only to return to growth since mid-2010. Although Q2, 2011 misses in the data, I expect a return to negative figures.

Sales and development car trade

Sales volume gas stations
Also the car industry (and as a consequence the gas stations) show the blows of the credit crisis. Although car sales finally exceeded 2005-levels at the beginning of 2011, there was an enormous increase in fuel-efficiency within the car park, since the 3rd quarter of 2009. Of course, this is the result of the tax break for fuel efficient cars, but it is also the result of a ‘return to austerity’. Especially, when you consider that the oil price is not very high currently.

All these charts show in general that The Netherlands hardly returned to consumption on 2005 levels. In my opinion, this means that the recession has perhaps finished in the wallets of the Dutch citizens, but certainly not in their heads and hearts.

Looking at consumption in The Netherlands is one thing; another thing is to look at worldwide exports and shipping. In a world with strongly rising consumption, you would expect exports and shipping to show strong growth.

To take a look if this is true, I show the latest charts of the Baltic Dry Index, courtesy of Bloomberg (

This index shows the cost per metric ton of shipping goods overseas. Although this index is influenced by the availability of container ships and the costs of ship handling at the international ports, you would expect it to be high in an economic prosperous time.

Well, it isn’t. As a matter of fact: it is only slightly above the lowest point of end 2008-2009, when the credit crisis had striken worldwide and more than 8000 points under May, 2008.

Baltic Dry Index YtD (

Baltic Dry Index 5Y (
All these data and charts show that the recession worldwide never really ended and that it is more fair to speak of a depression. We are lightyears away from the consumption of 2007 and I guess those times will be gone for a long time.

Tuesday, 16 August 2011

Goodbye growth. Hello recession. The economic motor of Europe is faltering.

What some people already were afraid of, is now confirmed by the data. A recession seems on its way to Europe. And although it will always be the discussion when a recession exactly started, I think that Q2, 2011 makes a good candidate,  at future judgment.

This last week, three of the leading economies of Europe, when it comes to growth and exports, presented their Q2 data: France, Germany and The Netherlands. ‘Not very good’ is an understatement as far as these data are concerned.

To start with the data of The Netherlands: this morning on August 16,  the quarterly results were presented by the Dutch Central Bureau of Statistics ( Here are the pertinent snips of the press release, translated to English by me. Data and chart are courtesy of the CBS.

·      1.5% growth year on year
·      Quarter on Quarter 0.1% growth
·      Investments increased by 4.2%
·      Export of Dutch products is dropping
·      No growth in household consumption.
·      Moderate job growth

The economic growth weakened strongly in Q2, 2011. Compared to Q2, 2010, the economy grew by 1.5%. However, compared to Q1 the economy grew only by 0.1%. The number of jobs was 46,000 higher than one year ago. This is shown by the first preliminary estate of the CBS.

The investments increased in Q2, 2011 by 4.2% year-on-year. Especially, there has been increased investment in means of transport and machines. Also investments in RRE and CRE increased, but growth was considerably less than in Q1. Then the building industry profited from the good weather conditions.

The export of Dutch products grew by 2.9% year-on-year. This growth is considerably lower than in Q1. Ths increase of transit goods (goods that are imported and immediately exported again) is, just like in Q1, less impressive than in the quarters before. Also the growth of the export surplus of services added to the growth of the Dutch economy.

Dutch households spent in Q2,2011 just as much as in Q2, 2010. They spent more money at durable goods and services, but less in food and additional consumption goods, like alcohol and tobacco. The usage of natural gas decreased strongly, due to the relatively soft weather, compared to one year ago.

The dropping export growth in Dutch products resulted in a moderate growth of industrial production in Q2, 2011. Also the building production grew very moderately. The growth in business services performed better: it rose to 1.4% in Q2 from a slight decrease in Q1. At mineral production and energy production companies there has been a slight decrease of production.

Volume of growth of the Gross Domestic Product, based on the 2005 price level (
To start with the most positive figure of this CBS-report: the 4.2% growth in investments. This is a good figure, compared to the other figures. However, I’m afraid that these are mostly catch-up investments. Companies postponed investments in 2009 and 2010 and kept on running with an aging vehicle and machine park. Now, these companies are making those postponed investments. I think so, because there doesn’t seem to be a true business driver in the CBS-data.

Although, it doesn’t seem a good development that export seems to be stalling in The Netherlands, it can be a blessing in disguise, as our export-surplus is the import-surplus of Italy, Greece, Spain and Portugal. It is a good development when there is more balance within the Euro-zone. See my article: Germany,  an economic miracle?.

It is my true opinion that the lagging household consumption is caused by the fact, that the capital of Dutch households is still held hostage by the excessive mortgages that rest on Dutch housing.

And as long as Dutch Finance Minister De Jager keeps on kicking the can down the road with the Mortgage Interest Deduction and other measures to maintain the current status quo, nothing changes in this consumption.

The Q2, year-on-year growth in The Netherland still seems alright with 1.5%, but you should be aware in Q2, 2010, The Netherlands was still recovering from the deep economic crisis of 2009.

That the economy is already stalling within two years after such a bad recession, is a bad sign: the sign that there was too little pain in 2009, which I already advocated in a number of articles:

From the article behind the second bullet, is the following section:
At this moment, the phenomenon occurs that The Netherlands is still incorporating the last economic crisis (2008-2009) into its current economy, while the next crisis (in reality a follow-up on the last crisis) seems already here.

It is my expectation that the coming years the drop in purchase power might be stronger and the unemployment figures might rise substantially, due to deteriorating circumstances for:
Especially the last category will (in my opinion) suffer from the fact that the part-time unemployment benefit, which was established in 2009, prevented companies from reducing overcapacity in numbers of jobs and production facilities. As a consequence of this special government subsidy, companies kept people under contract that otherwise would have been dismissed. How noble that may seem initially, it makes companies less competitive. Especially now a new crisis is looming, due to the continuing problems in the Euro zone.

Instead of a lasting positive effect on the employment situation, the parttime UB did only have a shifting effect: postponing the inevitable loss-of-jobs to a few years later. This effect may be reinforced by the current effects of the deteriorating economy in Europe: a double-whammy.

I suspect the data in the coming years to be worse, much worse.

The unemployment figures did not rise yet, but I still suspect they might within one or two years, when the effects of the Part-time Unemployment Benefits have disappeared and companies still remain with overcapacity. Further, the CBS data seems to be matching with my July 17, findings.

The Netherlands, although the 16th economy in the world ( in GDP, is still a small economy. The following two economies aren’t: France and Germany. And both had terrible data over Q2. The Dutch financial newspaper Het Financieele Dagblad writes on both economies in a series of articles. I will write here the translated, pertinent snips of these articles:

There is no growth in the French economy anymore. In Q2, 2011, the GDP stalled at an equal level as Q1.

This was published by the French bureau of statistics ( last Friday, August 12. In Q1 the economy still grew by 0.9%, the largest increase in five years time.

The stalling of the French economy puts extra pressure on President Nicolas Sarkozy. He wants to make some drastical cutbacks and abandon certain tax-cuts to get the governments finances back in the harness. France is pursued with vigilance on the financial markets, as there are serious doubt on the country’s  creditworthiness in the long run.This might cost the country its Triple-A rating.

According to the statisticians, the stand-still is mainly caused by dropping consumption of households. It dropped in Q2 by 0.7%.

Dropping household consumption: where did we hear that before…

In another good article, called La gloire de France (the glory of France), the Financieele Dagblad looks at the heritage of President Sarkozy in the year before the French elections:

In 2007 the French brought the Presidency to Nicolas Sarkozy, after his promise to end the taciturn character of the political elite. Four years later disappointment reigns. The distance between voter and elite remains big and Sarkozy only further emphasizes the imperial character of the Presidency.

The tumultuous developments on the sovereign bond market totally changed the playing field and the rules for Sarkozy, but also for leaders like Berlusconi, Zapatero and Obama. The expectance that elections can be won with traditional campaigns, where political differences are emphasized and voters are seducted with unsustainable promises, has completely disappeared.

The message in the battle for the French Presidency is not easy. France must reinforce the economy and cut the state budget. Another blow for French citizens that saw an increase of the retirement age to 62 from 60, shortly before.

The French economy has been an equal match to Germany for a long time, due to European subsidies. But now, if the French government won’t act, the country is sliding into a subgroup, stuck between a strong Germany block (including The Netherlands) and the economically weak PIIGS-countries. And it can’t use Brussels anymore to cover up its weaknesses.

This position won’t be acceptable for the proud French government. This ask for courage and political leadership to break the political status quo. Four years ago, it seemed that Sarkozy ran the gauntlet, but he failed. Now, France and Europe should hope that Sarkozy or his successor will achieve this, as words only aren’t good enough.

This is a very good article, that I unfortunately had to edit slightly. It’s a must-read for people that speak Dutch.

And the last of the ‘strong’ Euro-countries,  mentioned in this article, is Germany. And also Germany showed disappointing  growth data. Again, Het Financieele Dagblad:

The German economy grew by 0.1% in Q2, quarter-on-quarter. Economists expected a growth of 0.5%.

This was announced by the Germany statistical bureau (  on Tuesday, August, 16th.

A Bloomberg survey showed that international economists counted on 0.5% growth. Year-on-year the growth of the Germany economy was 2.8%.

‘The German data is absolutely disappointing’, according to Jurgen Michels, chief economist Eurozone at Citigroup in a statement to Bloomberg. ‘Everything points at stagnation in the Euro-zone in Q2.’

In the end of the morning the statistical bureau of the EU, Eurostat, will present the Q2 growth-figures of the Euro-zone. According to the economists in the Bloomberg survey, the growth will be 0.3%, compared to 0.8% growth in Q1.

I think that the economists in the Bloomberg survey have been overly optimistic on the growth figures for the Euro-zone, that will be presented this afternoon. The economists missed the boat on France and they missed the boat on Germany: will they be spot-on this afternoon? Especially if you remember that Germany, France and the Netherlands didn’t have any growth, almost? And you consider that these are the strongest (exporting) countries within the Euro-zone?

I think that the growth will be close to zero or even negative (It can be that the Eurostat figures were already presented during the time I wrote this article, but I didn’t have a look at them yet.

And towards Germany and the other countries mentioned here: as long as the household consumption in Europe doesn’t increase and export to the rest of the world doesn’t increase strongly, there will be no true economic growth within the Euro-zone. It’s impossible, as one country’s economic growth will always cannibalize on the economic growth in other Euro-zone countries, due to the resulting imbalances on the trade balance. Please read again the aforementioned article: Germany, an economic miracle?

And for the German household consumption to increase, the general wages have to go up, which is unlikely to happen shortly, in my opinion.

Update 14:30 (CET)

The Spanish economy showed light growth in Q2, according to De Volkskrant.

The Spanish economy grew by 0.2% in Q2, 2011, compared to Q1. This was presented today by the Spanish bureau for Statistics.

Year-on-year the economy grew by 0.7%; this was a little less than in Q1, when y-o-y growth amounted 0.8%.

Well, those are comforting figures. The Eurostat-results will be much better than I initially thought.