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Tuesday, 24 July 2012

Hourly fees of freelancers are heavily under pressure, nowadays. A worrisome, but hardly surprising development

The excess supply of labor in the market and the diminished demand for it, as a consequence of the economic crisis took their toll on the hourly fees of freelance professionals, or ZZP’ers (i.e. independents without personnel) as they are called in The Netherlands. 

Already in September, 2011, I warned for the mounting pressure on the hourly fees of freelancers in the Building and Construction industry, the Financial industry, the ICT, medical industry and the free professions, as a consequence of the distorted balance between demand and supply:

And even if the freelancers keep their assignments, the hourly rates are often pushed downwards strongly, due to the (very) unbalanced relation between the principal and the assignee in this supply-market.

Only the best professionals with skills that are unequalled by others and that might even make them unique, can maintain virtually writing their own checks. You could call this the Champions League of the freelance workforce.

All others are earning less and sometimes much less. This is a strong deflationary force.

Today, these insights are confirmed by the latest data on the hourly fees of freelance professionals. Here are the pertinent snips from an article at the website of business radio station BNR ( in The Netherlands:

Freelance professionals earn 15% less per hour than last year and a staggering 42% less than two years ago. This is disclosed by an investigation among 15,000 freelancers by the website The average hourly rate is currently €42.

Freelancers already go through a hard time for quite a while. The investigation shows that there is little improvement yet. At the same time we notice that there is a lot of activity on the internet, where entrepreneurs get much more ‘bang for their buck’, concerning activities like bookkeeping and the creation of websites and apps.

Next to the crisis, it is the increasing competition that causes the dropping hourly rates. “More and more people started freelancing. Not only as a replacement for a steady job, but also as an extra source of income, next to the daytime job; the so-called moonlighting’, according to Tymen Selman, founder of

This development is very harmful to the people whom it concerns. Although an hourly rate of €42 does not sound too bad, it means that the people keep too little money to save for a rainy day and to build up their pension.

If such a period of diminished fees lasts for only a short time of 12 months or less, most freelancers can survive without much problems. On the other hand, when such a period lasts for a number of years, the freelancers will be starting to eat into their capital with eventually grave results. When freelancers earn too little money structurally or when they are too long without an assignment while not having a financial backup in place, poverty may lurk eventually. Freelancers don’t receive unemployment fees and don’t receive the other kinds of benefits that normal workers do receive when they become unemployed.

In good economic times, the risk of being without an income for a longer period of time is often more than compensated by the generous rewards that freelancers receive from their principals.

But these are not good economic times:

·         freelancers earn much less money per hour in their assignments. The 42% reduction per hour, compared to 2010, is a lot of money and can mean the difference between financial stability and an awkward financial situation, as the costs for freelancers mostly have remained at the same level or have even increased, compared to 2010;

·         freelancers have in general much shorter assignments than a few years ago. At this moment the assignments are often a matter of weeks, instead of the months or years that the business was previously used to;

·         the time between assignments for freelancers is (much) longer than a few years ago, due to the increased competition that makes it even harder to acquire a new assignment;

This triple whammy could bring many freelancers in financial trouble, like I already predicted last year. At this time, there is still no improvement visible at the horizon.

Monday, 23 July 2012

Dutch cardiologists threaten: not supplying an approval for new anticoagulation medicine will cost more than 600 lives yearly! Will it really, or is this the pharmacy lobby at work?!

Today, a pressing statement was published by four leading cardiologists and a pharmacologist in the Dutch newspaper De Telegraaf (  These cardiologists lobbied for a quicker approval of new, oral anticoagulation drugs. If this approval doesn’t happen soon, this might cost hundreds of lives of heart patients per year, according to the cardiologists. Here are the pertinent snips of this article:

Four cardiologists and a farmacologist urged Dutch Minister of Public Health Edith Schippers and the Dutch Council of Health Insurers (CVZ) to hurry up with the approval and subsequent reimbursement of a new generation of oral anticoagulation medicine.    

According to the leading Dutch cardiologists, the political and administrative lingering will lead each year to the death of at least 600 thrombosis patients and thousands of unnecessary hospitalizations.

The newly developed drugs are already waiting for at least a year on their official approval for reimbursement from the Dutch Minister of Public Health and the CVZ. With this approval, between 800 and 1300 haemorrhages per year could be prevented, according to these experts in the area of anticoagulation and heart rhythm disturbances. The new drugs are much more effective and saver than the currently used anticoagulants. These are now administered to 225,000 patients with the rhythm disturbance atrial fibrillation.

Earlier, critical articles have been published in Medisch Contact (i.e. Medical Contact) on the new generation of anticoagulation drugs. A number of investigations shows indeed a lower risk of getting a haemorrhage. However, although a meta-analysis in BMJ shows that the new, oral anticoagulation drugs are at least as effective as enoxaparine, the better they prevent veneral thrombosis, the more (dangerous) bleedings occur.

When new and better drugs can help patients that have basically life-threatening diseases to have a better quality of life in spite of their illness, I am of course in favor of such medicine.

Still, I can understand the reluctance of the Minister and the Dutch Council of Health Insurers to speed up the approval process for these new drugs.

Here are my reasons:

  • Drugs in an aging society, like the Dutch society is, are a multi billion Euro business. Especially drugs for chronical diseases, like thrombosis and heart failure and ‘welfare’ diseases, like excess cholesterol and diabetes type II, are geese with golden eggs. No companies are better aware of this than the pharmacy giants like Merck & Co Inc (MRK), Bayer AG (BAYRY) and Novartis AG (NVS). This is the reason that litterally billions of dollars are invested in medicine for these welfare diseases and much less money in an anti-malaria medicine that can save the life of many millions of poor people on earth;
  • Many established surgeons, pharmacologists and cardiologists are virtually on the payroll of the big pharma companies. These people get compensated in kind by big pharma for endorsing their medicine and get a.o. courses, seminars and meetings at the most beautiful spots in the world for a token price. There are many connections between big pharma and surgeons that are not disclosed to their patients or the general public. Many of these physicians are not in a situation anymore that warrants objective advices to their patients or the general public;
  • Some big pharma companies have a dubious reputation for funding investigations into their medicine; more than once, these investigations have been executed according to the principle: ‘who pays, decides…’. Straight-forward fraud with testing results has not been proven often. However, there have been cases where unfavorable results and (sometimes fatal) complications among patients have been deliberately left out of the investigation in order to make the end results more favorable for the medicine in question. One of the most notorious cases was that of Vioxx, an arthritis drug that ‘may have led to more than 27,000 heart attacks and sudden cardiac deaths, before it was pulled from the market…’;
What I don’t like in the plea by these cardiologists is the smell of fearmongering that the article spreads. Calling numbers of deaths and hospitalizations as a consequence of not having a certain medicine is making use of statistics that are impossible to prove. Especially when you reckon that these new drugs can also have negative side-effects, like an elevated risk for bleedings. Mark Twain already said in one of his books: ‘there are lies, damned lies and statistics’.

When statements like these are uttered by people whose objectivity can be under jeopardy of their personal interests, you should always be very careful with it. Not that I doubt the objectivity and personal integrity of Dutch cardiologists, but just in case…

If these new anticoagulation drugs are indeed much better than the existing drugs, I don’t have any doubt that their official approval will be due. But there is no need to hurry things, as too much haste in case of medicine for life-threatening diseases can also have fatal results.

All opinions in this article are mine, unless a link to an external article is mentioned

Tuesday, 17 July 2012

Another one bites the dust in the Dutch building and construction (B&C) industry

And another one gone, and another one gone
Another one bites the dust

The enduring misery at the overcrowded Dutch market for newly built housing continues to take names in the building and construction industry.

Last weekend I wrote about the financial setbacks and the (near) bankruptcy of the building companies Ballast Nedam and Moes. Today, the news was published that another middle-large building company has defaulted. Here are the pertinent snips from the article in Het Financieele Dagblad (  

Tubbergen, The Netherlands-based building company Groothuis Woningbouw has filed for bankruptcy on Tuesday July 17, 2012.

This was stated by labor union FNV Bouw and some local media. Due to the bankruptcy more than hundred workers are currently without a job. Groothuis, a company which focused completely at The Netherlands and was almost fully dependent of housebuilding activities, came into trouble as a consequence of the slump in the newly built housing market.

Groothuis already went through two previous reorganizations in 2009 and 2011, in order to set itself free from the housing crisis, but that didn’t work out. At the end of last year, already 70 workers had been fired and 30 temporary workers had to leave the company too.

Chairman Jan Rolewes of the Employees Council states in regional newspaper Tubantia that he still hopes for a second beginning. Other insiders also don’t exclude a follow-up. Last Friday, the banks decided to withdraw their credit lines, which made a bankruptcy file inevitable.

In 2009 Groothuis suffered a loss of €4.4 mln with €45 mln in sales revenues. In 2010, the company wrote black figures again (albeit minimal) with €49 mln in sales revenues and a profit of €409,000. The annual data for 2011 has not been disclosed yet.

This was exactly the reason that I wrote this afternoon:

What is worrisome about the current peak in company defaults, is that these are not the weakest companies, like in 2008. To the contrary, these were (in general) strong companies that survived the first four years of the credit crisis, but have to give up after all as a result of (in many cases) four continuous years with red figures.

This is exactly such a company. It clung onto life by the skin of its teeth, but now that the banks withdrew their credit lines, a default could not be avoided anymore.

Personally, I am quite pessimistic on the chances of Groothuis to survive this default with a second beginning.

The misery at the Dutch newly built housing market will continue for a number of years and the current shakeout in the B&C industry is the inevitable and logical consequence of this continuing misery.

Although I feel in my heart that this is a necessary revitalization process, I really feel sorry for the people involved in this process.

ABN Amro’s warning visualized: is a wave of company defaults coming?!

Last Thursday I wrote upon a report of the ABN Amro, warning that a wave of company defaults is coming in The Netherlands.

Yesterday, the Dutch Central Bureau of Statistics ( presented its monthly data on defaults of companies. This gave me the opportunity to collect 20 years of default data from their wonderful Statline database ( and put this in one tell-tale chart. After looking at this chart, I’m sure that ABN Amro is right and the worst is yet to come:

Private and company defaults in The Netherlands 1993-2012
Data courtesy of
Click to enlarge
This chart contains a 3m moving average of the statistical data. The reason for using a moving average is: the number of defaults that can be handled in a month is dependent on the number of weekdays in this particular month, as courts of justice can only handle bankruptcy cases during weekdays.

While the absolute peak of company bankruptcy cases was in June 2009 (699), the moving average is currently higher than ever during the last 20 years. During 2008 and the first half of 2009, the initial shock of the credit crisis caused a temporary peak in defaults: from 300 per month to more than 600 per month.

You could say that during this period the weakest companies were shaken out of the tree. Soon after the peak in June 2009, the number of defaults slowly dropped to (about) 500 per month, only to really pick up again in September 2011.

What is worrisome about the current peak in company defaults, is that these are not the weakest companies, like in 2008. To the contrary, these were (in general) strong companies that survived the first four years of the credit crisis, but have to give up after all as a result of (in many cases) four continuous years with red figures. This is the reason that I firmly believe – together with ABN Amro – that the number of defaulting companies will further increase during 2012 and 2013. The worst indeed has yet to come.

A remarkable fact is that the number of defaults among private persons and one man-businesses had a peak well BEFORE the start of the credit crisis in Europe (2008-2009) and has dropped since then, only to stabilize at a much lower level. What makes this fact extra special is that the peak in the number of bankruptcies is closely trailed by the peak in housing sales and housing prices in The Netherlands.

Number of private defaults vs average housing price
in The Netherlands 1995-2012
Data courtesy of
Click to enlarge

Number of private defaults vs housing sales
in The Netherlands 1995-2012
Data courtesy of
Click to enlarge

This proves in my opinion once more that it wasn’t the credit crisis that pushed the Dutch into a more austere spending behavior, but just the simple fact that the Dutch were fed up with excess borrowing and having too much credit. The dramatic drop in the number of defaults was a consequence of this changed behavior towards more austerity, in spite of the credit crisis.

Sunday, 15 July 2012

Perfect storm heading towards B&C industry: Ballast Nedam raises black ball; Moes received kiss of life, but is still in critical condition…

During the last one-and-a-half year, I have written a lot on the structural overcapacity in the building and construction industry in The Netherlands.

The B&C companies specialized in infrastructure (roads and highways, railroads, waterways etc.) have had a relatively good year, due to substantial government investments in the Dutch highway and waterway network. However, almost all building companies specialized in CRE and RRE are clinging on to life by the skin of their teeth.

My opinion is that the whole industry must go through a period of heavy reorganization and that either 30 – 40% of the B&C companies or 30 – 40% of personnel in this industry must disappear to end this period of structural overcapacity. That such a reorganization will costs tens of thousands of jobs is in my opinion unavoidable, unless the government chooses for massive Keynesian stimulus in order to help this tormented industry.

This week, there has been news on two prominent building companies that is illustrative for the critical situation in the whole B&C industry:
  • Moes, a B&C firm that is especially active in RRE (Residential Real Estate) and CRE (Commercial Real Estate) building projects has been declared bankrupt, but could make a second beginning with the help of another B&C firm
  • Ballast Nedam, a B&C company that is a.o. active in infrastructure and specialized building (football and sports stadiums) presented very disappointing figures, but still writes black figures (only by a whisker) 
Here are the stories concerning these two companies:

The Zwolle, The Netherlands-based building company Moes can make a second beginning after all. A medium-sized Dutch building company takes over a majority of Moes’ projects. This was stated this Friday night by executor Reinier Quint from Zwolle, when asked.

The company had asked for extension of payments earlier this week, but was declared bankrupt after all. Quint couldn’t mention the name of the new owner yet, as not all contract details were arranged yet. However, it is clear that 50% of the remaining 150 jobs at Moes can be saved. The new owner takes over seven projects of Moes, especially in the Amsterdam region.

Building company Moes, with branches in Zwolle and Almere, had been in financial problems for quite some time and scrapped about 100 of 250 jobs last year. Already some years before the company had reorganized, resulting in only 150 people working at the company currently.

The building company, that had more than 1000 workers only a few years ago and earned revenues of €180 mln, came recently deeper in trouble when a principal doubted the continuity of the company and stopped its payments. As a reaction to this step, the banks further refused to supply their credit lines.

The revenues and order portfolio of the building company have strongly contracted as a result of the building crisis. A few years ago, the company entered into a few projects that supplied substantial losses. At the end of last year, there was even not enough money for a social plan when hundred people were fired.

MOES is active in CRE and RRE building projects. In 2010 the invoiced revenues contracted to €103 mln (€137 in 2009). There is no official annual data yet for 2011, but a few months ago CEO Jonathan Furst declared that the revenues would not exceed €70 mln in the coming years.

Furst declared at the time that Moes was very selective in obtaining projects. The company didn’t want to work below cost-price to keep the people working. ‘You destroy the market with such behavior. You could obtain projects that only yield (small) losses, but this will only bring you problems for years to come’, according to Furst at the end of last year against the Cobouw building magazine.

You could blame the banks for revoking their credit lines to Moes, but that would be naive. At the time that banks go into 'take the money and run' modus, a company is really in trouble. When banks aren't careful with their money, the taxpayers and bank customers will be footing the bill. 

The last paragraph sketches with a few syllables the desperate situation that the CRE industry is in currently: “The company didn’t want to work below cost-price to keep the people working”. Apparently there are companies that DO want to work below cost-price to keep the people working. If this whole industry doesn’t go through a reorganization to get the overcapacity out of the market, much more companies will be doomed.

Please don’t have to much illusions on the future of companies like Moes, even after the successful rescue attempt. The problems were neither solved, nor is the overcapacity. You could call this just ‘delayed execution’.  

Ballast Nedam, a large Dutch building company, has to deal with very difficult market conditions. Last Friday, the building company warned that an earlier prognosis for the annual result is currently under pressure.

Ballast Nedam had a 2012HY1 operational result of €4 mln, a decrease by half y-o-y. The net result was break-even, whereas revenues were €575 mln, a 5% lower result y-o-y .

These results and the further deteriorating market conditions, especially at the divisions Infra and Building & Development, put the March 2012 prognosis, speaking of constant results for the whole of 2012, further under pressure.

The company recorded that in 2012HY1 the volume in the market went down, with increasing price pressure and competition as a result. The order portfolio amounted to €1.9 bln.

Ballast Nedam is a very good and innovative building company that does business domestically and abroad (a.o. the Middle-East). Their sports stadiums are truly state-of-the-art and attract international attention. This is absolutely not the kind of company that produces buildings and CRE of mediocre quality and design.
It must be a sign that even quality companies like this get nothing more than break-even results in 2012.

The Dutch central and local governments could ‘help’ these companies by supplying all kinds of Keynesian projects in order to keep all people at work. There is always a train station to fix, a dike to reinforce and a bridge to build.  

However, if you look at all the needless building projects at the centers and peripheries of the Dutch cities and villages and all the vacant CRE and industrial zones, you would think that the Dutch government did already more than enough. It is time to stop the building madness and to reorganize the structural overcapacity in this industry.

It is harsh for the people that lose their jobs. Believe me: I know what I’m talking about. But something has to be done to stop the whole building industry from imploding!

Friday, 13 July 2012

Discussion between a Spaniard and a Fin: a very PIGGY tale

Juan Gonzales: Help! I am drowning! Please help me!

Mika Nykanen: No, I don’t want to!

Juan Gonzales: But don’t you see that I’m drowning?! And I need help?

 Mika Nykanen: Yes, I see.

Juan Gonzales: But why don’t you help me then.

Mika Nykanen: Because rescuing you will cost me money

Juan Gonzales: But I will pay it back to you, as soon as I’m save!

Mika Nykanen: I don’t believe you

Juan Gonzales: Please throw me a lifebuoy and a life-jacket. Otherwise I won’t survive.

Mika Nykanen: As soon as I throw those, I don’t have them anymore. And you will definitely not give them back. I know you people. It is your own fault that you are drowning! You wanted to swim, in spite of the rough sea. Now you want me to rescue you, although I warned you in advance.

Juan Gonzales: I know, I am sorry for being so stupid. But hey, I am drowning. Please throw me the buoy and the life-jacket! PLEASE!

Mika Nykanen: No! As soon as I have thrown them, you won’t give them back anymore.

Juan Gonzales: PLEASE!

 Mika Nykanen: OK, I will throw them…  but only if you pay me in advance.

Juan Gonzales: How can I pay them. I am DROWNING NOW, YOU FOOL!

Mika Nykanen: You give me your gold watch as collateral. I give you the life-jacket and the lifebuoy.

Juan Gonzales: OK, here’s the watch. Please give me the buoy and the jacket now.

Mika Nykanen: The watch was for the life-jacket alone. Now I want the wedding ring as collateral for the lifebuoy.

Juan Gonzales: [sounds of a drowning person…]

Dutch Authority Financial Markets (AFM) decides to throw a pebble in the pond of the €100,000+ investments, hunting for fraudulent real estate funds

In The Netherlands, there is the strange situation that ‘small’ investors who invest less than €100,000 (was €50,000) are protected by the official supervisors of the Dutch Authority Financial Markets, while the ‘big’ investors (over €100,000) are totally on their own. Roughly translated, the theory was always: small investors need to be protected by a strong, fair and vigilant supervisor, but big investors are rich, hence: intelligent, hence: smart enough to stand on their own two feet, without the help of a supervisor…

Which is of course… totally ridiculous.

The result of this longterm policy was that all investment sharks, piranhas and orca’s  offered investment products ABOVE the €50,000 threshold (now €100,000). With no exceptions, these investment funds had shiny brochures on quality, handscooped paper with beautiful full-color pictures from the best photographers. In bombastic language these brochures promised the investor a personal eldorado through his investments. Every picture in the brochure and personal contact gave a silent promise of vintage gold watches, 30ft yachts, Cuban cigars, Italian thoroughbred cars and retirement at 50 on your personal island.

It didn’t matter whether the investment goals were Nicaraguan teakwood plantations, Bernie Madoff funds, Quatarian, Spanish or Dutch Real Estate, Costa Rican fruit farms or short-sea container ships. Many of these funds promised unrealistically high yields of 12 – 20% and kept totally silent about risks, forseeable expenses, the bandwidth and realism of the promised yields and the honorability and trustworthiness of the people behind the investment.

Some fund initiators gave their candidate-investors a final push with a personal appearance in an obscure, but successful business program from a Dutch real estate tycoon. This tycoon has been and still is buying broadcasting time at one of the Dutch commercial TV stations, in order to sell it at the highest bidder. The formula is: you pay the price, you get the interview in order to endorse your product. No difficult and critical questions asked! The perfect podium to an investment-happy, non-critical audience, consisting of wealthy viewers, would-be investors and daydreamers!

Funds like these collected sometimes many millions of investment money, purely based on empty promises. Some funds survived, but many funds perished well before their time.

Sometimes, it came out after such a fund defaulted, that the only investments that had been done with the collected funds were in the same vintage gold watches, 30 ft yachts, Cuban cigars and Italian thoroughbred cars that were held out to the gullible investors. The initiators had a ball with €20 mln in investments and ‘partied like it’s 1999’, until the money was gone and some investors started to ask unpleasant questions.

At other occasions, the promised investments had actually been done, but so many expenses had been charged, or the investments were so unsuccesful or amateuristic that the people lost large shares of their investments anyway. The only people that were always holding the longest straw, were the operators of such investment funds.

Of course there have been fair, honest and respectable funds that indeed returned the invested money with a decent yield, but it has always been very hard to distinguish the chaff from the wheat.

The AFM responded at many occasions with a clear toothgrinding, but as it didn’t have a mandate to operate above the €50,000 threshold, its gun was always without bullets. Warning would-be investors didn’t help much either, because of what a monstrous German leader once stated: “the bigger the lie, the more it will be believed”. People were always willing to turn off their brain in exchange for a promised yield of 20%. As many social media investor might tell you in five years: this remains true until this day.

However, according to the following article in the Dutch financial newspaper Het Financieele Dagblad (, this frustrating situation might be over soon.

The AFM wants to offer more protection to private investors in real estate.

The market watchdog asks more power of authority from politics, so it can have supervision at all unlisted real estate-investments, participations in limited partnerships or bonds that are offered to private persons.

The AFM came to this conclusion after a 2y investigation into these investment types. At this moment, only about 20% of the €16 bln in unlisted real estate investments for private persons, is supervised by the AFM. There are about one hundred tenders active at this market; of these, only 30 have an AFM-license.

‘We are not going to wait until the market separates the chaff from the wheat’, according to director Harman Korte of the AFM. ‘Therefore we plead for a license-duty for all tenders of real estate investments’.

The competencies of the AFM have recently been extended, due to the extension of the supervisory threshold from €50,000 to €100,000. On top of that, there are the stricter demands from the European regulation AIFM for managers of investment institutes. This is still not enough, according to the AFM. There is still an exemption from supervision for investment funds, when they offer investments of more than €100,000. Therefore the AFM wants an investigation into the possibility of additional law, in order to supervise the full €16 bln in real estate investments.

The AFM presented today its own investigation into investment funds. It diagnosed ‘serious shortcomings’. The report speaks of misleading information in brochures, collected money that never had been invested, violation of the banking prohibition and illegal exchange of money between funds of the same owner.

The AFM thinks that many problems can be prevented when it keeps a watchful eye at these funds.

Normally, people should be very cautious when government bodies ask for more power of authority. Effective and efficient operating organizations can suddenly turn into private kingdoms, where small, ‘J. Edgar Hoover-ish’ dictators are on their quest for absolute power and bear no contradiction from anybody anymore.

However, in this case there is such a jungle full of amateuristic or straigth-forward fraudulent investment funds, that I applaude the action that the AFM takes to gain the power of authority on these €100,000+ investment funds.

Also wealthy investors need protection from the sharks and piranha’s. The AFM seems the most suitable party to offer this protection.

Thursday, 12 July 2012

Worrisome reports by ABN Amro Economic Bureau

Today I got knowledge of two great reports of the Economic Bureau of ABN Amro via two different channels.

The first report I read via the site (, edited by the intelligent and very sympathetic Arend van de Kamp, whose articles are always a must-read.

ABN Amro supports the opinion that the Dutch housing market will sink by another 14%, but will not make a nosedive. I happen to agree with that, but for different reasons.

Here are the pertinent snips of the IEX-article, accompanied by my comments. Some parts have been translated to English by me:

We believe that policy changes, decreasing affordability and a worsening economic climate will push house prices further south. Our economists forecast another 14% drop in house prices in the coming two years (6% in 2012 and 8% in 2013). This will partly be driven by the higher mortgage servicing costs post policy changes and partly because of a worsening economic climate.

Real housing prices vs. realistic housing prices
Data collected and processed by
Click to enlarge
In my key article Ernst’s Confessions: the housing prices are not so overpriced… I argued that if you leave the inflation out of the housing prices and you realize that the real income of Dutch people hardly changed since the seventies (when corrected for inflation), the interest rate (leveraged by the Mortgage Interest Deductability) almost completely decides the housing prices in The Netherlands. The black line in this graph represents the realistic housing prices, based on the interest rate from 1975 until 2011 and the red line is the real housing price. Please read the article for full understanding of my calculation methods.

At this moment the real housing price and the realistic housing price are almost equal, due to the very low (leveraged) interest rate. Still I noticed that in times of economic hardship the real housing prices will be lower than the realistic housing prices for a number of years. People don’t dare to buy a house and banks don’t dare to lend people money, although they can actually afford the current prices. As the economic hardship will remain for at least 3 or 4 years, the 14% price decrease of ABN Amro sounds fair to me. The effect is, however, that houses will then be relatively cheap.

No nosedive

The expected 14% is of course a firm setback – especially for houseowners that are already underwater – but according to ABN Amro there is no need to panic for the general public, as the Dutch housing market is firmly supported: 
  • Dutch households have substantial assets (over 500% of GDP) to balance the high mortgage debt (108% of GDP). 
  • The Netherlands has Europe’s highest tax advantage on mortgages and hence heavily incentivises homeowners not to pay down mortgage debt. 
  • Foreclosure rates are very low and because of low unemployment and generous initial social benefits, will remain low going forward. 
  • Weakness in the housing market is almost fully demand driven. Supply is not the issue, virtually no stock of uninhabited houses exists in the Netherlands 
  • Low interest rates and a large proportion of government guaranteed mortgages help to brighten the picture

The first bullet is true, but there is an important ‘but’. Most of these assets are not in the hands of the Dutch people but in the hands of semi-government bodies for social security execution and pension funds. This is by no means 'cash at hand' for the people to compensate their mortgage debt.

The second bullet is also true, but everybody and their sister knows that this situation will not last forever anymore. I suspect this to change within two years.

Third bullet: the number of private and corporate defaults is soaring (see 2nd part of article) and the unemployment will IMO rise to 8% at the end of this year. I’m sure that the number of foreclosures will soar too. Although the social benefits are still quite generous, this generosity is expected to disappear when the number of unemployed and retired people will soar.

Fifth bullet: the official interest rates are still extremely low, but the banks are more and more reluctant to pass this benefit to their customers. People that need to pay more interest run a bigger risk of defaulting.

Impact of housing market weakness will mostly be felt in consumer spending. More of the disposable income is directed towards higher mortgage servicing costs. Increased savings to make up for the incurred wealth loss. We estimate this will result in a 7% drop in discretionary consumer spending in the coming 5 years.

I have nothing to add to this.

We believe that the expected decline of Dutch house prices is unlikely to affect the mortgage book and funding of ING, Aegon, Delta Lloyd, SNS Reaal en Van Lanschot materially. Default rates will remain manageable and RMBS bondholders will not be faced with losses. We anticipate loan losses of ~15bps per annum for 2012 - 2013 compared to historic peak levels of ~30bps.

With this part I don’t agree. This is a historical crisis that will trigger high unemployment which might last for a number of years. I do expect the financials to suffer from deteriorating housing prices, especially when the number of foreclosures will soar.

Additionally, the weakness in consumer spending will negatively impact the quality of SME and corporate loan books of banks. Construction companies (BAM, Heijmans, Ballast Nedam) will face at least another two years before volumes in residential construction pick-up. As a result, Property development margins will remain subdued and there is the risk of additional landbank write downs.

I don’t agree with this part too. The CRE (Commercial Real Estate) market is still a disaster with about 17% structural vacancy. The RRE-market is also in dire straits with a heavy lack in demand for newly built and existing housing. If the crisis will last for another three or four years, due to slow, reactive government policy and the depth of the economic trough, it will take at least 3 to 4 years before the Dutch housing market picks up again, maybe even longer. Besides that, my expectation is that at least 30% of the Building and Construction companies must disappear, before this industry gets healthy again. There is no way in hell that the B&C market will pick up with the current amount of suppliers, unless a fullblown Keynesian approach is chosen by the government in The Netherlands. This would really be a disaster.

The second report of ABN Amro is also a great report. This was presented by a spokesman of the ABN Amro Economic Bureau at BNR Business Radio (

A tidal wave of defaults is coming to the Dutch business world. This is predicted by the Economic Bureau of ABN Amro.

‘Shortly there will be hardly any growth in the number of companies’, according to Jacques van de Wal of ABN Amro.

The banks expects 20% more defaults than in 2011. In that year 7140 companies defaulted. When ABN Amro’s prediction is true, the previous peak (8040 defaults) of 2009 will be surpassed.

’ Most entrepreneurs went already through two economic crises and better times don’t seem visible at the horizon. More austerity will hardly be an option for a large part of the industries’, according to ABN-economist Van de Wal.

‘The economy is still in trouble. During the first five months of 2012 the number of defaults in the B&C industry grew by 40% and in the logistics industry by 25%-30%. This growth is really the result of the slump in different industries. However, this is a lagging figure’. This means in theory that the economy could be growing again.

Don’t count on the last sentence. It is hardly surprising that the number of bankruptcies in the Building and Construction industry is growing. This industry has an enormous overcapacity of at least 30%-40%. This will not be a healthy industry, unless this overcapacity disappears.

The Dutch Central Bureau of Statistics stated recently that The Netherlands is formally out of the recession by a whisker, but the outlook remains bad. Year-on-year the economy contracted by 0.8%. The 2012Q2 data will, according to Van de Wal, again show contraction.’Besides government spending, only Transport and Distribution showed some growth in the past months. Especially in this industry growth is slowing down again’.

The CBS data that showed a small growth in Q1 were IMO really ridiculous. These data were based on corrections, due to revisions and showed small growth, almost totally accounted for by the government, except for the mentioned growth in Transport and Distribution. It is worrisome when the government is almost the only driver for jobs in a country.

Also unemployment is increasing surprisingly rapid since mid-2011, ABN Amro states. The number of unemployed in 2012M5 is with 489,000 personns more than 20% higher than in May, 2011. Van de Wal thinks that this was the results of almost finished students that studied a little bit longer to avoid unemployment. Due to the negative outlook, the number of unemployed might be rising for the time being.

For me, the rising unemployment was not very surprising. Companies kept excess personnel in service in 2009, due to the Part-time Unemployment Benefit and their reluctance to fire personnel that soon might become scarce again, as a consequence of the aging process in The Netherlands. In 2009, I already reckoned (unfortunately I didn’t blog it), that this excess personnel would be fired after all when the crisis didn’t end soon. In 2011, I noticed that my prediction started to become reality and it does so until this day.

The funny thing is that the first report of the ABN Amro is still quite positive on the Dutch housing market, while the second report is quite negative on the Dutch economy. In my humble opinion, both can’t be right at the same time.

My take is that the second report is much more realistic in its contents than the first one. That I still agree with the 14% price drop of the first report, is only based on the current average housing prices, compared to the current interest rates. This equasion is fairly balanced at the moment.

Monday, 9 July 2012

Will the latest banking scandals finally lead to segregation between bad banks and good banks.

The last few months have been a wild ride for the banks again. Excuse me…, for some banks:

The last few months showed the vulnerability of Bankia (BKIA), a Spanish banking conglomerate that was formed in December, 2010 from a number of local banks or ‘cajas’ (Caja Madrid and Bancaja were the biggest partners, effectively holding 90% of the available shares). These caja's had fallen into trouble earlier. In hindsight, Bankia was the closest thing to a black hole on our planet, sucking up billions of Euro’s in private and government money.

Private investors, often normal families and people that looked for a safe investment for their life savings, were lured into buying shares of Bankia to the tune of €3.1 bln. Institutional investors had earlier passed the poisoned cup, refusing to invest in Bankia. Therefore a smooth advertising campaign, full of empty promises from the government and bank management, needed to persuade the local José and Ana to buy these shares, only to see their savings vanish into open air. On top of that, the doomed bank needed already about €20 bln of government money in emergency loans to stay afloat.

Barclays PLC (BCS), Deutsche Bank AG (DB), BNP Paribas SA (BNPQY) and ABN Amro were the names that kept popping up in the Vestia scandal (this link, pointing to the last article in the series, contains links to the older articles): the case concerning the Dutch building cooperative that bought for €23 bln in speculative interest rate swaps, while it only needed to hedge €5 bln in investments. The swaps would yield to Vestia when the LIBOR/EURIBOR interest rate would rise, but would yield to the banks (the counterparty of this deal) when the interest rate would stay low. Of course, the interest did the latter.

During the investigation, it became clear that Vestia not only had bought an unprecedented amount of uncovered swap contracts (the earlier mentioned €23 bln), but it had also paid commission fees that were ten times higher than the usual fees. The (former) CFO of Vestia received, via a brokerage firm, large amounts of money in kickbacks from the banks, paid from this commission money. Also it was disclosed that the CFO of Vestia, Marcel de Vries, had been taken to London at multiple occasions for VIP-trips: visits to dinner parties in expensive restaurants and nightclubs with the finest foods, the most expensive wines and literally dozens of escort ladies to keep him and his entourage company.

The criminal investigation concerning the Vestia case is still fully in motion and some of the key players have not been prosecuted yet. Besides that, it might be hard to prove beyond reasonable doubt the condemnable role of the banks in this scandal. Still, it is very clear, in my humble opinion, that the banks involved in the Vestia case have operated very close to the edge, and I would even say over it.

In one case there seems to be little doubt on the guilt of the bank involved: Libor-gate. The case of the Libor (London InterBank Offered Rate) interest rate that had been rigged on multiple occasions by a group of traders from one of the main banks involved in setting this rate, sent shockwaves through the British society and the global banking industry. The name of the bank involved sounded surprisingly familiar:Barclays PLC (BCS).

While the amount of anger and disgust in the British society was soaring, the defense of former CEO of Barclays, Bob Diamond was the same ol’ same ol’: this was a group of rogue traders that started to make these deals on their own. And, while Bob Diamond could have and perhaps should have known about it, he just didn’t! Seriously! Barclays was the best bank in the world with tens of thousands of honest employees and only 14 rogue traders that spoilt it for the rest!

Now a parliamentary investigation committee from the House of Commons will investigate the rate-fixing at Barclays, while the rest of the global banking industry is shivering from tension and excitement: will Barclays be the Lonesome Wolf or will Libor-gate just prove to be the proverbial tip of the iceberg.

My take: if you start to dig deeper, you will find the same stuff as behind Andy Summers’ camel.

While the fourth story of this article does not at all have the impact of Libor-gate, the protagonist of it sounds also quite familiar: Goldman Sachs Group Inc (GS).

The Dutch newspaper Het Financieele Dagblad ( wrote on Saturday, July 7, that the Dutch pension fund for the transportation industry ‘Vervoer’ filed charges against Goldman Sachs, for ‘poorly executed property management’. Here are the pertinent snips of this story:

The pension fund for the transportation industry claims €250 mln from Goldman Sachs Property Management for poorly executed property management.

This is confirmed by Patrick Groenendijk, executive manager property management of the fund.

‘The claim concerns the mandate that Goldman had until 2010 to invest the pension money’, according to Groenendijk. Further he does not want to add much information, apart from the size of the amount which is €250 mln, not £250 mln, like it was written in the British newspaper The Telegraph. The claim is filed at the High Court in London.

Goldman Sachs Property Management states that it has operated cautiously. ‘We have fulfilled our mandate, and have met our obligations towards the customer. We haven’t seen a claim yet, but we are of the opinion that such a claim would be unfounded, when looking at the facts. We would certainly fight such a claim’.

Until April 2010, the pension fund had their pension capital of €9 bln at the time managed by Goldman Sachs. The fund left Goldman, after the bank became the talk of the town; it had been charged by the official American stock exchange watchdog SEC, as the bank had not been transparant about conflicting interests during trades with mortgage covered bonds. 

However, the fund ‘had already been dissatisfied for a longer period with the results of Goldman’s investments’. For the year 2008, the Pension fund Vervoer had received 14.1% in negative yields, while GS had promised earlier to beat the benchmarks. These benchmarks ended at a much higher -/- 8.7% for the same year.

To the objective listener, the case of the pension fund Vervoer against GS just doesn’t sound like a rockhard case. The sad fact, however, is that GS is one of those banks that have their reputation working against them. Just like most of the other banks mentioned in the earlier parts of this article.

It seems that the banking industry can roughly be divided into two kinds of banks:

  • The first group are the banks that learnt a hard lesson from the credit crisis and changed their life for the better. Perhaps not totally perfect, but trying hard to be fair against both their shareholders and their customers, the government and the taxpayers;
  • The second group are the banks that are still pursuing the high yields that are needed to keep their shareholders happy. The banks that are riding close to the edge, driven by the promise of high bonuses. Banks that are willing to take more risk than they should or that are not always operating prudently and in the interest of their customers; 
    • f.i. by selling their customers products that are too complex and/or poorly balanced out;
    • or by selling investment products that supply much more downward risk than the customer can logically anticipate; 
    • or by charging their customers too much fees for all kinds of futile administrative operations; 
    • Of course, there are also clearly banks that show upright fraudulent behavior. 
I have the (vain) hope that the latest list of scandals and the enduring credit crisis will finally segregate the bad banks from the good banks. I hope that the bad banks will not be rescued anymore at the expense of hundreds of millions of taxpayers and at the expense of the banks that play by the rules. 

There should be much more disclosure to the general public when banks have offended the law or the banking rules and regulations. People must have the choice to look for another bank, when they are well-informed on misbehavior of their own bank. 

When a bank misbehaves, its customers should have the right to end their contracts without being charged with extra expenses. When this would happen, something good would have emerged from the credit crisis.

However, this is probably a vain hope. During the 4-5 years that the credit crisis already lasts, many banks have walked between the raindrops without becoming wet. Knowing they had become too big to fail. When they received a penalty from the (inter)national supervisors, they paid it with an iron smile and charged it to their customers: openly or stealthly. When they threatened to fall down, they screamed ‘help’ and then the governments kicked in.

In spite of all brave words about new rules in the banking world, the scene remains the same. I hope that customers choose with their feet and their wallets, not only with words. At the other hand, I know that it is hard: the marriage with your bank is often much more steady and enduring than the marriage with your wife or husband. Banks know that. Something, however, has to change…

Sunday, 8 July 2012

Lower educated people don’t love the EU and the Euro so much as high educated people. Why? The Dutch Social-Cultural Planning Bureau makes a brave analysis, but misses the most obvious point.

On Friday, June 29, the Dutch bureau for Social and Cultural Planning SCP ( presented a quarterly investigation, called Burgerperspectieven (i.e. Citizen’s perspectives). One of the themes that was described in the research is the phenomena that well-educated peoply love and trust the European Union to a much larger scale than poorly / moderately educated people.

This is a very familiar phenomena: lower educated people look often at politicians in general and especially the ones from the European Union in Brussels and Strasbourg as ‘a bunch of lying and cheating robbers and crooks that is deciding everything for the people without listening to them, while spending their hard-earnt money with all kinds of bureaucratic nonsense…’, or something like that.  

There is generally much distrust and hardly any trust among the moderately educated citizens. To quote a few of the often heard statements:
  • The European Union stands very far away from the people and is virtually untouchable;
  • It spends tax-money without seemingly giving any disclosure on the reason for spending it;
  • All the money from The Netherlands goes directly to ‘the lazy and corrupted’ countries in the South of Europe, like it is sucked in a giant black hole without any chance of getting it back;
  • The immigration of Polish people, Rumanians and Bulgarians caused the disappearance of many moderately paid jobs and besides that, it caused an increase in petty criminality.
[Please remember, these quotes don’t reflect my opinion, but can be heard commonly while walking on the street]

The strong populist movement in The Netherlands is very keen on making usage of these more and more openly expressed feelings of anger, resentment and victimship. The populists promise to leave the European Union, to stop development aid for the third world countries and to stop immigration for economic reasons (from the countries in the former Eastern-Block) and reasons of family-reunification (especially from Africa and the Middle-East). Together with an economic policy that can be best described as ‘happily back to the fifties’, this forms a very attractive, nostalgic mix for the lower educated citizens. While most people are aware that almost all promises of the populists are either empty or impossible to achieve, the attraction of the populism remains very big, just like the antipathy for the European Union.

Sensible parties try to explain why the European Union is so important for The Netherlands and how much The Netherlands yielded from it, but their message mostly falls on deaf ears with the lower educated class, in contrary to ‘the elites’ that understand the importance of Europe and don't feel threatened by it.

The main question remains:”why do moderately educated people dislike the European Union so much’. This was the reason that I was curious about the investigation and the opinion of the Social Cultural Planning Bureau in this matter.

Here are the main conclusions of their research, translated to English by me: 
  • Differences in education get partially processed into economic characteristics and outlooks, (self)confidence and attitude against the government and the multicultural society, but, apart from these points, there is more what distinguishes the attitude against European Integration
  • Just because Europe is so far away for many people, the feelings about it are strongly set in the attitude to life, with self-confidence and optimism as stimulants for a positive mindset. We see that not only a feeling of misunderstanding by the government and politics, but also a negative attitude towards immigration suppresses support for Europe.
  • According to many of these people, the Dutch government transfered too much power to ‘Brussels’
  • Lower educated people are more often negative about Europe and talk about what they notice from it and what makes them angry:
    • Price increases as a consequence of the Euro; 
    • Workers from Eastern Europe; 
    • Money that goes to Greece, instead of to people and problem zones in The Netherlands
  • Higher educated people seem to have more grip on their lives and feel more confident and less vulnerable in a globalizing world and multicultural environment.
  • Moderately educated people often have a feeling that politicians don’t know anymore what really happens in society and what are the worries of the common people in the lower classes of society.
  • The complexity of the European matters, the dependence on what happens outside The Netherlands, beyond the grasp of Dutch politics and the vast amounts of money involved, make that Europe puts a lot of extra stress on the relation between common people and politicians. 
This SCP investigation is not bad at all and it tries to do a good job in explaining the psychological reasons for the aversion of lower educated people against the European Union.

However, where the investigation totally misses the point, in my humble opinion, is that it doesn’t investigate the effect that the European Union and the Euro had on the chances of the common people at the labor market and in the general economy.

Now, it seems that the lower educated people in this investigation are put in the corner of distrust, economic backwardedness and victimship: just people that missed the boat, perhaps didn’t fight hard enough for their chances and blame Europe and politics in general for it.

The million dollar question is, however: are the lower-educated people not slightly right in blaming Europe and globalization for their current position? I think they are:
  • The advantages that the EU brought for higher and lower-educated workers are not at all balanced out. While most higher educated workers are among the winners of the EU, many low educated workers seem to be among the losers;
  • Highly educated and skilled workers can easily work all over Europe: financial experts, ict-wizards, engineers and managers;
  • Lower educated workers might just see their jobs disappear to other European countries and abroad, partially as a consequence of united Europe:
    • A lot of production facilities where many lower and moderately educated workers worked, were transfered to Eastern-Europe or the Far East: to the low wage countries;
    • Many jobs in the manufacturing industry, building & construction  and transport & distribution are currently given to workers from the East-European low wage countries: people that are willing to work for much lower wages and under much harder labor circumstances;
    • Although the unions try to do a good job in leveling the playing field for Western and Eastern European workers, there are still many, (semi-)legal ways to recruit workers for a wage well below the legal minimum-wages: f.i. through payrolling or freelance contracts, it is still possible to avoid the Dutch labor laws;
  • Politicians in The Netherlands have often acted cowardly and unfair in case of Europe and its current financial/economic problems:
    • European achievements were adopted as their achievements 
    • Problems for which Dutch politicians were partially/largely responsible have been blamed on Europe;
    • Unfair, biased and unbalanced information has been spread on the causes for the European credit crisis, often totally downplaying the role of The Netherlands in the South-European misery: 
      • the involvement of the Dutch banks in handing out irresponsible credit to the PIIGS-countries; 
      • the policy of flooding the South-European markets with cheap exports (for instance of vegetables, meat and fruit), while in the process harming the local industries; 
Due to this SCP investigation, I wanted to look at the effects of the European Union and the Euro on unemployment and immigration, just to see if there is a cause for disliking the EU. I collected some data from the Central Bureau of Statistics and made some charts of it:

Unemployment percentage per educational class 2001-2012
Data courtesy of
Click to enlarge
What immediately draws the attention is the enormous peak in unemployment among the people with the lowest education (red and especially black line), right after the introduction of the Euro.

I don’t know whether this unemployment is caused by the dotcom crisis or the introduction of the Euro. However, it is a fact that even the current credit crisis didn’t spur the unemployment among lower educated people as much as the introduction of the Euro seemed to do.

One reason for this enormous unemployment among people with the lowest education can be that well-educated people, who became unemployed as a consequence of the dotcom crisis, took jobs below their level to stay at work. The chart seems to point this out: the dotcom-crisis was a crisis that probably involved people with the highest education, but the real unemployment was suffered among people with the lowest education. Companies that have jobs that - by itself - need little education, still choose better educated people when they have the opportunity of choice.

I don’t think that the sudden unemployment has been caused by the influx of Polish people, as Poland became only a member of the EU in 2004. At that time the unemployment was already at the highest level.

Although the unemployment among the lowest educated people disappeared as quickly in 2006, as it appeared in 2002, it might have given these people a negative mindset against the Euro and the EU.

Immigration per country of origin 2001-2010
Data courtesy of
Click to enlarge
As the SCP already pointed out, the immigration of workers from the East-European countries can also be a reason for resentment against the European Union. This immigration is not very big in sheer numbers; even the immigration of Polish workers never exceed 15,000 people annually and the immigration of Rumanian and Bulgarian workers is at about the same level as immigration from China and India.

The difference between the immigrants from the Far East and Eastern-Europe is that the former are almost always knowledge workers, who apply for jobs  that require higher education, while the latter are mostly interested in the lower paid jobs, normally the domain of the lower-educated Dutch workers.

It is logical that the Dutch workers feel threatened by it. And it is logical that they blame the EU for it.

This brings me to the conclusion that the resentment about the EU among lower educated workers, is not merely a question of psychology. 

Although there is not rockhard evidence that the introduction of the Euro and the increased immigration caused the massive increase in unemployment among the lower educated workers in 2002, there seems to be a connection between these events.  It could be this correlation and the fact that nobody asked them about their desire for the Euro, that causes irritation and resentment against the European Union and the Euro. That is the most obvious point, but it seems that the SCP missed it slightly.