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Saturday, 31 October 2015

The King and the Spratly Islands – Visions on China

Veni, vidi, vici” – “I came, saw and conquered”

Last week, the Dutch King Willem Alexander has made an official state visit to China, after he already enjoyed an unofficial, short holiday with his family in this country.

With this official visit and especially with the short, unofficial, but nevertheless telling private holiday, Willem Alexander emphasized the warm and mutually beneficial commercial relations between The Netherlands and China, the powerful, economic behemoth in the Far East. China is by far the largest exporter of (cheap) consumption goods and The Netherlands is host to Rotterdam, still the most important sea-port in Europe for container handling.

In other words: China needs the enormous sea-port, as well as the logistical experience and the excellent networks of The Netherlands and The Netherlands needs the constant influx of goods from China, in order to keep its logistical apparatus in motion throughout the year.

And as a part of this official visit, the Dutch business industry organized the biggest trade mission in Dutch history, with over 250 participants from 150 different companies and organizations. Their mission was to put their products and services in the spotlights, sign as many trade orders as possible and reinforce the bonds with their Chinese counterparts: customers, suppliers and the Chinese government.

Both sides – China and The Netherlands – had the sole interest of making the state visit a blatant success, with a lot of happy smiles, large words of praise and mutual satisfaction and wallets full of promises, contracts and orders for all participants in the trade mission. Nothing in the world should get the chance to spoil the party that this state visit ought to be.

Where Prince Charles of the United Kingdom had made a strong statement, by refusing to participate in the official state banquet for China offered by the British government, the Dutch King made an equally strong statement, with respect to China. He did so by spending his private holiday in this country too, apart from the state visit. That is a gesture that will not be lightly forgotten by the Chinese government.

There was no room for criticism of China, apart from a number of obligatory and further meaningless words by the King about human rights and some other things bothering the Dutch. “These were the mandatory parts of the visit, in order to keep the folks at home happy. Well, you know the drill… And now: back to business! We are the best and let’s forget the rest!”.

To call this generally uncritical behaviour of the Dutch “a missed opportunity”, is an understatement. As a matter of fact, it is a strong signal that trade interests come before everything else in The Netherlands, even where this should not be the case. Although the Chinese citizens often are proud about the achievements of their country (and rightfully so) and the increasing role of the country at the global stage, their daily lives generally leave a lot to be desired.

Of course, China has had a troubled past with respect to human rights and the political treatment of minorities and – as a matter of fact – its whole (rural) middle class and lower class population.

People, who go with the flow and exactly say and do what the political leaders want to hear and see, usually lead a decent and tranquil live, when they are lucky and nothing bad happens to them. However, people who have good reasons to disagree with the will of their leaders, are often in for a very rough treatment by the central and local governments: a treatment trademarked by harsh punishments and political suppression.

The ubiquitous corruption, environmental challenges, the sometimes questionable quality of even the most basic, daily foodstuffs and drinking water and the generally failing state of law and order in China pose a problem for many, many people in their daily struggle for survival. The mounting ego, self-satisfaction and deafness for criticism of their political leaders at all levels is another issue of concern, as well as the bulldozer-esque manner in which disputes between the government and the population are solved.

Summarized, the Chinese government is not always the government that the Chinese people deserve, to say the least. And that is not all... 

The foreign policy of China is increasingly aggressive and imperialistical, as it zealously wants to proof this country’s increasingly important role on the global economic and political stage: you could call this the Chinese sledgehammer policy.

China has increased its influence on the African continent and in South-America, by buying their way into the hearts and minds of African and South-American leaders. In exchange for trade contracts and unlimited access to all kinds of fuels, commodities, precious metals, food and minerals, the Chinese build roads and other infrastructural parts, which help the African and American leaders, as well as themselves in the process.

While this is at least in the interest of some of their “beneficiaries”, the Chinese foreign (or domestic) policy is not so friendly everywhere. Remember for instance the troubled past of Taiwan, Tibet and the Uighur minorities in China.

The most blatant example of the current expansionist policies of China are the Spratly Islands in the South Chinese Sea. These “Islands” traditionally led a quiet live as reefs without strategic meaning; that was at least, until people discovered that the sea surrounding the Spratlys was laden with consumable fish and further contained large oil supplies.

Then the Chinese came, saw and conquered…

Position of Spratly Islands in the South Chinese sea
Picture courtesy of Google Maps
Click to enlarge

Even though the Spratly reefs are much closer to countries like Vietnam, Brunei, Malaysia and the Philippines, like the picture above shows clearly, China nevertheless ran the gauntlet with their territorial aspirations. The country asked dredging companies to create a number of artificial islands, by wading sand upon the vacant reefs and thus the Spratly Islands were born.

After their creation, these islands were filled with landing strips for planes and a few odd buildings as well as some additional infrastructure and they were subsequently claimed by the Chinese government. Everybody, who came too close to the islands was “politely asked” to get the hell out of there, or else…

Some small, Philippino fishermen saw their boat and only source of income attacked by Chinese ships and war vessels, who did not want competition in their newly acquired territory and did not scare away from using brute force against those "intruders".

Countries, like the Philippines and Vietnam, started international arbitrage procedures against the Chinese government (among others in the Dutch City of International Justice, The Hague) for wheedling the Spratlys away from the other Asian countries. However, the Chinese government told them to “get lost”, by stating that they would not accept any verdict by the International Court of Justice and by claiming that this court was working far beyond its jurisdiction, by accepting this case.

And now the latest leg in this increasingly dangerous international crisis, around these small islands in the South Chinese Sea, is started by the arrival of an American war vessel at the Spratlys. This ship is sent by the United States, in order to let the Chinese sing a different tune to the American allies The Philippines and Vietnam. On top of that, this war vessel must probably be seen as the front-runner of an emerging American fleet in the region.

The signal, emitted by the US war vessel, has been very well heard by 'Beijing'…

However, instead of acting as a means to hush up the tensions and settle the emerged differences in order to prevent from an international confrontation, the opposite happened. Currently, the Chinese are threatening the US at an increasingly shrill tone of voice. Their claim upon the Spratly Islands is final and the Chinese are willing to defend their claim, using lethal force against anyone else in the world: even the United States.

This is a very dangerous development indeed and it should wake up the Dutch government from its gold-plated dreams about trade and prosperity. The events around the Spratly Islands prove very clearly that all the current political certainties and economic agreements in the world can disappear at very short notice, as a consequence of the mounting imperialist aspirations of the Chinese government. And although I’m not particularly pessimistic that the events around the Spratlys might lead to a very large and uncontrollable war, it is an undeniable fact that China is not planning to give in to their neighbours, as well as to the United States.

Within the Dutch government, however, and in their trail the Royal House of Orange, this crystal-clear message seems to have fallen upon deaf ears. And, as a matter of fact, it also fell upon deaf ears within the British government, which was also very eager to negotiate itself into one lucrative contract after another with the Chinese government.

Except, of course, for that “stubborn old fool” Prince Charles who did not want to show a toothpaste smile at the Chinese leaders, in exchange for some contracts and cash ... 

But heck, who is Prince Charles anyway?! He will probably never be king after all, and his son William seems to already have more diplomatic skills than his aging father, in spite of his young age…

Nevertheless, I find it an unwise attitude of the Dutch royal house, government and business industry to close their eyes for the imperialist aspirations of the Chinese leaders. Just like they so often closed their eyes in the past for the reprehensible sides of other large Dutch business partners in the Middle East, like Saudi Arabia, Bahrain, Oman and other countries.

While the Dutch King speaks his soothing and swollen words of peace and friendship and emphasizes the role of business as a means for communication, development and mutual prosperity to his benevolent Chinese listeners, the Chinese government is fighting a pruning hard battle for the absolute power in their region and far, far beyond.

Not even to speak about the enduring domestic battle against the unwilling elements within the Chinese population, who stand up for their rights and reject the almighty government of President Xi Jinping and PM Li Keqiang. Often, while risking their own lives and the lives and future of their families.

The Dutch King, however, does not care about that… He is back home safely, among his family and friends, satisfied with a job very well done. And so are the Dutch government and business representatives. 

What will happen in the South Chinese sea or in China itself? Who cares…?! Really?!

Wednesday, 28 October 2015

Exit of CEO Jan de Ruiter of RBS The Netherlands. Final chapter of the massive acquisition of Dutch bank ABN Amro gone totally awry? And what are the lessons to be learned from this downfall?!

If the last two years had one trademark, it would be the return of the massive multi-billion dollar merger. These took place under pressure of the continuing consolidation in many industries, as well as under influence of the extremely low interest rates,  the ample availability of liquidity in the financial markets and the still relatively low asset prices. And last but not least: the possibilities that such an acquisition or merger sometimes offered to move one’s headoffice to a fiscally favourable location, in order to save millions and millions of dollars in tax money.

The massive oil-related acquisition of BG (aka British Gas) by Shell, the telecom merger between T-Mobile and Dish Networks, the ‘Global Top 3’ beer merger between  InBev and SABMiller or the ‘Aussie’ merger between Beach Energy and DrillSearch (oil industry) are just a few examples of the tidal wave of international consolidation flooding the corporate landscape currently.

Yet again, the sky is the limit for Mergers and Acquisitions and there seems to be no boundary for the ambitions of the large corporations, when it comes to enlarging their market share.

However, there is still one big, tell-tale example of the total wreckage that can emerge from mergers and acquisitions gone awry: the €75+ billion takeover of ABN Amro, by the ‘Three Cash-queteers’ Banco Santander, Royal Bank of Scotland (RBS) and Fortis Bank.

This led to the demise and subsequent reversed takeover of Fortis Bank by the fully nationalized(!) ABN Amro bank and the saving of RBS by the British government with billions and billions of pounds. Only Banco Santander came out of this match as a winner, in this sense that the bank (somewhat) profited from the acquisition of ABN Amro. And ABN Amro itself will make a renewed entry at the international stock exchanges at the end of this year (i.e. 2015), with an IPO of equity certificates, after having been government property for almost seven years.

When the smoke clouds of the ABN Amro acquisition and the subsequent governmental rescue actions of ABN Amro, Fortis and RBS had lifted, RBS had ended up with the international wholesale (payments) network of ABN Amro; ten years ago definitely one of the crown jewels of the former Dutch national pride.

Yet, this crown jewel did not bring RBS much luck, apart from the necessary (partial) nationalization of this Scottish mega bank... In fact so little, that within a few years from now, there will come an untimely end to this Dutch banking adventure of RBS. It shows once and for all that the acquisition of ABN Amro was one of the worst and most expensive corporate decisions in history and as a matter of fact, it should be a worst-case example of the hazards of such large mergers and acquisitions for generations to come.

Het Financieel Dagblad printed a series of articles regarding the exit of the CEO of the Dutch operation of RBS, Jan de Ruiter. Here are a few snippets of these two articles.

RBS The Netherlands will further abolish its activities in The Netherlands without Jan de Ruiter as figurehead. The CEO of the British bank in The Netherlands has abandoned his current job and will just continue as an advisor. He will support Chief Risk Officer Idzard van Eeghen in the coming period in his assignment to further abolish the activities of the bank. De Ruiter called it ‘a natural moment to say goodbye to the bank’.

The career of De Ruiter at RBS has been under the sign of shrinkage. He moved from ABN Amro to RBS when the Brittons bought the corporate branch of ABN in 2007. Of the 3500 people that De Ruiter started with, only 450 will have remained at the end of this year. In due course, RBS in The Netherlands will end up as a side-office with only 15 employees, who help companies with financing issues and risk management.

The Dutch branch of RBS has been terminated as a full-service bank by the parent company in Edinburgh. The branch is now busy with abolishing the wholesale payment services, the former ‘pearl in the shell’ which it bought from the ABN Amro estate. RBS is aiming for its domestic market and abolishes low-profitable subsidiaries. 

After RBS had acquired the foreign network of ABN Amro, there came an end to the bank that had been seen as the main financial institution in The Netherlands. Not much later RBS itself endured a direct hit from the crisis.

After Jan de Ruiter had left ABN Amro after a 20 year stint, in order to continue his career at RBS, he entered into an eight year long struggle-in-vain to make a success of RBS in The Netherlands. More and more activities moved to London, until only wholesale payment services remained. And now even that activity will be abolished.

De Ruiter had noticed soon that RBS had made ‘a terrible mistake’ with its acquisition of ABN Amro. Especially the banks that focused on corporate finance and business banking were targeted by the credit crisis. This was exactly what the acquired ABN Amro parts did. On top of this there was the special circumstance that these parts had been mainly financed with short-term loans. Especially this particular market was almost totally abandoned during the crisis. 

To his personnel De Ruiter emphasized, however, that also under the roof of ABN Amro itself, the damage would have been substantial.

This whole second article is a very good read indeed and I advise to read it for everybody who masters Dutch or uses Google Translate, as it paints a clear picture of the 'Mission Impossible' that De Ruiter was in.

I guess that Jan de Ruiter was partially right when he stated to his personnel that ABN Amro – without the acquisition by the ‘Three Cashqueteers’ - would also have endured a full blow of this devastating crisis. In hindsight we can safely state that in 2007 the dry rot had already set in at this ‘Dutch pride’ ABN Amro, making it in fact ‘an accident waiting to happen’.

What I want to emphasize, however, is that this reckless and mindless acquisition of ABN Amro by the three banks Santander, Fortis and RBS has brought not one, but three out of the four involved banks at the brink of self-destruction, at the expense of billions and billions in tax money, necessary to rescue these banks. 

That is a very important lesson to learn for all those daring and power-hungry companies, sitting on a stockpile of billions and billions of Euro’s/Dollars/ Yuans/Yens in nearly free cash. A large merger or acquisition is not an end-state, but a beginning of a new and very uncertain adventure with an unpredictable outcome.

Sunday, 18 October 2015

Do workers more and more become people with no past and no future, only working in the present days? Maybe, companies should try to give their to-be-dismissed workers a second chance in a totally new role.

“Workers in many industries seem to become people without a past and without a future. They are hired for a particular, short-lived  assignment alone and just do their thing, until the job is done. Afterwards they go away, leaving everything behind as if they never existed”
Ernst Labruyère – 2015

To make things clear at the start of this article: I am a freelancer by heart and I love to work in new environments and jobs in the financial industry. The work is rewarding, also in the spiritual sense of the word, and it gives me the chance to get to know new, interesting people and inspiring colleagues. I love my job and I would never want it to be any different.

Nevertheless, I chose myself  to do the things I do, regarding work, and live the working life I live. It was a choice that I could make in all freedom and a choice that I will probably never regret during the rest of my life.

However, a great many workers in large industries do not have this choice anymore. Their jobs just cease to exist, as their executives-in-chief decide that their department or business unit is simply “not efficient”, “too expensive”, “not profitable anymore”, “overtaken by ICT-driven developments” or “no longer part of the core activities of their bank/insurance company / financial institution”. Their job becomes history and they are asked to leave.

Especially in the tech- and internet-driven financial industry with its mounting share of ICT-driven developments, strongly influencing the daily business, this is almost becoming a daily event.

The problem of such dismissed workers is not only that they lost their job! Their real problem is that dozens or hundreds of workers (i.e. their direct colleagues and peers) lost exactly the same job at the same time, as it had been taken away by a new ICT system, which does the same job in a fraction of the time. Or taken away by a customer that does not visit the brick-and-mortar offices anymore, as he can do all his banking and insurance business through the internet nowadays.

And not only at the employer in question, such jobs go away. No, in the whole financial (or other) industry similar jobs become a thing of the past, as all large employers make the same strategic decisions at the same time, driven by their competition.

This situation leads to a phenomenon, which is becoming more and more usual in the 21st century: a giant company in the financial industry – but also in other industries – is announcing a massive reorganization, slashing up to thousands of jobs in the process.  At the same time a different  business unit or staff department of the same company is hiring dozens and sometimes hundreds of new workers (most of them probably temporary or freelance workers) to get either a specific job done or an important project accomplished.

Both groups – the group of exiting, dismissed workers and the group of entering freelancers – are not aware of each others existence and there will probably be no exchange of people and knowledge at all between these two groups. One group is heading for the exit, while the other group is looking at a new assignment with another steep learning curve and another job to do, as always under high time pressure.

I truly understand the dynamics behind the management decisions involved in these situations; let that be perfectly clear.

Nevertheless, it leads to the peculiar situation that people with loads of experience in the financial industry (i.e. in any other large industry) and especially the company at hand walk out the door, while people with little or no experience in the same company or even industry (hence: freelance ICT, finance or legal workers) must do a very complex job, which... requires loads of experience in either the financial industry or in the company at hand.

So many projects simply fail, because suppliers, ICT workers and project leaders, finance workers and legal people cannot grasp the culture and the forthcoming behaviour within the head office, staff departments and business units of their assignor. They are nowhere close to understanding it or even becoming aware of it.

And the worst part is: at the time that the job is done after all and the ICT, finance and legal workers have finally acquired the necessary cultural feeling, ‘hands on’ experience, knowledge and skills of their temporary assignor, their assignment will have ended. Instead of being helped with finding a new assignment within the same (financial) institution or company, they are simply sent out of the door.

Perhaps many of the original, dismissed workers at the financial institution or company in question might also have chosen for a life of freelancer, in order to avoid long-term unemployment, and supply their sometimes desperately needed (financial) experience to new employers or perhaps even their old employer.

In the process, workers-turned-freelancers could become people without a past (i.e. experience within the company of their assignment) and a future (i.e. a prospect for a new assignment or job within the company), who just do their thing and afterwards leave, as if they never existed!

As a consequence, companies become totally unaware of their culture, past and future themselves, as few temporary workers take the time and make the investment to understand the culture and politics within their assigning company. “You are the boss, you call the shots” is traditionally their point of view.

Welcome to the new reality...

But what if...?! 
  • What if companies see their culture, past and unified future as an indispensable part of their company; something that they should preserve actively at all costs and never ‘forget’, through the rapid exchange of personnel? 
  • What if companies do not see their excess personnel as one-trick ponies anymore, but as people with numerous skills and endless possibilities, who just need “a break and a long shot”? 
  • What if companies made real work of replacing dismissed workers within their company itself? 
  • What if companies give their dismissed employees a chance to learn new skills and competences instead, while preserving their old experience, skills, competences and cultural understanding of the company at the same time? 
  • What if companies give their excess employees the chance to work themselves in in a new business unit or staff department and become invaluable assets of their new department again, even if this would take them three months or more? 
  • What if such excess workers would get in a master-apprentice role, in which they are coupled to an experienced tutor, who teaches them everything about their future job and thus prepares them for their new future?
  • What if such formerly excess workers turn out to be 'exactly what the doctor ordered' for ICT projects gone awry and cultural misunderstanding among freelance personnel in temporary jobs?!

Would that not be great for both employer and employee, as less people need to be fired and less new, unexperienced people need to be hired in return?

Maybe, it’s a long-shot that we should try. And of course, this would not lead to companies never dismissing workers at all. Still, it could lead to companies not dismissing more workers than is strictly necessary.

Most people have many more possibilities than directly meets the eye. If you just give them the chance to prove themselves...

Saturday, 17 October 2015

“Three shades of Depression!” Must the world prepare for a devastating third leg of the vast, enduring economic crisis, striking the world since 2008, before there is light at the end of the tunnel?

“This economic crisis that started in 2008 is like an Amazing Discoveries infomercial from the late eighties; it seems to last forever and there is always more on offer than you have bargained for!”
Ernst Labruyère - 2015

Although very few people dare to call this vast economic crisis for what it is, it is becoming perfectly clear that we are in the midst of a heavy depression.

A depression that is here to stay for years to come; perhaps even unless something really dramatic happens, like a war or a world-altering new invention. And when we see how the moods are deteriorating globally at this very moment, a devastating war seems a realistic possibility, unfortunately.

“But”, you could argue,”it seems that the Dutch economy is currently going through a revival  with rising housing prices, increased producer and consumer confidence, seemingly ubiquitous economic growth and a general rise in imports and exports. And the European Union as a whole is doing fine at this moment, isn’t it?!”

Yes, you are more or less right. Yet, it took seven years of waiting, a vessel-load of additional money and liquidity in the financial markets and near-zero interest rates from the ECB to achieve this "success".

And on October 15th, the Dutch Central Bureau of Statistics stated that the drop in unemployment and the rise in the number of jobs, which was a trademark of early 2015, came grindingly to a standstill in July and did not resume anymore until this date:

Early this year, the number of unemployed started to fall, but in the past three months the decline has come to a standstill. Statistics Netherlands (CBS) reports that 607 thousand people or 6.8 percent in the labour force were unemployed in September, i.e. the same amount as in July and August.


The number of people in paid work is about the same as in June. Until June, the working population had grown. The number of people working at least 12 hours a week increased, but the number of people working less than 12 hours a week decreased at the same rate.

The good news from the last snippet is that a part of the Dutch people has seemingly exchanged its limited-hour job for a job with more working hours. That is good news indeed for people with a small job, who desperately want to work longer hours. The bad news is, however, that the real growth has seemingly disappeared from the economy, when it comes to the rise in employment in The Netherlands.

And when the outlook for rising employment is not exactly great at this moment, but the Dutch people again run the risk of turning into ‘debt slaves’, due to the attractive, extremely low interest rates, steadily rising housing prices and (consequentely) increasing mortgage principals, this is also bad news, disguised as good news: nice for the people with an excess mortgage and an underwater house, but bad for the rest of the country, which has to borrow more money again in order to pay for their new house.

And now the inflation seems again heading for the gutter. Not only in The Netherlands, but all over Europe. 

Besides that: enly the slightest hint of higher interest rates or other dampening measures is enough to cause sheer panic at the financial markets. A few weeks ago, about one week of trading was all it took to blast the whole annual profits at the stock exchanges for 2015 to smithereens in The Netherlands and many other countries (see the charts in the bottom of this article). 

That the financial markets since then regained some of their profits for 2015, does not change anything at all about this worrisome fact. There is only stability on the markets, when bad news stays away; that is not real stability, isn’t it?

And how about the mood of the Dutch citizens?! Well, read this!

Last Wednesday, the Dutch Central Bureau of Statistics presented two tell-tale charts, accompanied by the statement that “the Dutch have more confidence in the European Union than in their own Second Chamber of Parliament”.

To grasp the real impact of this message, one has to remember that the Dutch confidence in the European Union is not exactly high: less than 40%!

Percentage of Dutch people with
confidence in national institutions
Click to enlarge

Percentage of Dutch people with
confidence in Second Chamber of Parliament
Click to enlarge

Again, these are depression-like figures and they have everything to do with the fact that people lost even the smallest bit of basic trust in their politicians and often just don´t feel represented by them anymore. And even though this has something to do with the credibility of the current generation of politicians (of course ), I personally consider this rather a ‘mood-thing'.

That is for the simple reason, that I fundamentally doubt whether the current generation of politicians is really worse than the previous generations. Probably not, which means that the reason for the people's distrust lies in the people themselves. People are simply depressed by the enduring economic hardship.

On top of that, one should not forget that the mounting tensions regarding the Syrian and Eritrean refugees within Europe - currently the hottest topic in the news - and especially The Netherlands are partially the result of a mood crisis. Of course there are real refugee crises within Italy, Greece, Hungary and Germany, and its logical that this leads to tensions within the population.

However, in The Netherlands there is already an ongoing refugee crisis without(!) an increased influx of refugees:
The percentual difference between the influx of refugees
between the first 7 months of 2014 and 2015
Data courtesy of and Eurostat
Click to enlarge
Like this chart with Eurostat data shows, there have been real refugee crises in Hungary, Germany and perhaps Austria, while other countries also experienced strongly elevated inflows of refugees (although eventually still relatively small numbers remain for 2015; henceforth, I avoid the word crisis).

However, The Netherlands (orange row in the chart) had actually a decrease(!) in the number of refugees during the first seven months of 2015. So what is the political and societal fuzz about, in reality?! It is a lot about moods, overhere!

That is why I don’t think that the Dutch economy will start to structurally grow again, until people feel better in general or have something to collectively strive for and roll up their sleeves for. That will also be true for the rest of Europe, I think. And whether people feel better, due to a growing economy or an economy will grow due to people feeling better, is of course an endless chicken-and-egg discussion, although I tend to believe the latter.

And look at things from this perspective: when the whole Middle-East and North-Africa seem at war with each other, the tensions between Europe and Russia, as well as within the former Soviet Union, are mounting by the day, the American economy is faltering and the emerging markets are rather akin to imploding markets; what are the odds of the European Union and especially export-tiger The Netherlands of getting through this period unharmed?!

Besides that, is there another way to describe the Chinese economy than that it has been hit by Thor’s hammer?

The following snippets of the following very interesting article, about the depression-like outlook for the world economy, are from The Guardian:

The heart of the economic disorder is a world financial system that has gone rogue. Global banks now make profits to a extraordinary degree from doing business with each other. As a result, banking’s power to create money out of nothing has been taken to a whole new level. That banks create credit is nothing new; the system depends on the truth that not all depositors will want their money back simultaneously. So there is a tendency for some of the cash banks lend in one month to be redeposited by borrowers the following month: a part of this cash can be re-lent, again, in a third month – on top of existing lending capacity. Each lending cycle creates more credit, which is why lending has always been carefully regulated by national central banks to ensure loans will, in general, be repaid and sufficient capital reserves are held. .

The emergence of a global banking system means central banks are much less able to monitor and control what is going on. And because few countries now limit capital flows, in part because they want access to potential credit, cash generated out of nothing can be lent in countries where the economic prospects look superficially good. This provokes floods of credit, rather like the movements of refugees.

The false boom that follows seems to justify the lending. Property prices rise. Companies and households grow overconfident about their prospects and borrow freely. Economies surge well above their trend growth rates and all seems well until something – a collapse in property or commodity prices – unravels the whole process. The money floods out as quickly as it flooded in, leaving bust banks and governments desperately picking up the pieces.

Well, that article leaves little room for discussion, it seems.

And as a piece-the-resistance, I want to show some charts and tables, which show that the real, durable growth might yet be a thing of the (quite distant) future:

AEX Amsterdam Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge

CAC40 Paris Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge

DAX Frankfurt Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge

FTSE 100 London Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge

Hang Seng Hongkong Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge

Standard & Poor's 500 New York Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge

Shanghai Composite Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge

Price development agricultural 
commodities in 2015
Data courtesy of Bloomberg (?)
Click to enlarge

Price development precious metals in 2015
Data courtesy of Bloomberg (?)
Click to enlarge

Price development fuels in 2015
Data courtesy of Bloomberg (?)
Click to enlarge

Price development steel in 2015
Data courtesy of Bloomberg (?)
Click to enlarge

Price development crude oil in 2015
Data courtesy of Bloomberg (?)
Click to enlarge

What these charts showed, is that the ongoing third leg of the depression is an “all-inclusive” leg with virtually no exceptions... in any market and for any commodity. This third leg of the depression might point out to be a very serious new crisis.

Nevertheless, and to end on an optimistical note, there should be no reason for structural pessimism, according to one of the smartest people that I know, Kevin Depew of (formerly) Minyanville in a personal tweet:

This is the 3rd stage [of the crisis]. The Emerging Markets breakdown. [This is] Prelude to 1st stage of global growth. Best I can do. Long term.

Kevin Depew was the first to call the current crisis a depression... in 2008. He has been so right about that, in hindsight. 

So let us patiently wait, with Kevin's reluctant optimism as a guideline and not give up on the economy... and the world itself.

Sunday, 11 October 2015

Are the US ‘Republican Party’ a doomed party that urgently needs to reinvent itself, if it does not want to implode totally and leave the country in a governmental chaos that would put Belgium to shame?!

Yesterday, I heard at the news that the leading Republican candidate for the position of Speaker of the House of Representatives, Kevin McCarthy, voluntarily withdrew his candidacy. Even though he had a comfortable lead upon his adversaries, McCarthy decided to throw the towel.

Allegedly, the reason for McCarthy’s withdrawal was that he did not manage to get the full majority of the Grand Ole Party backing his candidacy. A radically conservative squadron in the House, closely affiliated  to the infamous Tea Party, demanded a much tougher opposition against the ongoing agenda of President Barrack Obama and judged the more moderate McCarthy as ‘being not fit for the job’.
Probably, McCarthy decided that he did not want to be a ‘lame duck’ speaker after his ballot and withdrew two days ago.

This event emphasized once more, how firm the grip of the extremely conservative and erratically religious Tea Party currently is on the Republican Party. This is something that never ceases to amaze the more secular Europeans and leaves them in ´shock and awe´.

How can it happen that arguably the most modern and economically forward country and global leader, the United States, is more and more sliding towards being the Christian pendant of a `fundamentalist nation´: utterly divided between modernty in the large cities at the East and West coast and the almost medieval habits and choices in the heartland of the nation?

A nation in which a very small part of the political caste is keeping the rest of their peers hostage with their policy of “demonizing their ’foes’  in the White House and in Washington as a whole, not listening to their allies and adversaries, not negotiating about anything and never deviating from their fundamentalist policies, which seem to be carved out in marble”.  The Tea Party seemingly stands “For God, Our Nation, Our Constitution, Mom’s Apple Pie and the Gun under our Cushion” and is arguably world record holder in its unworldly behaviour.

The effect of such popular and strong populist/extremist parties at the far ends of the political spectrum is always that they act as a magnet upon the more moderate political leaders,  with their success: `if you can´t beat them, join them... and if you really don´t want to join them, be as close to them as possible`.

For the Republicans, this unavoidable political behaviour turns cooperation with the Democrats, extremely necessary for the topics that really matter, into a mirage for the foreseeable future. Consequently, these effects and their consequences turn the nation more and more into an uncontrollable political monster.

And then there are the two most prominent Republican candidates for the next presidential elections, which will be held in November 2016: Donald Trump and Jeb ‘the brother of...’ Bush.  One is an extremely successful businessman, who wants to run the nation as one of his companies; the other is son and brother of two former American presidents and extremely rich businessmen and wants to claim his position in the political ‘family business’.

Although one cannot abnegate Donald Trump of being a smart and streetwise tough guy with undeniably a lot of pizazz and a “refreshing” lack of political correctness, the man is clearly an idiot, who started to believe in his own infallibility and greatness. A country is definitely not a large corporation and everybody who thinks it is, is going to do a lot of damage to the nation and especially to the rights and privileges of minorities. The fact that Trump really seems to have a chance next year is a tell-tale signal of the current sorry state of American politics.

And Jeb Bush? Well, what can we say about him from our position in remote Europe?! That he seems a smarter, but nevertheless much bleaker version of “George Dubya”?

A president, who made a travesty of his presidency and pushed the world in three terrible wars, of which the consequences last until this very day and probably much, much longer: the wars against Afghanistan and Iraq and ‘the war on terrorism’.

The combination of George W. Bush naivety(?), his undeserved trust in and loyalty to his advisors (a.o. Scooter Libby and Karl Rove) and fellow government-members (i.e. Dick Cheney and Donald Rumsfeld), who mainly used the Iraq war as a cashcow for themselves (i.e. Halliburton, Blackwater), as well as his capability to tell the most gruesome lies with a face as if he believed his words himself, made him the epithomy of a dangerous leader.

By coincidence, Dutch television showed yesterday evening the movie ‘Fair Game’; this movie dealt with the betrayal against the former CIA Agent Valerie Plame  and former ambassador Howard Wilson, by former Chief of Staff of the President George W. Bush administration, Lewis ‘Scooter’ Libby and neoconservative spindoctor of President Bush, Karl Rove.

The happily married couple Plame (a covert CIA agent heavily involved in the Middle East) and Wilson (a former ambassodor with assignments in Gabon and Niger) had a devastating encounter with the White House´s advisors, after Howard Wilson refused to confirm the blatant lie of George Bush Jr et al,  that Saddam Hoessein had try to buy uranium (‘yellow cake’) in Niger, in order to create his much-desired nuclear bomb.

Scooter Libby and (probably) Karl Rove publically leaked the identity of Valerie Plame as a covert CIA agent, instantly ending her career, and tried to crush her and her husband Howard Wilson, when they justifiably denied the existence of WMD’s and production facilities for such weapons in Iraq.  

This supposed yellow-cake purchase order, as well as Iraq’s purchase of aluminium tubes – supposedly for the creation of nuclear ultra-centrifuges in combination with Colin Powell’s Razzie Award-worthy home video  specially created for the United Nations, showing supposed ‘weapons of mass destruction’ storages and production facilities in Iraq, acted as the ‘smoking gun’ that triggered the war in Iraq.

However, all this evidence – except for the purchase of the aluminium tubes itself – had been rigged and were later confirmed as being utterly untrue. But then it was already too late. Iraq was conquered and left in the total and utter political chaos that it is in today, due to an endless series of stupid actions, perfidious political choices and almost criminal miscalculations. And so is the whole Middle East left in a chaos, as a matter of fact, partially as a consequence of this utterly stupid war.

While objectively all this says nothing about the presidential qualities of Jeb Bush, it is nevertheless worrisome that Jeb Bush is the best candidate (i.e. the candidate with the deepest pockets from a financial point of view) that the Republican party can come up with. Personally, I would state that ‘two times a Bush, is more than enough!’

And last, but not least there is always the most prominent member of the Tea Party, Sarah Palin, hanging as a black supercell cloud above the political landscape! Someone whose determination, political gutsiness and enormous influence is only surpassed by her dangerous stupidity and naivety.

Personally, I consider the Russian president Vladimir Putin as a ruthless, unscrupulous, corrupted and dangerous man, who is imperturbably following his own agenda for a new and great Russia and is willing to sacrifice a lot for his goals. Nevertheless, he is an intelligent and well-educated chess player, who bends the rules and plays tough, but undoubtedly knows where the point of no return lies that he should never pass. He is a battle-hardened professional, who will probably not scr*w up eventually.

However, when I look at some of the more ‘idealistic’, ideologically-driven and God-fearing members of the Republican party – like for instance the aforementioned Sarah Palin – I am not so sure that they will not push the world to the brink of a nuclear war, when push comes to shove. At times, these people act like a child with a loaded gun: nowhere near to comprehending what they are doing and what is at stake in (international) politics.

November will show another episode in the eternal soap around the US debt ceiling and the coming year will probably be full of raunchy and nearly lethal politics in the United States. Just like French strikers are willing to sacrifice their own future and the future of their company for their own goals, these Tea Party republicans – and probably some of the others too – are seemingly willing to sacrifice the wellbeing of their country and their people for their own political goals. That is a disturbing prospect. 

There is one tiny glimmer of hope that I have. That is that the more moderate and down-to-earth Republicans become so sick and tired of the erratic and dogmatic conceptions of the Tea Party squadron within their realm and of the Tea Party’s unwillingness to cooperate with the Democrats, that they decide to reform the party into a ‘Grand New Party’. That is the only way out of the political chaos and implosion that is seemingly looming in the United States, when the Republican Party does not find a way out of the political mess it created.

Wednesday, 7 October 2015

Is Ryanair that smart?! Or is Air France-KLM just that stupid?!

“Am I that smart?! Or are you just that stupid”

Louis van Gaal, the current head coach of Manchester United is a legendary trainer. Where already his achievements as a coach on the football field should have made him a legend, his long and troubled history with sports journalists is what really gave him fame/ notoriety.

And definetely the most famous quote in the eyes of the Dutch is the aforementioned outcry from 1996. It was uttered against two journalists, who did not want to understand his views and asked him impertinent questions – to the eyes of “beholder” Louis van Gaal, that is.

I had to think about this particular quote, when I learned today that two executive managers of Air France had to litterally run for their lives, after they announced involuntary mass lay-offs among the Air France personnel:

A scuffle broke out after demonstrators stormed a room at the group’s headquarters at Charles de Gaulle airport where Air France management was outlining 2,900 job cuts, or 5 per cent of total staff.

Xavier Broseta, head of human resources, had the shirt ripped from his back by an angry crowd as he made his way out. He was forced to climb a fence to escape, wearing only a pair of trousers and a tie.

“I could not believe it, they just started attacking,” said one person close to the unions, who was at the scene. “He looked really shocked as he was rushed out by security over a fence,” he said.

According to the same Financial Times article, the job cuts would apply to:
  • 300 pilots
  • 900 flight attendants
  • 1700 ground staff 

This is definitely terrible news for the employees of Air France to whom this news is applying, but one could hardly call it surprising news, after the events in recent years.

The mass lay-offs at Air France followed one month after the news that KLM – the Dutch subsidiary of Air France-KLM – could possibly be forced to lay off as much as 5000 people through involuntary lay-offs, after voluntary dismissals proved not to be sufficient anymore to make the Dutch AF-K subsidiary ‘lean and mean’ again. In other words: the message that Air France-KLM seems heading for some real bad weather in the near future could not be uttered more clear than with the current unrest in France and The Netherlands.

This very bad news about Air France-KLM is a blatant contradistinction with the soaring annual profits and the accompanying boasting of Ryanair. The following snippets came from Reuters:

Ryanair hiked its annual profit forecast by 25 percent on Wednesday after its summer performance was boosted by bad weather in northern Europe and the strength of the British pound.

The Irish airline, Europe's largest by international passenger numbers, said it now expects net profit for the 12 months through March 2016 to be between 1.175 billion euros ($1.3 billion) and 1.225 billion, up from an earlier forecast of 940 million to 970 million

And talking about ‘boasting’. In an interview with the German newspaper Welt am Sontag, Ryanairs chairman Michael O’Leary boasted that Ryanair is ‘planning to cut the prices in half’.

The following (translated) snippets were printed in Het Financieele Dagblad:

Chairman Michael O'Leary wants the consumer to profit from the lower oil prices. Earlier, the chairman promised the consumer already a “mother of all price wars”. In the German newspaper he gave a small peek at his hand of cards.

 O’Leary wants to increase Ryanair’s market share to 25% from the current 15%. This has to be achieved in 2025. [...] Ryanair’s attack plan accomodates a spectacular drop in ticket prices. ‘In the long run, we are aiming at a price of €0”, according to O’Leary in the interview. ‘We cannot put a term on that yet. Of course, there will be all kinds of additional expenses and surcharges for the consumer, outside the ticket price”.

And that’s that: Ryanair aims to make huge future profits by giving aways its tickets for free... but not really!

Enter the great Louis van Gaal;  in this case he could be personified by Michael O’Leary of Ryanair: “Are we that smart?! Or is the rest of the aviation industry and in particular Air France-KLM just that stupid?!” One can almost hear O’Leary think that.

Still, for me there is something extremely fishy about this blatant contrast between the slow demise of Air France-KLM at one hand and the unprecedented success stories of “class room bully” Ryanair and also long distance carriers like Turkish Airlines, Etihad and Emirates on the other hand.

Air France and KLM are decent airliners with a long, long history of safe flights, very good maintenance, good service on the ground and in the air and prices that are not particularly high anymore, even though they have never been among the cheapest airliners in the past.

Both airliners were traditionally among ‘the best of the breed’ and operated their core business in a quite decent and honest way. It could very well be that Air France and KLM are simply too decent and honest; they are perhaps outsmarted by their more seasoned competitors at both the low end and high end side of the aviation spectrum. 

As the Dutch say in one of their famous expressions, they could be “just too big for the napkin and too small for the table cloth”

Perhaps the main problem of Air France-KLM is that the other ‘teams’ in their line of business skim the edges of what is still decent behaviour among airliners and probably cut a few corners along the way.

Middle-Eastern airliners like Turkish Airlines, Etihad and Emirates have a reputation of (illegally) receiving billions in dollars in subsidies from their respective home countries. These are very rich and/or powerful countries, which see the aviation industry as a very good means to attract loads of tourists to the ‘pomp and circumstance’ in their ‘tinseltown’ cities, malls and hotels. Consequently they are willing to spend billions and billions in subsidies on behalf of their airliners and the airports which act as hubs for these airliners.

At the other end of the spectrum, there is obviously Ryanair; a company which has a reputation for flying with very low levels of fuel on international flights and which is also mentioned for hiring inexperienced or unemployed aviators, in order to fly for them at a bargain price, or perhaps even for free.

The company is also infamous among passengers for offering its customers an extremely low basic ticket price, but afterwards charging the customer with all kinds of peculiar surcharges and extra expenses for even the most basic services. This makes an initially very cheap ticket in the end not so cheap anymore, but then the customer has already booked and paid the ticket. 

And perhaps Ryanair’s biggest profit maker is the bedazzling number of seats that fits in a Ryanair 737-800; ideal for people who only look for the lowest ticket prices and don’t mind having virtually no space for their legs at all. And indeed: for short flights at a bargain price many people  including yours truly are willing to abolish their need for some comfort and service on flights. Just like they don't mind standing on short trips by bus or train.

On top of that, there is one risk that every passenger should keep in mind, while flying: especially with the cheap airliners, which always try to save a few bucks on anything that they do. That is the substantial risk for excessive (and perhaps even dangerous) cost cuts on maintenance activities. Read here for instance the integral interview that I held with the distinguished aircraft engineer Fred Bruggeman in March of 2015.

This all leads to one simple conclusion: neither Air France-KLM nor its low-cost subsidiary Transavia can beat Ryanair on price with their current modus operandi. That is just impossible! They are simply not lean and mean enough!

All in all it seems that Air France-KLM is fighting a losing battle, when something does not change very quickly and dramatically in its way of doing business. And – except for the seemingly non-level playing field in the aviation industry – perhaps that something has also to do with the personnel numbers working at this company in distress and the salaries and remunerations that its personnel receives for doing their jobs. 

So, it can very well be that the aggressive outburst of especially the Air France personnel yesterday is yet another example of 'striking and protesting as French weapon of mass self-destruction', as I wrote in 2014.