An SMS from Ernst (21): Short Messages Service

Today is a typical day for the SMS from Ernst: lots of little news and little big news.

Freelance professionals forced to visit food banks

Today I read an alarming message in the Dutch newspaper Telegraaf (www.telegraaf.nl) on the freelance professionals or ZZP-workers (i.e. Independents without personnel) as they are called in The Netherlands.

Now also freelance professionals come to the food bank

This year for the first time freelance professionals and little shop-owners registered at the food banks in The Netherlands. ‘These people also have a tough time’, according to spokesman Harrie Timmerman of Foodbanks The Netherlands. ‘In the current crisis we are worried about what next year will bring’.

In 2011 the food banks saw again growth in the total number of people applying for a free food package. Exact data is not yet available. ‘Especially the last months the numbers are soaring. More and more people are registering. And now also freelance professionals and little shopkeepers and entrepreneurs in the small and medium enterprises. In recent years these people started as freelance professionals, but now these people seem extra vulnerable when the situation deteriorates. Freelancers are often not insured sufficiently, so they must look for help.

        

About two months ago I already wrote on the awkward position of the freelance professionals in the article: The freelance professional might be the biggest victim of the next recession, when it comes. I quote here some snips from this article:

People in the building and construction industry, the free professions, the medical world and in the ICT and Consultancy industry that one day, under pressure, decided to make a start-up on their own.

Often lured by the high hourly rates they see on the horizon, and optimistic, very motivated and sometimes unaware of the implications, they took a step that might cost them dearly in the not-too-distant future.

Now the economic situation for the 3rd and 4th Quarter still looks grim and the near future might not be much better, these freelance professionals run a substantial risk of running out of work.

Many freelancers decide eventually to pull the plug out of their company and look again for a steady job. But in bad economic times, these jobs might be very hard to find, leaving the freelancers in poverty, as a hidden unemployment statistic.

It seems that the ZZP-workers are now indeed getting into poverty as the hidden unemployment statistic that I already warned for. Expect many more alarming messages on this group in the months to come.

The Commercial Real Estate (CRE) disaster

I didn’t write for some time on the situation in the CRE-business in The Netherlands, but it still remains disastrous. How disastrous became clear today, when an auction of commercial real estate was a complete failure, in spite of discounts up to 40% on the original sales prices.

The business newspaper Het Financieele Dagblad (www.fd.nl) writes on this story:

Auction Dutch office buildings failed

The situation on the Dutch Commercial Real Estate-market is even more worrisome than presumed earlier. This became clear through the failed auction of the CRE-portfolio of real estate enterprise Uni-Invest.

Even at a discount of 40% the financier of Uni-Invest, German bank Commerzbank, failed to get rid of 200 buildings. The utter failure of this intended multimillion euro transaction makes painfully clear how much more has to be written off on weak CRE in The Netherlands. In april of this year the Dutch national bank ‘De Nederlandsche Bank’ (DNB) wrote already that the write-down of ‘bad’ objects had hardly started yet. According to the supervisor, the reason that CRE-firms were sitting on the fence is that it is very problematic to set a marked-to-market value for CRE almost without any transactions.

Uni-Invest ran the gauntlet and doing such the company was followed very closely by the whole CRE-industry. CEO Pieter Roozenboom of the destitute company states that ‘he still trusts in a positive ending’.

Arjen van Bussel, partner of the London Consultancy firm Bishopsfield Capital partners, is not surprised by the recent developments. ‘It’s a known fact that a large wave of debt roll-overs is coming and at this very moment, now that a crucial phase is coming for the large number of real estate loans that needs to be rolled-over, we are confronted with the facts. It is now even harder than previously to acquire a loan. Banks are only preprared to lend money for CRE on prime sites like the Amsterdam Zuidas.

Commercial Real Estate is now at the summit of the proverbial pigs cycle with an excess amount of CRE at uninteresting locations that virtually can’t be sold; not even at 40% discount. In the recent past every community needed desperately to have its own industrial and commercial zone and every city hall was bewitched by the attraction of earning top dollar on ground sold for CRE projects.

Small commuter cities like Zoetermeer, Hoofddorp, Sassenheim, Almere and many others thought they could be on top of the world by excessively building real estate and luring companies with high subsidies to move to these cities. After a while, the large international companies moved back to the A-locations, close to Schiphol and other airports. And now the world is in a deep recession (or did I say depression), the small and mid-size companies move to smaller/cheaper locations or even default, leaving their vacant office buildings to rest as scars on the surface of the city.

The difference with the real pigs cycle is that pigs have a short life expectancy and can easily be bred again, thus making the cycles relatively short. 

The CRE cycle is very long as CRE is very hard to get rid of. The excess CRE will be vacant for years and might even never be inhabited, as future buildings will be more energy efficient and it is very expensive to refurbish existing CRE. Unless these buildings are demolished in a few years, they will stand there as sad reminders of this building frenzy that came over The Netherlands during the last 20 years.

Mood among business service providers still optimistic, but declining

The Dutch Central Bureau of Statistics (www.cbs.nl) reported on the declining, but still optimistic mood among business services providers:

Business services providers less optimistic about future turnover

In November, business services providers anticipating turnover growth in the next three months outnumbered those anticipating a downturn. At +18, the index was lower than in October (+29).

Providers of business services were more pessimistic about future employment in their sector than in the preceding month. A net 14 percent expect to have to cut back on staff in the coming three months.

Business services companies were equally pessimistic about the economic climate in November as in October. The number of companies in this branch expecting prices to increase in the next three months outnumbered those expecting a decrease in prices.

Expected turnover business services
www.cbs.nl

In a way it is striking how optimistically the business services industry still seems compared to other industries. However, as companies might want to cut in their fixed expenses and personnel and want to outsource all activities that don’t belong to their core activities, this optimism is not so surprising. But I am sure that this industry will get a harder time in 2012; it might even be much harder than in 2009.

Mood among manufacturers get worse.

Was the business services industry a positive outlier, this seems not true for the manufacturing industry, according to the CBS.

Mood among manufacturers continues to worsen

The mood among Dutch manufacturers deteriorated further in November. Sentiments about future output, in particular were more negative. The producer confidence indicator dropped from –3.2 in October to – 4.8 in November. The manufacturing industry has not been this depressed for almost two years.

Producer confidence consists of three component indicators: the expected output over the next three months, manufacturers’ opinions on their order positions and opinions on their stocks of finished products.

The drop in producer confidence can be attributed entirely to manufacturers’ much more pessimistic view on future output, which deteriorated considerably. Manufacturers were somewhat more optimistic about their order positions. Opinions on stocks of finished products hardly changed.

For the fifth month in a row, manufacturers expecting employment in their branch to increase in the next three months were outnumbered by those expecting staff to be reduced. In this period, the group expecting employment to decline has steadily grown.

Manufacturers indicated that the value of orders received has fallen slightly in recent months. At 100.5, the order position index (orders expressed in terms of months of work) was somewhat up on October.

Producer confidence in manufacturing industry
www.cbs.nl

If you would look only at the aforementioned order position index, you would wonder if the pessimism is justified. But everybody knows what is going on in the Euro-zone and the rest of the world. And everybody knows this will have its impact on the exports of goods and thus eventually on the manufacturing industry. 

Even if the debt problems in the Euro-zone will be finally solved on Friday, December 9 (which is very, very implausible), this will not come in time to prevent this recession from happening. I am convinced that there will be a surge in pessimism in the manufacturing industry in the coming months.