The degree of denial on the economical tundra that lais ahead of us is truly mindblowing. To a big degree I blame the mainstream press for this. Like I wrote many times before the Belgian mainstream press (including De tijd, De Morgen and especially the VRT) all fail to give real analysis of what is happening and especially of what's ahead; vox populi indeed. While I have been predictint doom since mid 2007 all of them have been writing until last August that Europe is well shielded and that recession in the US was highly unlikely. Real estate prices were still going up and Belgian real estate would very much unlikely ever go down.
As if everything will soon be OK again? I can't help picturing Willie Coyote still "hanging" in the air, pondering what is happening just seconds before he falls down.
Get real or go home !
Look around you, the impact of this Tornado on 'real life' is hitting shores and the storm is here to stay, for many years.
Luckily some people do read the relevant news sources, Vincent Touquet is one of them, he just beamed me the below excellent presentation of Sequoia: This is not going to be a V-shaped recession: recovery will be long and hard.
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Oct 11 2008
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Aug 15 2008
Europe had a quarter of negative growth, another quarter like this and the Euro enters its first recession, which is likely to happen.
While the Japanese Real Estate market is crashing, the smarter US analysts are warning that there are HUGE shadow inventories of US foreclosed homes still to be released on the market; and meanwhile Greenspan wants you to believe that the US real estate market will stabalise from 2009 on... right. Expect this graph to go further downwards, drastically.
Today Chief Investment Strategist Richard Bernstein of Merrill Lynch stated:
"We believe that the investors seriously underestimate the extents of the credit crisis and the consequences of the deflation which will follow now".
I have written for the past half year on the deflation storms which are about to hit Europe and the United States.
Meanwhile in South Africa, Standard Bank has to rely on its offshore business to hit targets:
"Johannesburg - Standard Bank would offset the effects of lower-than-expected economic growth rate in South Africa with profits from its offshore businesses in Nigeria and China. One worrying sign for Standard Bank was the increasing problems the company was facing in its card division. The credit loss ratio in card debtors increased from 6.34% to 9.44% indicating that the consumer was becoming increasingly stretched." 9,44% credit loss ratio in amongst card debtors, ouch !! Meanwhile Mboweni decides to not raise interests above the current 12% rate. This is a strategic blunder. Yes, I know, the general tone is that he did good in not raising the rates, because ""… the alarming rate at which cars and houses had been repossessed should be a matter of concern to Mboweni and the MPC. " At the same time inflation keeps skyrocketing and will go from the current 11,6% to 13% by the third quarter. Yet, Mboweni keeps the repo at 12%. Read that again: inflation at 13% with a repo rate of 12%.
At the same time, South African banks are turning into vulture hawks. If you put down a deposit on a property and FNB reassessed your loan and denied you your bond causing you to lose your deposit, FNB says that you should thank them because in actual fact you probably were going to lose a lot more money later on. No, I didn't make this up, it's happening, on a wide scale.
Mboweni claims "``Food and oil price increases continue to cloud the inflation outlook, but there are tentative signs that these pressures may be moderating.'' The wording makes me smile: Food and oil price increases continue to cloud the inflation outlook, but there are tentative signs that these pressures may be moderating.
Well, I think Mboweni is wrong. "Prices will decrease when supply surpasses demand. And that will happen South Africa focuses now on expanding infrastructure and assist its people to be more productive. For this reason the government should now focus on the production side of the economy and increasing skills rather than simply placing money, in the form of social grants, in people's hands. When increased production is attained prices will be constrained, which will eventually also curb inflation." These are not my words, but a literal quote from this article. And the worst is, Mboweni will blind people, inflation will go down…well the CPI will go down…because the government plans to change the measurement of the consumer price index next year. The SA statistics office said on July 1st it will reduce the weighting of food in the CPI, which will lower the inflation rate… artificially (see Bloomberg).
Meanwhile, at the annual Rode conference on property in South Africa today "Johannesburg - House prices are expected to drop by between 10% and 15% in the next 12 months as rising interest rates and tougher credit-granting laws force buyers to tighten their purse strings, a property expert said on Thursday." Prices in Plettenberg Bay are taking a dive and when asked for the reason of selling, 18% of the people mention emigration, this figure is up from 7% 12 months ago.
Standard Bank posted a 7% rise in first-half normalised headline earnings per share (EPS) to 481,8 cents today, but said rising bad debts meant it could not give full-year guidance. When banks come with these messages you better brace yourselve for the storm, especially when you are in real estate business. One of the "saviours" of the housing market is supposed to be the Black Diamonds, the young black professionals who have been spending money like crazy the past few years. Only one problem though, they've been spending borrowed money (mainly via credit and store cards) and getting into a heap of debt, and now that debt is becoming overwhelming, read the details here.
Conclusion:
The monetary loosening of Mboweni worries me; of course it 'could' boost sentiment a little bit on a short term; but it will come at a very, very high price; if you lived in Brazil in the 70s and 90s, you know all about that.
Zimbabwe worries me.
And what worries me most (although there are some opportunities in it for the well connected) is the ongoing land reform in SA.
As I've been saying repeatedly: not just an ordinary global economical blip. -
Aug 13 2008
"Whatever the Central bank does, getting credit is very hard": the title of an excellent article in the Tijd yesterday, proving exactly my repeating point that we are in a deflationary market. Bloomberg also writesthat Money Market is `Plagued' by Libor that the Fed can't reduce, The Wall Street Journal writes that the European banks are tightening lending Standards; just read theJuly 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices and make your own conclusions on the size of the deflationary hurricanes coming your way.
Worse even, the Financial Times wrote that corporate debt default could hit 10%, more defaltion anybody? It's clear the next move of the US Fed will be... down ! Which is crazy of course; savers can then take their money and use it to buy another currency and take advantage of realistic interest rates (like on the Brazilian R$). Aw, that will be prevented by a global plan to prevent ANYONE from saving money. This takes us back to gold. As soon as commodity inflation is gone, then buying gold will be the only way to preserve funds.
Once again, this crisis is not just a cyclical crisis. We had a system for the last sixty years which precipitated the greates debt cycle in history. And now the Americanfed will address the greates deflationary cycle (wake up if you still have the inflation titles on your cornea) with the same remidy which started this crisis in the first place: cheap loans.
With the macro data of the last weeks, it's clear now that the G7 countries (the group of the major advanced economies including US, UK, Japan, Germany, France, Italy and Canada) are already in a recession or close to tipping into one. Other advanced economies or emerging markets (the rest of the Eurozone including Spain. Ireland the the other Euro members; New Zealand, Iceland, Estonia, Latvia and some other South-East Europe economies) are also very close to entering recession.
Yes, that includes Australia, the Australia Reserve Bank just announced it is "shocked" by the severity of the Australian economy slowdown. I previously wrote on Australia, but who would listen then? Associate Professor Steve Keen from the University of Western Sydney wrote last week "Brace youyrselves for recession" and that's exactly what I would recommend you to do.
And yes, meanwhile consumer spending in China and Brasil are still rising; even if inflation remains under control at around 6% in both countries. Yet, both China and Brazil need this growth. For example, a country like China - that even with a growth rate of 10% plus has officially thousands of riots and protests a year - needs to move 15 million poor rural farmers to the modern urban industrial sector with higher wages every year just to maintain the legitimacy of its regime; so for China a growth rate of 6% would be equivalent to a recessionary hard landing. This is why the IMF defines a global recession as a global growth rate below 2.5% as emerging market economies usually grow much faster (6%) than advanced economies where growth averages about 2%.
It now looks like that, by the end of this year or early 2009, the global economy will enter a recession.
And you wonder why the Euro is doomed to keep falling? Simple: Whenever global liquidity tightens relatively speaking, it is very US$ supportive, just watch this interview with Marc Faber.
No, there's no easy solution to this crisis. We will need to understand again to stop believing the fairy tale of debt-leverage into unproductive investments and this will require a massive change of political structures, financial intermediation channels, savings and consumption habits, and economic incentives which challenge virtually every assumption made by at least two generations. Our kids will never forgive us for our naive debt-leveraged way of doing business. -
Mar 28 2008
It's amazing to which extent the current economical condition of Belgium is not daily frontpage news. Earlier this morning the news came out that Belgian's inflation rate of March went up to 4,39% . This is the same inflation rate as the expection as Brazil for 2008 (4,42%). And it is also where the comparison between Belgium and Brasil stops:
- Brazil will grow 5% this year, Belgium at most 1,4%.
- The buying power of Brazilians is increasing. In January the minimal wage went up 9%. Moreover, with credit to GDP only at 35% (compared to 200% in the US), there is considerable room for increased consumer and corporate leverage in Brazil. In Belgium the real buying power is decreasing drastically.
- Brazil has a positive trade balance, Belgium on the other hand is struggling to keep its trade balance in the black.
- Brazil became a net creditor, the Lisboa reform program will tell you that Belgium aims for a 0,6% budget surplus in 2008 to reduce its massive piles of debt, well let me tell you: not in a thousand years is our country gonna make that.
- And on top of that, we have a freaking Belgian timebomb of an upcoming boom of elderly people which we can only support with a 70% occupation rate (10% more than today) and more productivity. A 70% occupancy rate? Which country can reach that? And more productivity? Are Belgians robots or what? Belgium is already the country in the world where the satisfaction of people with their lives is decreasing fastest. In contrast with Brazil, where that rate is increasing. I'll write more about this soon; I believe this is even more alarming than the Belgian state of the economy.
Read that news again people, Belgium will have a growth rate in 2008 no more than 1,4%. Have you got any idea how dramatic this news is when mixed with the budget problems and the alarm on our greying society?
So, what can Belgium do?
1. Become more productive? Highly unlikeable. Rather the contrary, the possibities of productivity gains in emerging countries is far bigger. Ask Arcelor, Peugeot, Coca Cola or even our own Inbev.
2. A participation rate of 70%? People working until their 68 or what? Comon.
There's only one way, really: we need to drasdtically review our immigration policies.
Belgium has 1 million people with a foreign nationality and a permit to stay. We need to make a cleare public statement what this million people bring back to the Belgium society. I can't understand why this figure hasn't been made public yet. Belgium has 415.000 muslims. How many of them are Belgian, how many of foreign nationality. I want to know what the cost/benefit balance is of those of foreign nationality (the majority). A simple question, why can't we get a simple answer?
Why do those 1 million foreigner with a stay permit get OCMW aid, health care, social housing, free Dutch classes, integration courses,...?
I have no problems with people wanting to start a future in Belgium. I did the same going to Brazil. Brazil has been grown on immigration. But in a 'survival of the fittest' way.
People who want to come to Belgium? Fine, here are the steps:
1. When you arrive, you get no health care, OCMW support, housing support, unemployment beneift. Even not when married to a Belgian.
2. When you get a job, you get health care. When you fall out of work in the first 5 years after arrival in Belgium, you get 3 months unemployment support and free health care. If you haven't found a job within 3 months, too bad.
3. Dutch lessons: ask your employer to pay for you, or learn it yourself. It's not that hard, is it?
4. Integration courses? Open your eyes and read the newspaper.
5. Out of a job longer than 12 months in a row: too bad. Either you invest 50.000 EU in Belgium and start your own business, or you go back home.
6. Nationality? When you managed to stay 10 years in Belgium and as thus proved that you contribute to our society.
Whatever your color, whatever your nationality.
You go to a a Mosque, Umbanda or Macumba temple? I couldn't care less, as long as you contribute to our society and abide our laws.
This is exactly how foreigners are treated coming to Brazil. And I wonder what's so wrong or even undemocratic about it.
Once again, I want to know what the million foreigners in Belgium contribute to our society and when the balance is negative, what the government will do to alter this negative balance drastically. With those gains the Belgian government can lower the company and labour taxes. Maybe Belgium has a future then. -
Mar 9 2008
Jozef Ackermann, the Chief Executive Officer of Deutsche Bank said last Friday that the Latin American region is better placed than ever to face the current ecinomic turmoil.
"Strong economic fundaments, booming commodity prices, improved confidence and robust domestic demand improved the region's resilience tothe current uncertain global developments. 2008 will be an especially interesting year as we witness the extent of this resilience and the degree to which the region can continue to realize its potential".
How would such a paragraph on Belgium read?
"A very uncertain political context, negative trade balance, and a foreign debt of 287 billion EU, the third hightest foreign debt/GDP rate in Europe, after Italy and Greece, makes Belgian extremely vulnerable in the current economical crisis. In the current hausse of commodities, resource-low Belgium is extremely vulnerable. Add to that a inflation which will double in 2008 compared to 2007 (close to 4% coming from 1,7% in 2007) and a growth which will be in the most optimistic scenarios 1,9%. Surprisingly enough, the 2008 federal budget takes into account a creation of 46.600 new jobs in 2008. This is surprisingly high in the current economical context." -
Feb 23 2008
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Jan 8 2008
Luc tipped me to watch the Dutch VPRO program “Tegenlicht” (click on the orange “bekijk uitzending")
He was my first boss at PING back in 1995. I have learned a great deal from him and still vividly enjoy reading his posts and talking to him. One of the things we differ on: Luc is a big fan of the US(A) and I would not be surprised if he’d announce tomorrow he's moving to Carifornia. I on the other hand feel at home in Brazil. I don't see Luc spending 3 months in Brazil -if I'm mistaken, Luc, we're leaving for 5 days with a group entrepeneurs end March-, just as I couldn’t stand living 3 months in the US. The reasons why I’ve always felt uncomfortable in the 'American society' are the same which are bringing the country to its knees. The VPRO video clearly illustrates the phenomenon. It’s a fake country, with fake people and fake figures. When the shit hits the fan, the masks fall. Brazilians on the other hand have flexed their muscles in a chaotic mix of cultures and economical tornado’s which makes the quote “Courage is grace under pressure” from Hemmingway far more appropriate on them than on the gringos.
Take for example the two main topics of discussion when people refer to the current economical context:
1. Will the US enter a recession?
2. What is inflation? Yes, what is inflation is a huge topic of discussion of I read through all the economical opinions these days. -
Dec 20 2007
Earlier this year, analysts projected Brazilian GDP to grow at 4,9% in 2007. I found this figure to be ambitious. The reality is that Brazil will be clocking off 2007 with a substantial higher growth rate since the Brazilian economy expanded with a 5,7% in the third quarter. Brazil has been consistently lowering its interest rates over the past year, fueling consumer and business spending. Only now speculation arises that the Brazilian bank may keep borrowing costs unchanged for most of 2008 to cap inflation. For me personally this is good news. This will keep supporting the high Brazilian currency rate and make a nice yield on Brasilian bonds. I however believe that the Brazilian economy would thrive on a further decrease of the interest rate to a 9%.
There is a growing consensus amongst analysts that the US (and EU) economy is moving towards a recession in 2008. Some believe it to be a mild recession, personally I bet on a more severe scenario. I have the impressions that US and EU policy makers are not really fully aware of the significant downward risk to growth. Typically economists tend to overestimate the risk of rising inflation and underestimate the risk of downward growth. Especially today this is the case; there seems to be a view that EU and US growth will have just a 'dip' and resume in the second half of 2008. I'm (very) wary of such a scenario in the context of the current macro economical policies applied by the US and the EU.
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