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Monday, 28 February 2011

The “Age of Austerity” means probably the end for lifestyle magazines

Yesterday I was flipping through the pages of one of those lifestyle magazines you get for free with your credit card. During the reading about luxury kitchens, far away travels and expensive personal care products, I realized that the number of these kinds of magazines has reduced dramatically since 2008.

In 2008 every waiting room at the doctor, dentist, physiotherapist and even the hairdresser was littered with lifestyle magazines about:
-         expensive yachts;
-         expensive automobiles;
-         expensive Italian clothes and shoes;
-         expensive travels
-         expensive beauty resorts and health spas.

Even my normally quite normal newspaper published at least 3 times a magazine about expensive Swiss mechanical watches. The message of these magazines was that only a loser would still have a Japanese quartz watch. You know the one from Seiko,Casio or Citizen that suited you fine for 20 years and that was always on the spot when it came to precision.

Real guys would wear a $5,000 IWC Schaffhausen mechanical watch and the real trendsetters would wear a $15,000 Jaeger-Lecoultre or Patek Philippe watch in 18 carat with a zillion mechanical functions, possibly with 100 brilliant cut diamonds for the Mrs.

Remember those guys with watches the size of church clocks around their wrist? And… do you still see them? And do they not look like a complete fool? Even the average Goldman-Sachs employee has now something a little bit more tasteful around his wrist.

The Age of Austerity (if I may use this expression, courtesy of Minyanville) has come over us and it came with the message that you could survive without the Swiss wrist watch, the expensive Italian costume and the $250 perfume. And that a holiday in Spain (for Europeans) or Mexico is just as nice as a 3 week diving holiday on the Maldives. And to be honest, except for the diving the Maldives are quite boring.

As every battle has its losers, I am afraid that the losers of this battle are the lifestyle magazines. But hey, I can do without them, can you?

Live long (and frugal) and prosper.

Our best friends: Saudi-Arabia, but for how long?!

I've been with you such a long time
You're my sunshine
And I want you to know
That my feelings are true
I really love you
You're my best friend

When the western world is in dire straits and oil is the issue, there is always one country we can count on: our oil supplier of last resort, Saudi-Arabia.

Last week Saudi-Arabia promised to open the oil valves in order to fill in the gaps that Libya leaves behind when oil supply there will be scaled back.  Crude, Brent? You name it, we’ll deliver it.

The European countries that depend on Libyan oil, like Italy and Spain, can now avoid the measures of rationing gasoline usage.

The Globe and Mail writes an article about it. Here are some of the snips:

Top world oil exporter Saudi Arabia is in talks with European companies affected by the disruption in Libyan supply and is willing and able to plug any gaps in supply, senior Saudi sources said on Thursday.
Oil industry sources said Saudi officials have been in touch with Spanish and Italian oil firms – among those hit by the Libyan shutdowns. The companies were assessing their needs and have yet to ask for any more Saudi oil.
The Saudi sources said Saudi Arabia was able to pump more of the kind of high-quality crude produced by OPEC member Libya and that it could be shipped quickly to Europe with the help of a pipeline that crosses the kingdom.
European oil prices have surged towards $120 (U.S.) a barrel because of the unrest and disruption to supply in Libya. Refineries in Europe import about 80 per cent of Libya’s 1.3 million barrels per day (bpd) of exports, analysts say.
“We are in active talks with European refineries to find out what quality they want and we are ready to ship it as soon as they need it. This is the way buyers and sellers work. We need to find out what they want before we take any action,” a senior Saudi source.
Curious readers should read the whole article, as it gives good insights in the horse trading around the worlds’ favorite substance. You could say: one man's breath is another man's death.

But you can ask yourself: why is Saudi-Arabia always the first country to increase the oil production when there are problems in the world? Because they can? Yes… and no!

Look at the country for a few moments: It is one of the most influencial countries in the Middle-East. As it holds the Islamic landmarks of Mekka (the Qa’aba) and Medina, it is in the center of the Islam and therefore host to millions of Muslims every year, during the Hajj.

But it is also one of the cruelest, most reactionary and nepotist regimes in the Middle-East. Led by the family Bin-Saud, a family of a king and about 2000 princes that hold all the cards in the country. It is a very Islamitic country, but in a way described by George Orwell in Animal farm: ‘all animals are equal, but some animals are more equal than others’. The total lack of women’s rights is infamous there.

The people in power can do everything they want, like drinking alcohol, using drugs and having decadent parties, while poor people get punished in very cruel ways without having the right to appeal: Decapitations as the most usual death penalty, arms getting chopped off for small theft.

At the bottom of the food chain there are the Indonesian and Philippino servants, that do all the dirty jobs and who are the first to blame when something goes wrong within a family. Stories of poor servants that were beaten or tortured to death by their bosses are very common, as well as stories of those servants that were innocently decapitated at “Chop-Chop square”, because they took the heat for crimes they didn’t commit.

Most infamous inhabitant of Saudi-Arabia is of course Osama bin Laden, the most feared terrorist  in history. But he was not the only one: almost all hijackers of 9-11 were also from Saudi-Arabia. And a lot of terrorism is still financed from there.

But nobody in Europe and the USA talks officially about this, while the oil keeps flowing. And flowing it does: SA is the biggest exporter of oil in the world and as the supply of “Texas Tea” is almost limitless, it can always be more when desired.
Dutch foreign ministers pay lip service to the human rights’ organizations when they are on their way to SA, but do nothing as soon as the plane has landed in Riyadh. Because we need the oil and Saudi-Arabia is holding the key.

Except for the fact that nobody in the west now talks about the dark side of Saudi-Arabia, there are a few other reasons to let the oil pumps in Riyadh run 24-7 at these trying times:
-   With the extra money it delivers, the rulers are able to give the people “bread and circuses”. In this way nobody is unsatisfied enough to revolt against the rulers
o  The rulers of Saudi-Arabia are very afraid of the domino theory, now Algeria, Tunesia and Egypt already had a change of the people in power and Libya is probably the next country to fall.

-   The USA will never accept that the oil delivery of SA will stall, due to internal societal acrimony. And with a friend like the Americans, the family Bin Saud can remain in power for ages more to come.

But the price the west pays for “this best friend of ours” is high:
-   Nobody in the Middle-East trusts the democratic intensions of the west, as long as we keep looking the other way in SA. We can succesfully be accused of having double standards, when it comes to democracy.

-   And nobody under the normal citizens of SA is our friend as long as we are in support of the greedy elite of this country. If the regime falls for any reason, the oil delivery might be over.

-   And as long as we are on the lifeline of SA, the west can be blackmailed with oil when needed. If this means that we should attack Iran, because SA wants it, a ‘casus belli” (reason for war) is found very easily, I’m afraid.

Friday, 25 February 2011

An SMS from Ernst. Short Messages Service (6)

Putin critizes EU Energy Policy (Source: Wall Street Journal)

Vladimir Putin, the prime minister of Russia, is not happy about the demands in the Energy Policy of the European Union. Yesterday he had a meeting with José Manuel Barroso where they discussed the subject. Here are some snips:
“We are speaking about property confiscation," Mr. Putin said during a joint news conference with European Commission President José Manuel Barroso, following a meeting between the two leaders, Russian ministers, and members of the commission. "Full implementation of [the EU's energy policy] will lead in an increase of energy resources prices in Europe," he said.
Earlier this month, EU leaders agreed on a fresh push to liberalize the EU energy market by 2014, putting into place rules on which they had agreed two years ago. A provision of the new rules requires energy companies that own their own pipelines to sell them, or else manage them completely separately, and allow access to the infrastructure by other operators that might also want to use it for transport.
The issue is creating tensions between the EU and Moscow because Russian gas giant OAO Gazprom has a key role in exporting gas to the EU and also holds stakes in some companies that run the grids, including in Poland and Lithuania. The Lithuanian government is forcing Gazprom to sell a 37% stake it owns in the country's gas distributor.
Roughly a quarter of the gas used in Europe comes from Russia, but some Eastern European countries like Bulgaria, Romania, Poland and Lithuania are much more heavily dependent on Russian gas.
Putin is a cynical, but intelligent demagogue that understands quite well that the (eastern part of the) EU is very dependent on Gazproms (read: The Kremlins’) gas. I am afraid that José Manuel Barroso can stand on his head with his new energy policy, but the Kremlin will not do it: take it or leave it! And if Barroso argues to long, the gas price will go up a little bit more.

Kema capable of extracting water from smoke power plants. (Source: RTL News)

Good news from the environmental front. Kema, a Dutch company that started as the official Testing institute for Electrotechnical Materials in The Netherlands, is now a very versatile research institute.

They discovered a way to extract water from smoke gasses, coming from the chimneys of power plants. The water can be reused in the powerplants itself, but it can also be used as drinking water in very dry areas. Here are some snips:

3500 families could live from the water coming from an average 400 megawatt power plant. In Africa, where general water usage is lower, even 9000 families could live from this water. 
The consequences of this technology are far-reaching: “not only in environmental and energy savings, but also as a means for water shortage in dry areas, like in some African countries”, according to Kema CEO Pier Nabuur.
The used technology is based on the usage of small filters –  membranes – that extract the water from the smoke. During tests it became clear that at least 40% of the water in smoke gasses could be extracted. In advance the researchers reckoned with 20%.

This seems like a great technology to be used everywhere where power plants are and water is in short supply.

Parking in Dutch parking garages becomes more and more expensive

I already told you that there are no boundaries to the tax addiction of the Dutch government and municipalities have. Parking is another example (source: Financieel Dagblad;

Two out of three parking garages raised their price rates, sometimes as far as 20%, according to the Dutch retail trade association ‘Detailhandel Nederland’.
They did this not by raising the rates per hour, but by lowering the number of time units per Euro.  The Waterlooplein Parking Garage in Amsterdam f.i. now doesn’t count 4€ per hour, but 1€ per 12 minutes. In practice this is a raise of 20%, without people noticing it.
The investigators noted that the parkings are following the increased rates for parking on the street.

This is unfortunately the Dutch way: not thinking about (possible) reductions in the civil service of the average Dutch municipality, but just raising all kinds of hidden taxes. There is one word for it: disgusting.

Aegon’s issuance of shares succeeded (Source: Financieel Dagblad)

The raise of the share capital that Aegon announced last Thursday, succeeded. The insurer collected €903 mln at an issue price of €5.20.

Traders and analysts spoke of a ‘show of force’. Aegon will use the yield to return the remaining state support.

Aegon issued and sold 10% –  173 mln – new shares. The negative price reaction that often goes combined with the issuance of new shares, stayed away.

The Wall Street Journal is not very enthousiastic:
Aegon is a reminder the financial crisis ravaged Europe's insurers as well as its banks.
The Dutch life insurer surprised the market Thursday by raising €900 million ($1.24 billion) to repay the last of €3 billion in state aid it received in 2008. That's a positive step toward putting its business on a more normal footing. But Aegon's path to rehabilitation won't be easy.
Precrisis, Aegon's €24 billion market capitalization ranked it among Europe's bigger insurers. Its TransAmerica Life subsidiary remains one of the U.S.'s largest life-insurance providers. But in 2008, losses on investments in U.S. financials left huge dents in Aegon's capital base, bringing its shares down 70% and pushing it into a government bailout.
Aegon has since made good progress reducing its equity exposure and exiting capital-intensive businesses to release funds to repay the state. The market believed it could fund most of a final €2.25 billion state-aid payment due this summer through internal resources, including via the sale of its life-reinsurance business, TransAmerica Re. But while Aegon says it is now in discussions with a prospective buyer, negotiations appear to be bogged down by its complex legal structure and concerns over the quality of its back book.
It is a good thing that Aegon can pay back the state support, as this was quite expensive and reminds people of the crisis. However, the crisis is not over yet and there are concerns that the companies didn’t change their attitude enough to be ready for the next crisis.

Boeing beat Airbus in battle for tanker plane: surprising? Not really

Over the last twenty years there have been only two dominant airplane factories in the world for the civil widebody market: Boeing and Airbus. Therefore it was logical that these two factories would also be the main competitors for the Pentagons’ $30 billion contract for aerial refueling tankers. 

Dark horse in the process was Northrop Grumman that also made a bid for the contract. However, the company finally withdrew in 2010 after the terms for the contract had been altered by the Pentagon, according to Northrop and EADS “in favor of the Boeing bid”.

These tanker planes are used for refueling jetfighters and bombers in full air during missions all over the world. Therefore they need to have a considerable size and fuel load capacity in combination with very efficient and strong jet engines to be effective. The most economical way to design such a airplane is taking a modern widebody passenger plane and restyle it for the military purposes it has to serve. 

This is exactly what both Airbus and Boeing did. Airbus took the A330 passenger plane, while Boeing took their Boeing 767 plane. Now the decision has been made by the Pentagon after a long and hard-fought battle: Boeing is the company that is designated to deliver the tanker plane for the US Air Force.

Somehow this doesn’t come for me as a surprise.

The Wall Street Journal wrote the very interesting article Boeing bid beats Europe for tanker about this subject. Here are the following pertinent snips:

The Pentagon awarded Boeing Co. a contract worth more than $30 billion for aerial refueling tankers, closing a chapter in a tortured bidding contest, but potentially launching a fresh trans-Atlantic political controversy.
The award preserves Boeing's decades-long position as supplier of refueling aircraft to the Air Force, and shores up its standing as a U.S. national champion. The Pentagon's move is also likely to feed perceptions in European capitals that the U.S. defense market—the biggest in the world—remains largely closed to European defense suppliers. The losing bidder was EADS North America, a unit of European Aeronautic Defence & Space Co.
Past efforts by the Air Force to replace its tankers have been upended by scandal, and industry observers said a protest could stall delivery of the aircraft. Ahead of the announcement, the governors of Alabama, Mississippi and Louisiana sent a letter to President Barack Obama in support of the bid by EADS, which proposed building its tanker at a new facility in Mobile, Ala.
In a written statement after the news broke, Sen. Richard Shelby (R., Ala.), said he was "disappointed but not surprised," blaming "Chicago politics" for tipping the scales in favor of Boeing, which is headquartered in the Windy City
EADS North America Chairman Ralph Crosby called the news "certainly a disappointing turn of events, and we look forward to discussing with the Air Force how it arrived at this conclusion." Pentagon officials said that both firms would have to wait for a formal debriefing before any protest could be filed with the Government Accountability Office.
Thousands of U.S. manufacturing jobs are at stake. Boeing proposed to build its tanker at existing facilities in Washington and Kansas, and said the program would support around 50,000 total U.S. jobs and hundreds of suppliers around the country. EADS said its tanker would keep 48,000 Americans employed, and bring jobs to the depressed Gulf Coast region.
The Air Force subsequently launched a competitive procurement process, awarding a contract in 2008 to a Northrop Grumman Corp. and EADS team. Boeing appealed to the GAO, which overturned the award, citing "significant errors" in the management of the acquisition.
After the Pentagon restarted the bidding, Northrop and EADS complained the guidelines favored Boeing's smaller aircraft. Northrop ultimately withdrew last year.
Curious readers read the whole article, as it is a good read.

The problem with defense contracts is that the nature of the beast doesn’t encourage objective and open bid processes:

-     Defense is about defending your own country against your future enemies.
o    This makes defense de facto a nationalistic matter
o    This also rules out in most cases the defense hardware that is produced by your (former) enemies, even if it is better than your own. Hence the Kalashnikov AK-47 assault rifle that is (in close battles and in a sandy or damp environment) a much better and more reliable weapon than the in itself more accurate M-16.
o    It is sometimes also a matter of espionage or strategic advantages: you don’t want your (possible) enemies to be able to manipulate your defense systems, making them fail at the most dire moments
o     Defense hardware and materials like ammo are extremely complicated and dangerous (depleted uranium bullets). You don’t want them to fall in the wrong hands and the only factories you can control are your own factories.

-     Defense is one of the few economic areas where money almost doesn’t matter.
o     It is not the best product for the best price, but the best product… period. And that is always the product that gives you the competitive edge.
o     In the US this is even more important than in the rest of the world, as the US always wants to be the strongest country on every battle field.

-     Defense is about jobs, more than any other industries:
o     Public opinion of your electorate wouldn’t accept it when jobs in your own country or state(!) are lost to foreign companies.
o     Mobile Ala., although so close, is yet much farther from Washington than Chicago: at least in the mindset of Barack Obama. And Paris, France is metaphorically a zillion miles away.
o     Countries also look at compensation orders: if I order with you, then you have to order with me for the same amount of money in compensation orders.

These factors make a defense bid a giant mine field for foreign bidders. EADS can go to the Pentagon and can ask for a motivation on the Boeing bid. But nothing will change in the end.

So if I was EADS Airbus, I would cry for a day and go on with my life.


Thursday, 24 February 2011

Former Dutch Minister of Transport and Public Works Camiel Eurlings faces moral hazard: did he serve country or Air France-KLM?

Some stories are like good wine: the longer you taste them, the better they become. Normally yesterdays’ newspaper is todays’ wrapping paper for fish, but some stories sink in. Here are the highlights of a percolating story about the former crown prince of Jan-Peter Balkenende, the last Prime-Minister of The Netherlands:

Camiel Eurlings, member of the CDA (Christian Democratic) political party and former minister of Transport and Public Works for The Netherlands will become the new managing director of KLM The Netherlands, according to NRC Handelsblad (; link in Dutch).
He will lead the freight division of the airline company, according to Air France-KLM (French-Dutch Airliner- EL). Groenlinks (environmental left-wing party- EL) and the Socialist Party react critically to the news.
Eurlings is taking over the management portfolio of Peter Hartman, who will remain with the company. The board of directors is furthermore extended with business manager Erik Varwijk.
Eurlings announced last year in a surprise-move to withdraw from politics when his term as transport minister would have ended, just before the elections for the 2nd Chamber of Dutch parliament took place. Although the minister was seen as a future leader for the CDA, he stated that his family life forced him to withdraw from standing at the political forefront.
As Transport Minister Camiel Eurlings introduced the flying tax, to the discontentment of Schiphol Airport and KLM. But he was not insensitive for the negative effects of the tax on the Dutch aviation sector. In 2009 the flying tax was discarded again: “We have to keep our aviation sector competitive” according to the minister.
Groenlinks MP Liesbeth van Tongeren is unpleasantly surprised that Eurlings will get a job in a company that was a direct subject to his decisions as minister. “This smells like a conflict of interest” according to the stateswoman.[…]

According to Paul de Clerck, member of lobby watchdog “Alter-EU”, in an Op-Ed in De Volkskrant of February 24: “New job Eurlings damages the standing of politics” (link in Dutch). Here are some pertinent snips:

“The appearances are against Eurlings, as he defended KLM multiple times during his ministry. It provokes the question whether he defended the public interest or KLM’s interests, his future employer. This is the kind of situation that occurs more and more often and that one as a minister should prevent. 
Eurlings wanted to be an energetic, gung ho minister. That he had often a keen eye for the interests of his future employer KLM, becomes clear now:
-  He wanted to let the taxpayer foot the bill for costs that KLM made, due to the Icelandic ash cloud
-  He discarded the flying tax under pressure of the aviation sector
-  He cleared the way for the expansion of KLM and Schiphol, hurting the interests of the people living close to the airport
That Eurlings now commences at KLM hurts the peoples’ trust in politics. It confirms the image that politicians, after working in government positions, are rewarded by the business community for services rendered. For a salary that exceeds the maximum pay for politicians multiple times, without any doubt.[…]" 

The article, however unfortunately in Dutch, is an absolute must-read.

Reading these articles, the following conclusions are very obvious:
-      Of course Eurlings had a keen eye for the interests of his future employer

-      Of course he will deny this even after 30 minutes of “waterboarding”

-      Of course this smells as much like corruption and manipulation, as former army generals getting a wellpaid advisory job at the military-industrial complex after their retirement.

-      Of course “evidence” is here the neglected stepchild of “suspicions”

-      Of course all kinds of people in The Netherlands are now looking for new legislation to prevent this from happening again in the future.

-      Of course it is an illusion that you can legislate these moral hazards away from politics

As long as people remain people, things like this will happen. Making yourself angry about it doesn’t help at all.


Saving the (Celtic) Tiger! Elections in Ireland

So many times, it happens too fast 
You change your passion for glory 
Don't lose your grip on the dreams of the past 
You must fight just to keep them alive 

Tomorrow, February 25, the parliamentary elections in Irelands will be held: the Dáil. Seldom was there more at stake than this time. 

  1. Ireland has a huge housing problem with:
    1. Houses being built for no-one and being sold to no-one
    2. People having mortgages on houses of more than three times the current sales value
  2. Ireland has a huge debt problem with every Irish citizen (babies and elderly people too) having an average debt of 100,000 EUR (this is no error!)
  3. Ireland has a huge and growing unemployment problem with 11.8% of the labour force unemployed in 2009 (average)  and 13.3% in 2010
  4. Ireland has a huge banking problem with their top 3 banks Allied Irish Banks, Bank of Ireland and Anglo Irish Bankcorp all being on the brink of a meltdown.
    1. As a consequence of this the British and German banks that lent a totally over-the-top amount of 400 bln EUR to Ireland and the Irish banks (see bullet 2) are also threatened in their very existence. These are among others:
                                               i.      Hypo Real Estate bank with 10.3 bln EUR exposure in Irish sovereigns (read: the German government, as HRE is nationalized)
                                               ii.      Royal Bank of Scotland with 5 bln EUR exposure in Irish sovereigns

  1. Ireland has a huge problem with their sovereign bond holders that, being not sure of the payback of their loans, pushed the interest rate up to 9% before the last bailout of the ECB (currently 5.83%).

These are the real issues Ireland is dealing with currently and I must admit: these are enormous issues.

This means that, next to the “normal” political issues that characterize one party from another and that are of course present in this Dáil, there are three important questions that must be answered, the so-called Elephants in the room. And no political party in Ireland can afford to ignore these questions:

-         Does Ireland keep on saving its own banks at the expense of the Irish Taxpayer and by that the big British and German banks or does Ireland “Just say no too?!”

-         Does Ireland take the chance of becoming the European sitting duck by saying to Europe “ go to hell with your terms on ECB Loans and Aid?!”

-      Does Ireland maintain their low corporate tax and with that its competitive advantage?!
o     Or will Ireland get back on the leading strings of a Europe that wants to see action for its money?

 I don’t know how these elections will end, but if I look at last months’ situation in Iceland and I translate this to the Irish situation I would say:

-     The Irish party that promises to send Europe “to hell” is the party that will win the elections
-     The Irish will take for granted that they become the sitting duck for all European anger for the coming two years and will be expelled from every important decision in years to come.
-     Europe stays angry at Ireland for 2 years, but as politicians have short memory spans everything will be forgotten afterwards.
-     The Irish corporate tax will remain the lowest in Europe, as this is their only competitive advantage
-     The Irish people start to work for less money, in this way making  Ireland competitive again.
-     Corporate and private bondholders of Irish sovereigns must accept a huge haircut, while grinding their teeths in pure anger.
-     The banks with huge exposure to Irish debt are saved again by the ECB.