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Friday, 30 March 2012

Dutch consumers keep their hands in their pockets, while political parties, employer’s organizations and even a labor union call for zero wage growth… for everybody. The wrong medicine for the right problem

Yesterday, The Dutch Central Bureau for Statistics (  presented the consumption data for January 2012 in The Netherlands. The data were reassuringly bad, proving that the consumers’ strike and thus one of the main causes for this crisis in The Netherlands is far from over yet.

Here are the main data:

Household spending on goods and services was 1.7% down in January 2012  on twelve months previously. The decline is about the same as in the preceding months. Consumption figures are adjusted for price changes and differences in the shopping-day pattern.

Spending on goods was nearly 4% below the level of January 2011. Due to the mild weather, natural gas consumption was considerably lower. Spending on durable consumer goods was 4% down. Consumers spent less on new cars. Spending on food, drinks and tobacco was nearly 2% down. Spending on services was approximately on the same level as one year previously.

Domestic household consumption (volume, adjusted for shopping-days)
Click to enlarge
The CBS prints here a general overview of y-o-y consumption, but I wanted to split-up the general data into different categories of goods and services, in order to look where the big differences would be.

This was possible with the base data in the wonderful Statline database of CBS. The following chart is based on CBS data; it’s an inflation-corrected moving average from January 2007 until January 2012 for the main categories of goods.

Consumption value index 2007-2012, inflation-adjusted
Chart by
Data source:
Click to enlarge
What immediately stands out in this chart, are the following facts:

  • The very strong decline in the sales data of durable goods and the seasonal pattern in it that developed since the crisis began.
    • Especially during the sales periods, people bought clothes, but skipped durable goods, instead of purchasing both what happened in the years before the crisis. Durable goods had to wait for a few months

  • People bought their clothes during the sales period and ONLY during the sales period. The decline that happened in January 2012 y-o-y can hardly be overlooked.
  • The decline in consumption goods is also very strong; especially Christmas 2011 has been very bad for consumption goods sales
  • The outlier, with steadily rising sales, is the category food, alcohol and tobacco. The only explanations that I have for this unexpected rise are:
    • The rise in food prices is well above the inflation level, which makes sense
    • People spent much less money in restaurants, but spent more money on home cooking. This also makes sense.
All in all, the results of the credit crisis on Dutch consumption can be seen very clearly. The effect of the draconic austerity measures to the tune of €10 bln – €16 bln, that are currently prepared by the Dutch government, will be devastating on development of consumption in The Netherlands and will lead  to a further economic contraction.

While stimulus is often the name of the game in the US, it is ‘austerity, more austerity and nothing but austerity’ in The Netherlands. The extremes of both are very wrong.

There had been the steady bunch of fools that advocated for a zero wage increase-policy for workers in The Netherlands: politics and the employer’s associations VNO/NCW (large corporations) and MKB Nederland (small and medium enterprise). These were exactly the people you would expect with such a useless and stupid, consumption-killing plea.

Dutch consumption since 2000 has already been suffering from the very limited wage development in The Netherlands and the plan for a zero wage increase-policy is exactly the kind of plan that drags consumption further in the gutter. You could argue that Dutch workers need instead a wage increase of well above inflation level.

However, today brought an unpleasant surprise to me. The chairman of the Christian Labour Union CNV, Jaap Smit, stated that a general zero wage increase-policy could be bookable. Although the catch of Smit’s plan was that the employers and the high-level management should also stick to the zero-line, this made the plan both impossible and even more ridiculous. Here are the pertinent snips, taken from a Business News Radio ( article:

Labor union federation CNV wants to make the zero wage increase-policy bookable. Under strict conditions, the CNV is prepared to discuss a general restraint in wage development. CNV doesn’t want the workers to foot the bill for the crisis alone. This was written by chairman Jaap Smit of CNV on his personal weblog. He calls on the other labor unions to make this topic also bookable.

‘It should not be true that if we together keep the zero-line for wages, the bill is footed by the workers alone. There should be compensations. We want to have rocksolid guarantees from the employers on getting handicapped youngsters to work. These are currently the victims of the economic crisis.’

Also the high-level managers and owner/director’s should maintain the wage restraint on their own salaries. There should be a higher tax on bonuses to achieve this.

If the labor unions in The Netherlands and especially CNV want to keep their last few members, they tell Jaap Smit to hit the road, because of blatant incompetence and foolishness.

First, the employers and especially the high-level managers won’t stop giving themselves presents, like 10+% wage increases and bonuses! Ever! It’s their raison d’etre.

Second, wage restraint is the worst thing that could happen now. Also for the companies themselves, as most companies earn their main income in The Netherlands. A further stagnating consumption would bring many companies to their knees and this is exactly the way to achieve this.

The only way to spur consumption, while maintaining a restraint on wage increase, is by dropping taxes on labor by at least a few percent. This would be a sensible kind of stimulus.

However, the tax-addicted government and the visionless employer’s associations VNO/NCW and MKB Nederland won’t sponsor such a promising idea, but rather stick to their old and worn-out plan of wage-restraint.  

Wednesday, 28 March 2012

Is the credit crisis a depression in disguise in Europe?! Looking at consumer confidence in the strongest EU countries over the last eight years, I would say ‘yes, it is’!

In 2012, the credit crisis has gone in its fourth year. This year 2012 has been a year of extremely mixed signals in Europe and the US until now:
  • The stock exchanges, although now going through two poor weeks, have been floating with ‘lots of happy, happy feelings’ during this year;
  • The social networks and Apple showed superlative market capitalisation and (in case of the latter) superlative profit growth;
  • The Chinese dream seems to be at the brink of turning into a Japanese nightmare;
  • The financial markets had slept on their credit sleeping pills, but seem to be fully awake again, which predicts a very grim financial future for Spain, Portugal, Italy and perhaps The Netherlands; 
However, only one group is the main variable in every economic equasion; in every country in Europe and the world. It is impossible that any economy will get into a sustainable, secular bull market if this group waves the white flag in the end: the consumers.

The elites can invest their money. The managers can spend their well-deserved (?) bonuses in luxury shops all over the country. The central banks can execute quantitative easing until every citizen is a millionaire. And the government can spend trillions of dollars and euro’s in Keynesian stimulus. But if the consumers let us down, there will not be a long-lasting bull market. Period!

Therefore I went to the wonderful Eurostat online database ( and selected the consumer and retail confidence over the last eight years from the strongest countries in the European Union (in GDP per country): Germany, France, The United Kingdom, Italy, Spain and The Netherlands. I took this data and present it here in six charts, per country (all data courtesy of Eurostat). 

In this way I hope to read the minds of the consumers in these leading European countries; not only about what they say (i.e. consumer confidence), but also about what they do (i.e. retailer confidence).:

Germany: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge

Spain: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge

The Netherlands: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge
Germany, Spain and The Netherlands all have a very strong correlation between the retailers confidence and consumers confidence. This means that improving consumer confidence in these countries leads almost immediately to increased spending and declining consumer mood – although strongly exaggerated in Spain and The Netherlands – leads to reduced spending.

I use the retailers confidence here as a reflection of the spending behavior of consumers: consumers that don’t spend cause negative feelings among retailers and the other way around.

Germany is a special case here, due to (in my opinion) the wage restraint program of the early 2000’s that had been introduced by chancellor Gerhard Schröder. In the first half of the decade the consumers have been in a very good mood, but this was not very strongly reflected  in their spending behavior. The deteriorating consumer mood, however,  is immediately followed (or even front-run) by the deteriorating retailer mood. Only since 2008, when Germany turned from the ‘ugly duckling’ into the golden child of Europe, the retailer spendings have been following the increased consumer mood, albeit for a very short time.

What these pictures also show is the speed at which the consumer mood and retail spendings have been deteriorating since 2010. The positive consumer mood in Germany and The Netherlands has been present for a very short period, while the consumer mood has been stably negative over the last few years. While you could argue if Germany and The Netherlands are in a depression, with Spain there is no doubt about it.

United Kingdom: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge

France: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge

Italy: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge
The United Kingdom, France and Italy are countries where the correlation between consumer confidence and consumer spending is much weaker.

While the consumer confidence in Great Britain has been stably negative over the last eight years, with a mild drop in 2009 and a mild recovery in 2010, the spending behavior of the Britons (i.e. retailer confidence) could be best described as ‘manic depressive’, with enormous positive and negative swings. However, if you judge the UK by its consumers, the country already feels depressed since 2004 and there is no signal that this will change soon, in spite of its erratic spending behavior.

France and Italy are both countries where consumer confidence has been extremely negative over the last eight years, but where these negative feelings are only mildly reflected in consumer spending. I think this is caused by the cultural circumstance that things concerning fashion, like clothing and accessories are extremely important in France and Italy.

At the risk of generalizing, you could say that the average Italian and French every year need their new handbag, sunglasses or clothes, regardless of the direction of their mood. This probably explains the success of French and Italian luxury brands, like Chanel, Louis Vuitton, Gucci and Hermés. If the French and Italians don’t have money for it, they make money for it.

However, also these countries feel depressed already for a very long time. And the recovery of 2010 was not sufficient to take these feelings away.

So are we in a depression? Looking at the consumer data in these leading European countries, this is a definite yes!

And I must come to the conclusion that this is the result of the ever-increasing gap between the high and modal incomes. While the modal incomes have effectively been lowered of the last twelve years, in combination with soaring personal indebtedness, the higher incomes exploded. 

You can’t see this loose from the victory of (neo-liberal) Anglo-Saxon capitalism over communism and social-democratism in the early nineties. This victory came in combination with soaring individualism and a decreasing influence of the labor unions. This has been negative for the wage development in the western countries, as individuals are a much easier target in negotiations than strongly united citizens. 

The leading European countries and (probably) also the US are worn out from the inside until the last modal consumer falls down.

So forget quantitative easing, the ‘two brain-cellers with the pink glasses at the stock exchanges’ (thank you, Kees de Kort of Dutch BNR Radio), the rich and famous and the bonus boys. As in the end, the consumer decides and the consumer counts. The consumer that now seems to be grasping for air.

Monday, 26 March 2012

Politics for sale?! PM David Cameron under suspicion of selling his policy to the highest bidder, while renegade MP Hero Brinkman of the Dutch Party for Freedom gave a peek at the people who ‘showed his master Geert Wilders the money’.

It has been a week of shameful exposure for two of the leading conservative parties in Europe: the Tories in the United Kingdom and the PVV (aka Party for Freedom) in The Netherlands.

United Kingdom

PM David Cameron of the United Kingdom managed to manoeuver himself in a position where ‘people might think that the Prime-Minister of the United Kingdom is accessible for political influence, in exchange for vast amounts of cash’. The fact that PM Cameron is in this position now is the result of a ‘hidden camera’-operation, targeting David Cameron’s (now former) co-treasurer Peter Crudass, that has been executed by the Sunday Times.

Here are the pertinent snips of this story that has been published in the Financial Times (

David Cameron has been plunged into a “cash-for-access” crisis after his party’s co-treasurer was forced to resign when it was revealed he had offered access to the prime minister and chancellor in return for donations of £250,000.

Peter Cruddas, the founder of CMC Markets, quit on Saturday night after footage was broadcast showing him apparently making the claim to undercover reporters, posing as international financiers, from the Sunday Times.

The co-treasurer, who also sat on the Tory party’s board, told the journalists that making a “huge donation” was the best way to gain access to senior government figures. “It will be awesome for your business,” he said.

Mr Cruddas also told the reporters he could make sure their views on business issues were “fed into” the Downing Street policy machine.

“Two hundred to two-fifty is the premier league,” he is heard to say in the Sunday Times footage. “What you would get is, when you talk about your donations the first thing we want to do is get you at the Cameron-Osborne dinners.

“You really do pick up a lot of information and when you see the prime minister, you are seeing David Cameron, not the prime minister. But within that room everything is confidential – you can ask him practically any question you want.”

Mr Cameron promised an inquiry following the revelations. “What happened is completely unacceptable. This is not the way that we raise money in the Conservative party, it shouldn't have happened,'' he told BBC television on Sunday.

“It was rogue behaviour,” a senior party member said. “The whole fundraising team has been besmirched by Peter’s ego and hubris.”
The Conservative party was scrambling to distance itself from Mr Cruddas’s actions as the political backlash began. It said in a statement that donations “do not buy government policy” and said it would “urgently investigate” any evidence to the contrary.

Of course, I am not accusing PM David Cameron of being accessible for any kind of bribery. I wouldn’t dare to. I only state here that his henchman Peter Cruddas has made the strong impression that he might be.

Naturally the statements from the Tories were all over the place: Crudass has been a rogue treasurer and a loose cannon that has disgraced the party with his actions and of course ‘policy is not for sale’. And naturally Peter Crudass has resigned, ‘covered with tar and feathers’, stating that he has been a foolish SOB that has staind the party with his actions.

However, think of these questions:

·      Why would it be the first time to happen? In the footage that I saw on Dutch TV, Crudass didn’t make the impression of a nervous and stuttering, first-time offender. It seemed more to be ‘business-as-usual’.

·      Why would the Sunday Times start a very risky hidden camera-action, if it didn’t have the slighest clue that it would catch ‘one of the biggest fishes in Britain’, if you leave Sarah Ferguson (and her ex-husband?) out of the consideration.

·      Why would Peter Crudass ask for at least £250,000, if the money was for his personal use? Five dinner parties for £25,000 each is more than enough to have a decent extra income as a politician and it is much less conspicuous than asking for a quarter million pound.

·      Why would a company or lobby-group pay such vast amounts of money to a co-treasurer, if it didn't have an ironclad guarantee that it would be worth its while.

Whatever the outcome of the investigation might be, this will stick to Cameron and the Tories in general. The United Kingdom has many hard-working, tax-paying, law-obeying and (sometimes) underpaid citizens that will feel betrayed again by politics and will lose the rest of what is left of their confidence. Labour and the Liberal-Democrats would not be smart if they didn’t try to get as much political gain out of this action as possible. In the process, politics itself will again become the ultimate victim.

The United Kingdom, however, is not the only country in Europe where political parties are currently under fire for questionable  sources of party funding.

The Netherlands

In The Netherlands, the Party for Freedom (PVV) has already been under fire for a long time for their very opaque form of party funding. This party, that has been led with an iron fist by founder Geert Wilders, has been categorically refusing over the years to disclose where its party-money is coming from. Even the recent deployment of new legislation, that makes it mandatory for parties to disclose their funding sources, has been discarded by the PVV. The party stated that it would rather pay the non-compliance penalties than to unmask their main funders.

What made this statement even more daring is the fact that the PVV is the silent partner of the VVD-CDA minority government, chaired by Prime-Minister Mark Rutte. Allowing the PVV to discard this legislation would be the same as giving the party’s actions a ministerial ‘stamp of approval’.

This silent partner, although not an official part of the Mark Rutte-government and not responsible for the fulfilment of ministerial positions, has been very influential on government policy.

Their vote has been indispensable for many governmental majorities, but the ‘change’ for the party has been formed by (a.o.):
·     much stricter rules for immigration from non-western countries;
·     no access yet to the Schengen zone for Romania and Bulgaria;
·     double passports being prohibited for Dutch expats and new immigrants;
·     an extreme pro-Israel and a fierce anti-PIIGS (anti-Europe) stance of the Dutch government
·     a prohibit of the burka.

It could even be that there comes an end to the Christian-Democrat dogma of supplying 0.7% of Dutch GDP in development aid to the developing countries, as the PVV is strongly opposed to this.

However, this might be about to change: Hero Brinkman, the former sorcerer’s apprentice of Geert Wilders and by far the most colorful PVV MP, turned into a renegade; an action that will probably have led to a desperate tooth-grinding among the remaining MP’s of the PVV.

Not only took Hero Brinkman the majority of the CDA/VVD/PVV combination in the Second Chamber of Dutch Parliament away, but ‘revengeful as a woman scorned’, he is planning to reveal the best-kept secret of the PVV in a book on his stints as an MP: the sources of party-funding for the PVV. I am sure that the opposition parties will have chuckled on this intention.

Brinkman supposedly could not longer live with the dictatorial party-structure and the blind obedience of the PVV MP’s and representatives to their master’s voice and with the fact that ‘the party placed whole groups of Dutch citizens and other Europeans into the ‘naughty-corner’ of the country’.

The million dollar question is of course: who were the parties involved in funding the PVV?

Although Brinkman is not willing to disclose this yet, he did state that influential American lobby groups are behind the party-funding of the PVV. People that kept a watchful eye at the party during the years can’t find this very surprising. The often well-informed foreign editors of De Telegraaf ( called the following names as possible sponsors of the PVV:

David Horowitz is often called as somebody who lobbies for Wilders, Horowitz is one of the fiercest contestants against progressive America. He collects billions of dollars in support annually and exploits a whole array of websites. A very important one is Jihad Watch.

An other prominent figure that came forward is Daniel Pipes. He is the founder of the pro-Israel Middle East Forum and a known proponent of an Israeli/American attack on Iran. Also Pamela Geller is a Wilders adept. Geller is a very influential conservative blogger and a renowned networker.

It is a sad truth that many well-respected politicians in Europe and the US are almost nothing more than puppets-on-a-string for extremely wealthy and influential lobbyists from the arms business, the financial industry, the oil and energy industry and powerful political pressure groups.

With the disappearance of the socialist Eastern Block and especially the demise of the American archenemy the Soviet Union, it seemed that capitalism had gained an undisputed status in the world. Unfortunately, this meant that forces that formed a natural counterweight for the Anglo-Saxon kind of capitalism, like social-democratism, (of course) communism or the Rheinland model of capitalism, lost their power, influence and splendour.

During the last decade, the world has seen the results of this capitalism without boundaries and the unwillingness of leading political figures to withdraw themselves from its influence, addicted as they are to the massive funding from the representatives of this piranha-capitalism.

To summarize this issue around British and Dutch party-funding, it is good to use the (in)famous quote of former US Defense Minister Donald Rumsfeld. Although this quote was produced in the context of the hunt for Iraqi weapons of mass destruction, it fits wonderfully to the opaque business of party-funding in Europe and – as a matter of fact – the whole world:

There are known knowns; there are things we know we know.
We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – there are things we do not know we don't know.

It couldn’t have said it better, could I?

Friday, 23 March 2012

Workers and employers in Dutch building and construction industry cry ‘help’ to parliament, in order to keep this top-heavy industry afloat.

I’m just trying to survive
Pay my bills and stay alive
All the world’s problems ain’t my fault
I take it all with a grain of salt

The joint associations of workers and employers in the building and construction industry (B&C) have sent a pressing letter to Dutch parliament in which they ask for more government aid for this industry in distress.

As this was a very long letter, I can show here only the highlights of it. Inquiring minds can find the integral letter behind the link. The letter is in Dutch, but Google Translate can help here.

  • Residential and utility building will contract by 3.5% in 2012
  • There will be only a minor recovery in 2013 and further; no significant growth is foreseen for the coming years
  • Thousands of workers in Building and Construction already had to leave this industry out of necessity or will probably do so in the coming years
  • The price difference between workers with a fixed contract and freelancers has become so big that the pressure on people with fixed contracts is soaring; labor is more and more seen as an expense and not as an asset for the company
  • The further flexibilization on the labor market is worrisome. There is a non-level playing field between people with fixed contracts and domestic / foreign freelancers. Normally, freelancers ought to be more expensive, due to elevated risk and insurance expenses, than people with a fixed contract, but in the current market the contrary is happening.
  • The vigour in the residential real estate market needs to be improved
  • Reduction of Mortgage Interest Deduction (MID), flow through to more expensive housing for tenants living in cheap houses, alternative ways of financing and a permanent reduction of the conveyance duty should not be considered taboos.
  • Solutions should be chosen for the long-term and not be ad hoc. There should be an interconnected package of measures that should supply trust, entrepreneurship and vigour in this tormented industry.
  • Things need to be sped up as many companies in the industry are defaulting, while being forced to fire their personnel.
  • Although B&C is not considered a key industry in The Netherlands, this industry is facilitating the key industries in The Netherlands. The government and especially the Minister of Economy, Agriculture and Innovation (EL&I) should play a more active role in connecting B&C and the key industries. Active involvement does not only generate volume, but triggers the urgently desired innovation in the building industry.
  • If the low, 6% VAT rate for painting and plastering for real estate is increased to 19%, this will cost 5000 painters and plasterers their job and it will stimulate undeclared work and tax evasion. The painters and plasterers already suffered from a few dozens of percents in labor reduction and revenues and cannot bear a further deterioration of circumstances as a consequence of the higher VAT rate.
  • The MID must be maintained for the short term, to improve the very low consumer confidence and can only be abolished if the housing prices would not drop, purchase power can be maintained and housing expenses would drop.
  • Renovation of post-war housing should be a key success factor for the B&C industry. Interference of the government is crucial.

Although I did my best to mention the most important conclusions of the aforemention pressing letter, this letter is a must-read for everybody that wants to know more on the Dutch Building & Construction industry.

Not because it is such a good letter, but because of the ignorance that speaks volumes in every paragraph. To be honest: I symphatize somewhat with some paragraphs of this letter. 
  • There should indeed not be a non-level playing field between people with fixed contracts vs domestic and foreign freelancers, that are under enormous pressure to reduce prices and run substantial pension and health risks.
    • However, if the fixed wages of their personnel are too high for B&C companies to survive in these trying times, you can't blame them for looking for cheaper labor.
  • And the B&C industry is indeed not aided by the government introducing short-term, ad hoc solutions like the Dutch government does now.
On the other hand, I can’t believe that the workers and employers in this industry don’t want to see that we have both a residential and commercial real estate bubble in The Netherlands, in volume (CRE) as well as in price (RRE).

Although the building and construction industry suffered from a considerable loss of jobs during the last years, there is still massive overcapacity when you consider the following facts:

  • the Dutch housing market will probably remain troubled for the coming five years, considering the extremely slow tempo of debt destruction and housing price decline
  • there is a structural vacancy in CRE of more than 10%.

  • In the period 2006- 2010, there was only a slight loss of jobs (see chart). More recent data is unfortunately not available yet: 

Labor Volume in the B&C industry from 2006-2010
Source data:

Therefore the stance of the writers of the pressing letter is ‘assuming the ostrich position’ at its worst:

  • Nobody believes anymore that nothing will happen with the Mortgage Interest Deduction

  • You cannot maintain the housing prices at the same exuberant level, while at the same time lowering the housing expenses and remaining purchasing power at the same level: this is housing utopia of the worst kind and it will not happen.

  • You cannot ask the government to subsidize wide-scale renovation of post-war houses, in order to save the whole B&C industry. The government does not have and should not spend this kind of Keynesian money to save one industry, while other industries are in need to.

  • The differentiation in high and low VAT rates for products and services is already very arbitrary and should not be used to save an industry, if this is the only way to save it. When there is an overcapacity in painters and plasterers in B&C, then these people should be helped to find other work that uses their knowledge and skills. Maintaining expensive, but useless jobs is bad for the economy and thus for a country, as it stops innovation and economic change.

  • No tenant will voluntarily go to a more expensive house, if he doesn’t need it.

  • Forcing tenants to buy an expensive house or to move to a more expensive rental house will remain a no-go zone. 

Summarizing, I really symphatize with the workers in the Building and Construction industry and I think this industry should be helped by the government with a changing and reorganization process.

However, I see this pressing letter from the stakeholders of this industry as a ‘letter from Utopia’. Ignorance is bliss indeed.

Wednesday, 21 March 2012

The aging process at work: CBS investigation reveals worrisome labor market development

Besides its ‘normal’ statistics on unemployment, trade and consumption, the Dutch Central Bureau of Statistics ( sometimes executes out-of-the-box investigations that reveal interesting and unexpected information on the situation in The Netherlands.

Last Thursday March 15 was one of those days, as the CBS published a very interesting investigation on the Dutch labor market.

One of the so-called ‘facts of life’ is that it is very hard to get a job when you are above 50-55 years old and unemployed. Presumably, companies always tend to hire younger workers, as ‘the older workers are presumed to be sliding on auto-pilot into their retirement’ and they are told to be ‘less productive’ and ‘sick’ more often.

Therefore, it was a little surprising for me to see that the average Dutch labor force is aging; not by a few months, but by no less than 5 years since the 1990’s. Here is a substantial part of the CBS investigation, accompanied by my comments:

The average age in the employed labour force has risen further in 2011 to just over 41 versus 36 in the early 1990’s. Men in their fifties for the first time outnumbered men in their thirties. The ageing process was most obvious in the sector public administration and government services.

The average age in the employed labour force has risen by 5 years to 41.2 between 1990 and 2011. The population has aged during this period. The labour participation rate among 50 to 65-year-olds also increased noticeably, i.e. from 35 percent in 1990 to 60 percent in 2011. The increase was mainly recorded among women.

Average age employed labour force and net labour
participation rate in the 50 to 65-year-old population
Click to enlarge
Last year, there were 95 employed in the 50–60 age bracket in every 100 employed in the 30–40 age bracket versus only 42 in the early 1990’s. In those days, relatively few 50 to 60-year-old women were engaged in paid employment and the labour participation rate among men in the same age category was rather low, partly due to the then generous early retirement schemes. In 2011, employed men between 50 and 60 for the first time outnumbered those between 30 and 40.

People in their fifties versus people in their
thirties in the employed labour force
Click to enlarge
In the period 1990–2010, the average age increased in all sectors. With 7 years, the increase was most substantial in public administration and government services, followed by health care and welfare, manufacturing industry and financial institutions with met 6 years.

The highest average age in 2010 was recorded in the sector agriculture and fishing (44 years), followed by education and public administration and government services with 43 years. The average age was lowest in the sector hotels and restaurants (more than 34 years).

Average age employed labour force by sector
Click to enlarge

There are of course the obvious reasons for the fact that the average age of the worker has increased so much during the last 22 years:

  • The (post) baby-boom that was born directly until twenty-odd years after the second world war was a much bigger generation than the generations before it or after it (see chart). And this generation is now between 45 and 65 years old

Population pyramid in The Netherlands in 2011
Click to enlarge
  • As the first red-printed text already states, there have been very generous retirement schemes in the nineties; people had the chance to retire at ages as old as 55, due to pre-pension arrangements and the fact that there was no duty to seek work for 55’ers.
    Especially banks ‘fired’ people at the age of 55 and replenished their unemployment benefits until 100% of the last earned wages until they reached the age of 60 and an official pre-pension arrangement kicked in. This ‘present from the boss’ was mainly paid for by the taxpayer, who ponied up the extensive Unemployment Benefits that could last for five years (dependent on the number of worked years). This was a kind of reversed Robin Hood-scheme.
However, I suspect that there is also a more sinister explanation for this very big age-difference between the 1990’s and the current time: the comeuppance of flex / temp contracts and ‘independents without personnel’  (aka freelancers) in the labor market.

The second red-printed text already gives a clue on this and much more background information can be found in my article Credit Crisis forces Dutch companies to change their HR policy and other, older articles that you can find through my search engine:

“Of the people that were hired in 2011, virtually nobody gets immediately a fixed contract anymore (less than 3%). In 2011, this number dropped to 2,000 from 83,000 in 2010” [snippet from a UWV ( survey].

For me this was the most shocking result of the UWV investigation. This development speaks volumes on a number of circumstances in The Netherlands:
  • Dutch employers don’t have any confidence in the economy and don’t want to get stuck with excess personnel. It must be easy to lay off people quickly and without any hustle and bustle
  • The Dutch labor and dismissal legislation is too rigid and too old for the current demands on the labor market. Therefore companies don’t want to take any risk and hire everybody on a temp contract.
  • The condition of access to a fixed contract is often nothing more than an empty promise from companies that want to bind their personnel without being bound to them.
The results of this policy of mainly handing out flex-contracts to youngsters (aka beneath 35 years old) is that youngsters are very easy to get rid of in difficult times (now, for instance).

If a company or government service (like public administration or education) needs to cut down on personnel, it just doesn’t prolongate the flex / temp contracts, while leaving the people with fixed contracts, that are much harder to fire, unharmed.

Especially in education, for ages the situation has been that older teachers were virtually untouchable due to seniority, while younger teachers needed to fear for their job when a school or university needed to take austerity measures. I’m afraid that this situation is now spreading over the whole Dutch labor market like an ink spot, as a consequence of fixed vs temp contracts.

The older generation that still enjoys its fixed contracts stays put and doesn’t change its job if it has one. However, once this generation is fired after all, it is very hard for it to find a new job. This leads to the following chart:

The situation on the Dutch Labor Market
Source: Ernst Labruyère
Click to enlarge
  • The ‘core’ of the commercial / non-commercial labor market of 35-65’ers with a fixed contract is virtually untouchable and hardly moves with the economy, unless their company defaults or they get fired for other important reasons.
  • The flex-layer of youngsters with temp / flex contracts absorbs the shocks of economic expansion or contraction, without having a fair chance for a fixed contract in difficult times.
  • The periphery of jobless workers that are older than 50 has hardly a chance of access to the labor market, as these people are ‘suspect’ to employers, while being ‘very hard to fire’, once they have a contract.

You can consider this a flexible system indeed, but it’s not a fair system in times of economic hardship. It leaves both the youngest and oldest, jobless generation of workers being in a very awkward position, while the core generation with the fixed, expensive (!) contracts has virtually nothing to worry about.

While stating this, I realize that I also belong to the core generation with the fixed contracts. Still, I would not mind if the labor market becomes a little bit more flexible, if this would offer a better and fairer chance to generation that have a hard time currently.

Monday, 19 March 2012

Are you feeling bullish? You are in large and growing company. But please watch the bear in your rear-view mirror!

If you looked at the stock exchanges lately and you read the tweets of some investors and traders that I do respect very much, it seemed like ‘Close encounters of the bovine kind’ was the latest movie at the theater. The optimism dripped from every tweet and the whole miserable feelings of the credit crisis were gone.

Even Christine Lagarde, the cautious French chairwoman of the IMF sees positive signals in the financial markets today, due to the ample availability of liquidity in the US and European markets.

The bulls are back in town’ and it doesn’t matter much whether their enthusiasm is spurred by billions of Euro’s in government aid or not. You go with them or you are run over by them, just like some silly tourists in Pamplona, during San Fermin (This is the fiesta that every perma-bull has on its retina).

The United States showed considerable job growth for the third month in a row in March and the country is glowing from a kind of contagious enthusiasm and optimism. It’s that very optimism that puts aside the real facts of life, like the enormous state debt and the fact that Ben Bernanke still leaves the interest rates at very low levels until at least 2013.

The crisis seems to be over as the American citizens were bored with it and decided to feel optimistic again. And don’t underestimate what the power of feeling good can do for people and the whole economy of a country.

The same in true in Europe: the situation in Greece seems contained now and the problems in Spain and especially Italy seem to have virtually disappeared. Not that they have in reality, but it is how the financial markets look at them.

The interest rates are relatively low and everybody is acting like the economic problems in these countries are a thing of the past. Even if Greece will default and Portugal will follow in its footsteps, the financial markets seem to feel untouchable again.

Whether these happy feelings will turn into a worldwide secular bull-market is everybody’s guess, but the western world seems well on its way.

However, especially for Dutch investors it makes sense to watch their rear-view mirror. It might be that they see an Ursus arctos horribilis in it, that is certainly not called Teddy or Winny and who was ‘born ready’ to chew them up.

While the financial markets have been quite optimistic lately, the news from The Netherlands last week was not particularly good to say the least. The signs in The Netherlands seem to increasingly point at a deep recession instead of a mild one, especially as domestic consumption is still at very poor levels and exports within the EU might decrease strongly in the coming months.

Here are four separate news messages that are already tale-telling in their own right, but especially speak volumes when combined:

In The Netherlands in February 2012, car registration was more than 10% lower than one year earlier. This was disclosed by data that the European trade organisation ACEA published last Thursday, March 15.

The decline in car registration in the whole European Union was 9.7% in February, after a decline of 7.1% in January.

Car sales in The Netherlands got stuck at 44,000, against 49,000 in February, 2011. In the whole EU only 888,878 cars were registered, a decline of almost 100,000 cars compared to last year. Car sales in France declined even by more than 20%.

Excuse me? This doesn’t exactly look like a bullish signal, doesn’t it? And there is more.

The Dutch National Institute for Budget Information NIBUD ( sent an alarming report to the press on the dire situation of indebted households in The Netherlands. Here are the pertinent snips of this press release:

The Dutch National Institute for Budget Information (NIBUD) and the Dutch Association for Indebtedness Relief and Social Banking (NVVK) are worried on the growing number of consumers that have trouble with paying their bills.

More than 30% of Dutch citizens is in arrears with payments and more than 70% of this category has various kinds of debt. They have not only overdrawn their bank account, but direct debit payments are refused by the bank and letters of reminder for the rent or mortgage redemptions are piling up in their mail box. In 2009 this was only 56%, is disclosed by NIBUD research.

Debt will be soaring this way and payment problems become serious and complex very quickly.

Not only the number of indebted people has soared, also the amount of arrears has doubled during last year. In 2010 only 4% had an arrears of €10,000 or more. In 2011, this has already become 11%, according to the Monitor Payment Arrears of the Ministry of Social Affairs and Employment.

The NIBUD and the NVVK have noticed that during the last years increasing numbers of higher educated people and people with high incomes have come into financial problems. Double income families that loose their jobs and subsequently get into trouble, due to high mortgage debt, are increasingly forming a problem.

I have written many times on soaring debt in The Netherlands and I assure you that this problem is only becoming bigger, not smaller in 2012. That is why I try to warn you for the bear in the rear-view mirror.

And the Dutch housing market? Well, any assumption that it is or will be improving during 2012, must be made by someone that either spent the last 15 years in outer space or by someone that is using the emotional, right brain-part only, shoving aside the factual left brainpart. It won’t happen! 

It took us 12 years to build up a bubble of enormous proportions and it will take us probably seven years at least to get rid of it again.

If you don’t believe me, please look at the facts.

The number of sold houses in February was 18.3% lower year-on-year. 7805 houses were sold, compared to 9558 last year. However, in February more houses were sold than in January 2012, when 7082 houses were sold.

The sales number of 7805 is considerably lower than the average number of house sales per month over last year. That was 10,061.

Just like in January, the problems were mainly in the condo-marke. In February, almost 25% less condo’s were sold year-on-year. In January this number was 21.2% less.

These figures don’t give ANY clue on an improving housing market. And especially the dropping number in condo sales points to deteriorating circumstances for starters on the housing market: in general condo’s are cheaper than family dwellings and therefore more suitable for starters. If these numbers decrease, it means certainly that less starters can afford to buy a house.

This development cannot be seen loose from the circumstances that I described in my article Credit crisis forces Dutch companies to change their Human Resources policy. Here is a snip from this article:

  • Dutch employers don’t have any confidence in the economy and don’t want to get stuck with excess personnel. It must be easy to lay off people quickly and without any hustle and bustle; 
  • The Dutch labor and dismissal legislation is too rigid and too old for the current demands on the labor market. Therefore companies don’t want to take any risk and hire everybody on a temp contract; 
  • The condition of access to a fixed contract is often nothing more than an empty promise from companies that want to bind their personnel without being bound to them;

I’m absolutely not against the labor market in The Netherlands becoming less rigid and overregulated. The disadvantage is, however, that the whole Dutch society is still built around fixed contracts.

People that don’t have one (especially youngsters), could be in for a rough time when they want to acquire a rental or private house. Landlords and banks could very well refuse them housing, without a fixed labor contract. And even a simple loan for a car or for house-maintenance could be refused, due to the uncertainty of future labor.

It seems that the development I sketched in the last paragraph, is already on its way. Hence, the dropping condo-sales.

And last week, there was also funny news. Funny, as in surprising and unexpected, but after all logical news: Entrepreneurs that are so fed up with their banks, that they kicked them out. Dutch Business News Radio BNR reported on this.

Entrepreneurs do everything to avoid banks currently. They are so fed up with the strict financing rules of banks, that they rather put away money themselves for investments.

This is stated by Laurens Meijer, the largest hospitality, food and beverage entrepreneur in The Netherlands. Meijer thinks that banks see their number of outstanding loans diminish rapidly.

“When I speak with co-entrepreneurs, independent of the industry in which they operate, they are busy with only one thing: how to get rid of their bank. And that includes us.”

Meijer explains how it came to entrepreneurs being so fed up with their bank. “They have been treated presumptuously by their banks during the last years. You get an umbrella when the sun is shining, but when it rains the banks take it away immediately.”

According to Meijer, entrepreneurs are better off without being under the yoke of the banks, although it is utopia to think that you can do without them. “You must keep a bank, as these created the system in such a way that you can’t do without them for your transactions. However, from a financing point-of-view there is one thing to do and that is to kick your bank out!”

I almost never read so much aggression from entrepreneurs against the banks. The funny thing is that it is in the interest of both banks, as well as entrepreneurs currently, to borrow as little money from the banks as possible.

Banks want to improve their balance sheets, while entrepreneurs want to do business without some busy-body looking over their shoulder and putting a brake on their growth potential. Saving money for investments is a slow, but steady and safe way to enlarge / maintain a company.

If the impression of Laurens Meijer is correctly indeed, this leads to a few conclusions:
  • Banks will lend less money for investments in the coming years and will improve their balance sheets in the process, as many loans will be paid back, instead of being rolled over in 2013-2014. 
  • This process, although good for the balance sheet, is bad for profits at the banks. Earning money will be much harder in the coming years. 
  • Corporate bonds and other means of private investment in companies (crowd-funding, private equity funds and privately contracted loans) may soar in the near future, as not every company has the patience / possibilities to save their own investment money together. 
You could call this a sensible development, as I do so. However, I don’t think that you can call it a bullish signal. 

So, please view in your rear-view mirror in the coming months; you might see a grizzly with an attitude there. And please don’t tell I didn’t warn you.

Thursday, 15 March 2012

Getting rich with Commercial Real Estate Pt V: Game over?

This is the fifth part in my series on the difficult situation in the  Dutch Commercial Real Estate (CRE) market, of which the last episode has been published a long time ago. Following are the links to the previous articles:

In December, I wrote on the failed auction of a CRE portfolio, owned by the Uni-Invest Group and the serious consequences that this could have for every company that has a large CRE portfolio in The Netherlands. 

This auction failed at the time, due to a total lack of interested buyers, in spite of a 40% discount on the sales prices for this CRE. My conclusion was that the Dutch CRE bubble was about to explode and that this would have grave consequences for the balance sheets of large investors in the CRE industry. Huge write-offs were looming.

However, in those days the ‘CRE bad news debunkers’ at the banks, pension funds, insurance companies and other large CRE investors supplied a ‘good news statement’ to every newspaper and news program that listened to them. 

The statement sounded something like this:

‘Uni-Invest owns real estate of the wrong kinds and vintages in exactly the wrong places. That’s a shame, but never mind! We [all other investment companies – EL] own prime-cut Commercial Real Estate at Triple-AAA locations. Every speculation on write-offs is strongly exaggerated. Trust us, we know we are worth it!’

Yeah, right!

After this, the building and banking industry resumed minding its own business again without having anything solved, until the next series of bad tidings would be on the way.

And last Monday, March 12, it seemed that some bad tidings are present again.The Dutch financial newspaper Het Financieele Dagblad ( wrote a story on a Dutch CRE investment company, called Hanzevast Capital. This company had to deal with very unfavorable valuations of their CRE portfolio at the end of last year. Inquiring minds will find that this story could have strong implications for other investors in Commercial Real Estate. Here is an integral translation of this news story:

The end-of-year valuations of office buildings, that are currently under scrutiny of supervisors, led to turmoil at Hanzevast Capital.

The Hilversum, The Netherlands-based investment company was confronted with a depreciation of 21% on 32 office buildings by CRE-advisor DTZ. Earlier, this Dutch CRE-advisor stated that it reckoned with a depreciation of ‘only‘ 12%.

Hanzevast is currently having an argument with their auditor KPMG on the right valuation for their office buildings. A lot depends on the outcome of this argument. When the auditor uses the latest valuation as the official one, this would lead to negative equity on this portfolio as a consequence of €130 mln in debt.

This is stated by sources that are familiar with the situation. Neither DTZ nor Hanzevast is willing to comment in this situation. The latter sent a letter to 2500 participants in the fund in which this office buildings portfolio is stored. This letter stated that the annual meeting, that was originally planned for Wednesday March 14, is postponed by six weeks as a consequence of ‘delays in the process of annual reporting’.

Pundits in the real estate markets say that CRE appraisers mostly send a concept report after a first analysis. This report is the starting point for some discussions, which often leads to small corrections. ‘However, a correction of this magnitude is unheard of’, according to a large CRE investor.

The official supervisors AFM (Authority Financial Markets) and DNB (Dutch National Bank) warned the real estate industry that both parties would be very critical towards write-offs on CRE portfolios being too low. They warn for a new financial timebomb as a consequence of (structural) vacancy advancing on the CRE market. Appraisers are under heavy pressure to be strict, at a time where transactions are very scarce and thus a price can hardly be set.

The more negative the equity of Hanzevast will be, the bigger the risk becomes that the Deutsche Pfandbriefbank, the German investment bank for real estate, will claim and auction the office buildings. The private investors, that invested €100 mln, will remain empty-handed in this situation.

Last year, these investors voted in favor of a proposal of Hanzevast to store the office buildings, that were spread among various limited partnerships in those days, in one merged fund. This would make the CRE portfolio, that has been dealing with almost 50% vacancy, more crisis-proof. At the time, it was very hard to convince the investors in the stronger funds. A striking detail is that the Deutsche Pfandbriefbank already had the CRE portfolio of Hanzevast valuated in September 2011, by CBRE. This led to a proposal for 21% depreciation to be executed on the portfolio.

All CRE investors will tell you that this is another isolated incident. Don’t believe them, as they are not telling you the truth.

The author of this very interesting article, Mathijs Schiffers, wrote also a column in the FD on the same topic. Here are the pertinent snips of this column.

The  problems with the valuations of the office buildings of Hanzevast Capital show that the Dutch supervisors have all the reasons to be worried on Commercial Real Estate in The Netherlands.

Hanzevast Capital is flabbergasted. 

The investment company lets 32 of its office buildings being valuated by DTZ. It receives a concept-report in which a depreciation of 12% is mentioned. Some discussion follows, which is usual in this kind of situation, and subsequently the depreciation is increased to 21%, which is unheard of. The annual meeting is postponed by six weeks, as the decision must be made, in cooperation with the auditors, which valuation should be put in the official records.

It is unknown whether DTZ became aware of official criticism from the supervisors during the valuation process, concerning the initially ‘mild’ depreciation and decided to revise it. Both parties keep their mouths shut tightly.

That’s a shame. Apart from the question whether the last valuation is the correct one – the colleagues of CBRE already depreciated the same portfolio by 21% - there is a justified concern that valuations are more a question of bargaining than a valid and truthful estimate of fair value. This concern can only be taken away by more openness of the parties involved.
Mathijs Schiffers is absolutely right with his concerns. Although a depreciation of 21% is huge in terms of money and might be enough to bring Hanzevast Capital on the brink of defaulting in this particular situation, one should not forget that this portfolio suffers from a vacancy rate of no less than 50%.

The odds are that this 50% vacancy rate rather increases, than decreases in the coming  difficult years. In spite of the CRE market being on the brink of a total meltdown, many communities and companies stick to their building plans and continue developing new commercial real estate on their dearly paid building ground, only worsening the situation on the CRE market.

I wonder if a 50% depreciation would not be more justified than even this 21% depreciation. However, such a depreciation would certainly be the end of Hanzevast Capital and its investors. And the worst has yet to come…