I don't fully agree that "the banks" are the main culprits. Eventually "the system" is too blame and the systems that is our governments and ourselves.
Many people fail to understand the very definition of money. When I point people to the crashing stock exchanges, people running for their money on the banks, etc... people keep asking me the question "and where is all that money then going to?".
Well... that money didn't existed in the first place. That is the core of the problem of this crisis: PEAK CREDIT. I've written a lot on this phenomenon and people fail to understand it.
It is so simple: the "wealth" that you think you own by adding up (1) your house or apartment (2) your pension fund (3) your stocks and on which you base your "lifestyle", spending pattern and buying behaviour is not real in a fact that there is no money to back it up. For the simple reason that the balance sheet of the world is not matching: there are endlessly more debts than assets, even at the previously inflated values.
The below video illustrates the phenomenon perfectly.
The question that the world is now facing: how do you move your 'presumed wealth' around so that you can preserve most of it? And trust me, look beyond borders when you ask yourselve that questions.
Which currencies do you trust now that the US dollar's supremacy as the world's reserve currency is approaching? Do you want cash under your matress or do you prefer gold? Real estate is a safe gard asset? In which country is it the safest? etc... etc...
What central bankers need to do is abolish fractional reserve lending and ideally return to currencies backed by hard assets. This would be a disastor for the US, they prefer short term actions and try to force liquidity into the system to spur more lending. Such actions can no longer work because the problem is too much lending already. We have overcapacity of everything in Belgium: housing, commercial real estate, restaurants, debts,...
Peak credit: the biggest global credit boom in history is now over !
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Oct 6 2008
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Jul 13 2008
The financial crisis enters the phase where the credit implosion will become visible. More than a year I've been warning now for the consequences of the levels of credit in Europe and the US .
Today more than a third (41%) of US workers are cutting back on utilities, nearly half have reduced food purchases (48.5%) and a large percentage are buying less clothing. The national survey of US workers, conducted May 12-14, 2008, also found that younger workers (between the ages of 18 to 29) are being hit the hardest by the economy and are the most desperate about their economic future. More than one third (34.3%) of young American workers say their financial situation has caused them to “feel hopelessness or despair about their economic future.” That compares with 28.8% of workers age 30 to 49, 23.5% of workers 50-64 and 17.9% of workers 65 or older. Nearly a third (31.4%) of workers report being occasionally kept awake at night because they worry they will not meet housing payments, credit cards, or other personal expenses, 36.8% of whom were between the ages of 18 and 29.
Meanwhile peak credit also reached Australia, where more than 50% of the Australian homes are loosing value . The situation is of such a kind that a wave of public school students is migrating to the public system ; their parents simply can't afford private school any longer.
Meanwhie youngsters in Finnland can apply for credit by sending a text message and also in Sweden youngsters are spiralling into debt because of the same reason .
Peak credit has been reached. That final wave of consumer recklessness created the exact conditions required for its own destruction. The housing bubble orgy was the last hurrah. It is not coming back and there will be no bigger bubble to replace it. Consumers and banks have both been burnt, and now everything will change. -
Feb 9 2008
So you tought things are not that bad? Just a small hiccup in the economy ? Wel, have a look to the Mountain-dew fresh results of the Federal Reserve senior loan survey. The current credit crunch which stiull hasn't reached it's momentum is worse than the Savings & Loans crisis in the early 90s, much worse than the crunch when the Long Term Management Capital Management blew up and far beyond the crunch of the dotcom bust. Paul Krugman made the below graph for you .
Looking pretty grim for a crisis which is just starting.
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Feb 27 2009
Excellent visualisation:
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Jan 20 2009
The Obama inauguration is not my cup of tea; I'm way too realistic for the US nationalistic fanfares. Just as Jonathan Berr I believe the differences Obama can make in his first year (end beyond) are absolutely minimal .
Personally I believe the scenario of a systemic crash is still very plausible. I believe we could be heading for an L-shaped recession with a systemic crash of the financial system before 2015; " peak credit ", remember? I'm not the only one believing this scenario is plausible .
The real question you want to ask yourself is: where do you wish to be in such a scenario. -
Jul 29 2008
In the Belgian news today: new apartments in Belgium drop 15% in price by the end of 2008 .
Only 2 weeks ago De Morgen was still wirting that Belgian real estate prices were growing fastest in Europe , or how deceivingly inaccurate the Belgian mainstream press is.
I’ve been writing for the last months about the deflationary hurricane that is coming towards Europe, the United States and even South Africa.
Surprised to read de flation, while all the newspapers and politicians are screaming inflation?
Let’s define inflation; dictionary.com defines inflation as:
“A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.”
Mind the "caused by". The problem with these “because of” definitions is that you don’t know why prices are rising or falling. Example: is there any way to decide what % of the increase in the price of oil (or any other product) was "caused by an increase in available currency and credit beyond the proportion of available goods and services"? The answer is no, of course.
The proper economical definition of inflation is:
“a net expansion of money supply and credit” , while deflation is the opposite.
In this perspective, the Brazilian inflation of 6,2% (projected yearend inflation) is a real inflation; the credit expansion is there and the Brazilian central bank is cooling it off by crunching the credit supply with higher interest rates .
Still, over the last years of growth, credit has remained much crunched in Brazil, the country still has the highest real interest rate in the world, after Turkey. And this is a good thing. This in sharp contrast the South African credit glut of the last decade. And this is where Brazil and South Africa diverge, a lot. The real interest rate (Money market interest rate – inflation) remains relatively stable in Brazil. In South Africa the real interest rate is increasing, rapidly. Which means that the deflation hurricanes are hitting the South African borders. In South Africa, as in the US, the weak South African Rand and US dollar have been masking deflation, this in sharp contract with Brazil, where the Real has been one (if not the) best performing currency of the last years, even at the moment of writing this article.
Everyone has been screaming ‘peak oil’ and ‘bond bubbles’ in South Africa, Europe and the US, while missing the more important point of the deflationary forces of foreclosures, bankruptcies and massive write downs in credits.
Exaggerating? You wish, quoting Standard Bank in South Africa -dated end June-:
"Lower house prices are expected as the credit crunch starts to have an effect, according to South Africa's Standard Bank. In 2005 South Africa was one of the fastest growing property markets in the world. But now analysts believe recent overvaluation means it cannot go unaffected by global economic conditions. We anticipate a large decline in demand for residential property as we enter a period of national house price deflation which we see as a correction in house prices to more plausible levels" , a spokesman said .
I have been writing since September 2007 on this upcoming financial change, Q4 2007 was the first quarter decline of asset backed securities in the US. Since then more than 225 billion US$ went from the asset sheets into the loan tables of US banks.
And guess what, this massive contraction hasn’t stopped yet, we now have a year-on-year decline curve and I don’t expect to see this change any soon. This means that the credit crunch is not coming to an end either.
Today in South Africa, lenders are paying well above market rates to lend money. Most South African banks are offering 250 basis points or more above treasury rates. On a percentage basis, this is an enormous spread. And expect this spread to widen further. In a credit crunch, junk yields should rise, and they are (in SA, the US and starting in EU); in a credit crunch lending standards will tighten, and they are. In a credit crunch lenders will say not to almost everyone and they are (certainly in SA). Expect the South African bank to do another rate hike this august, which will bring the SA prime interest rate above 16%. When you read this excellent article on the 3,5 Income versus property price (hat tip, Vincent), you understand that this next rate hike will kick start a true deflationary spiral effect on SA real estate prices. The deflationary spiral in SA (and Europe) is only starting, Q3 2009 is the moment to go in and buy. Until then: hold in to your Money Market accounts or rent out your apartments/houses. In Europe the renting road can be bumpy though. Look to Belgium: the politicians are well aware of the flood of people who will be turning to the rental market and the lobby machine to make sure rental prices remain contained is already white hot .
Why would Brazil be any different, you ask? I’ve written extensively on the macro economical differences of Brazil. Never forget the country in itself is a huge internal market, in contrast to South Africa. Just read this excellent Reuters article of last weekend on Brazilian millionaires . True, a commodity crash would impact Brazil. Yet, today only 16% of the GDP of the country depends of exports.
But all this of a lesser importance compared to the fact that Brazil only has a real estate financing of 2% of its GDP.
In Belgium and the US, this figure is today more than 70% of the GDP and in South Africa the figure must be also well above 50%.
This is where Brazil differs from South Africa, Europe and the US: the country knows what ‘peak credit’ is, whereas in Europe, the US and South Africa we have lived in an insane ‘leveraged world’ during the last decades and this world is now coming to an end. Don’t think this is just another cyclical crisis we are having; this is ‘peak credit’, worse than ‘peak oil’. This is why a real estate crisis is far less plausible in Brazil, only a tiny amount of the GDP of the country has been based on ‘leveraged real estate’ which means that a contraction of the money supply would not result in a deflation.
The uncertainty factor of Brazil is of a different kind: all the above leads to the Brazilian Real becoming so strong that the Brazilian government might decide to devaluate the currency and for example peg it to a basket of Asian currencies. Anyway, the effect would never be of such a magnitude of the 40% devaluation of the South African Rand against the Euro since February 2006. If you foresee, you can act. -
Oct 25 2008
Yesterday Paul Krugman was on Charlie Rose; the man deserved the noble price for his analysis of trade patterns and location of economic activity.
This weekend all Belgian newspapers are boasting "Belgium consumers don't care for the crisis, they keep shopping". Sometimes I wonder if the newspapers are directed by politicians to soothen us and make sure we don't have a clue of the doom which will fall over Europe and especially Belgium.
The Los Angeles Times published a list of countries and the % their stock index fell with regard to the peak :
Rusia: - 73,2%
Vietnam: -70,5%
China: -69,8%
Hong Kong: -60,1%
Turkey: -58,3%
Egypt: -56,9%
Italy: -55,2%
South Korea: -54,5%
The Brazilian Bovespa went down 57,2% from it's top. Take into accout that (1) more than 40% of the Bovespa is represented by Rio Vale Doce (steel) and Petrobras (oil), which are both very big buying opportunities today and (2) that the Brazilian Bovespa was one the strongest performing stock exchange for the last 3 year; which makes the 57,2% fall against peak much more relative.
And as a comparison: the Bel20 fell 59,62% against its 4750 peak; that's more than the Bovespa !
But currently the stock exchange is not worrying me most. What worries me most is the Yen shooting up like a rocket against all currencies. This is the only reason why stocks have been crashing last week: the Japanese carry trade is crashing because of the Yen rocketing up high. I wrote many times on "Peak Credit" the last months and this is what is ruling the planet now: the US cannot take on more debt. But actually, they ARE taking in more debt, not to buy products made in China, Japan or Brazil, rather to fill a massive bottomless pit that the derivate beasts have digged. Nothing is bought or created with all this money.
And both the US and Japan keep sailing the 0% interest rate boat. True, the US is still a little above 1% most of the time, but the will drop the rates below 1% eventually and kill the few last savers in the US.
It is stunning that no one actually undersands what is going on. In July I predicted the Brazilian Real to fall between 20 - 30%; in October I proved right. On October 1st, I wrote that the South African Rand will not raise above 0,085 against the Euro again in the coming year; I was right (and will be right).
At the same time, the central bank of Denmark is RAISING its benchmark lending rate by half a percentage point . I believe this is the right thing to do.
I also believe South Africa should raise its interest rate to 16%, Brazil should keep its current 13,75% Selic rate and the ECB should keep it for at least another year on 4,25%. Actually, if South Africa would drop its interest rate between now and February, the SAR would further tank to unseen dark lows.
But no, Japan will keep lending at 0%, the US will lower its intrest rate below 1%, the ECB will follow. All for the sake of trade and keep their currencies low.
I am 100% against the exchange markets as they are today. The entire floating currency mess is a nightmare and wrong. It is wrong and it will eventually kill the US and Japan in the long run.
As long as this mess is not solved, there is no way global trade can go back to normal. The whole system of free floating currency regimes and the free trade movements need to be burried. The attemps of corporation and nations to run this system has been a total faillure.
And this is why I admire Sarkosy so much recently (and China with him ): his call for an international meeting to talk about the Bretton Woods II and the Nixon floating currency is the only way out of this huge mess we are currently in.
But they will not be able to replace the current system, unless the US first stops spending trillions on military domination, etc... The horns of the dilemma are in the US and they will not kill the current system, they will keep it alive, kill many nations (economically) with it and we will all (also and especially Belgium) be trapped until something happens. And, unless Obama really brings change, this will only be the bankrupcy of the US government which will eventually change the world systems in a massive cascade.
Believe me: Bretton Woods II ending the current floating currency regimes and free trade movements is the only structural solution to the current crisis and the mess that's ahead of us. -
Aug 28 2008
Just dropping in on Bloomberg: South African inflation raises to 12,9% in July, coming from 11,6% in June . This is the fastest growth since the CPIX inflation index was introduces in 1998. By way of comparison, the comparable Brazilian IGPM inflation index fell in July with 0,32% to 6,32% ; that less than half the South African inflation in July.
Yet, both countries have today the exact same growth expectations for 2008: 4,8%.
Remember the definition of inflation: “a net expansion of money supply and credit”. While Brazil is enjoying a healthy economical growth with deficits after years of tight monetary policies , South Africans can't hold their horses to get again 'cheap credit'. I only don't like Lula announcing that he will increase government spending by 13% in 2009 ; yes that is a pre-election year. Yet don't expect things to be better in South African's pre-election year; Zuma can learn wise lessons from Lula . -
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 de flationary market . Bloomberg also writesthat M oney 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 the July 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. -
Jul 10 2008
Mea culpa, it has been too quiet here.
Too compensate I start pointing to the 6 page special on Brazil in the Financial Times of last Tuesday . Start reading the piece of John Rumsey on the interest rates and Jonathan Wheatley who writes on the infrastructure challenge.
Also interesting is this interview with Central Bank President Meirelles . I'm not his biggest friend (although he did a great job the last years), new names like Delfim Netto and Afonso Pastore should now give lectures to Mantega and Meirelles. These are times where brains and vision make all the difference.
But then again, I also believe Ben Bernanke, mervyn King and Jean-Claude Trichet ought to be replaced, because they refuse to see the deflationary hurricanes which will hit the US and the UK. It's truly amazing to see that most are still screaming inflation, stagflation or even hyperinflation simply because food and energy prices are rising. Deflation is here and now nin Europe and the US and there is nothing that can be done about it (Africa, Asia and Latin America are different stories). None of the financial engineering jobs that fueled the credit boom of the last decades will ever come back. SIVs, conduits, toggle bonds.... are all dead for years and decades to come.
There is no source for jobs to replace what has been lost, discretionary spending is dead. The impact of that still has to drip into the economy, once it does its here to stay. The mentality shift in the next generation towards credit will be massive. Our children will never forgive our parents. -
Dec 14 2008
The Wall Street Journal was very dark this weekend on the US Outlook for the coming quarters ; the worst is indeed still to come, but contrary to the Wall Street Journal, I don't believe that the recession will be over in June 2009, it will take all the way through 2009.
Meanwhile, Brazil's new strategy for maintaining investment and expanding credit is reducing interest rates on loans granted by Bank of Brasil and Caixa Economica Federal (Federal Savings Bank). Which is, I think, a very smart plan. Here in Europe the ECB is cutting down interest rates massively, but this is not dripping through to the companies and people in the street. In Brasil, the Reserve Bank hasn't dropped interest rates yet; I'm happy for this, since I believe in Europe and the US we are creating a massive hyper-inflation tornado coming our way; and not in the least also in South Africa, where the Reserve Bank lowered the interest rate last week.
In Brazil the credit market is somewhat atypic; you need to understand the structure of Bank of Brasil and Caixa Economica for this. Caixa is omnipresent, all worker people put their saving money (Poupanca) at Caixa. And most of the housing credit is provided through Caixa. Contrary to the US and Europe, housing credit in Brasil is small; luckily. Real estate financing only amounts to 4% of the GDP. What Brasil now wants to do is keep the Reserv Bank rates the same, but reduce the spreads (difference between the interest rates that bank receuves and what they loan to third parties) by inforcing Caixa and Banco Brasil to lower their interest rates. This would mean banks in Brasil would make less profit; which is perfectly fina, since they have been sitting on ever increasing mountains of profit the last years. Also the PAC (Growth Acceleratioon) Investment Program will be paintained, income taxes will be lowered and the Financial Operation Tax (IOF) will disappear (excellent news for foreign investors), although only for natural persons. Also the IPI (Industrialized Products Tax) will be lowered and the Central Bank will use their reserve funds in dollar auctions. The tax waivers from fiscal measures will total 8,4 billion R$.
This weekend Forbes published an excellent article on the Emerging Markets: Asia and Latin America: China, Hong Kong and Brazil are the places to be . -
Feb 5 2009
When oh when is De Morgen going to give Lode Delputte the boot? The man basically writes every piece on Latin America in De Morgen and is o so biased. The man even never lived in Latin America , traveled some times up and down and considers and confuses his very coloured political views with journalism. Today he wrote a piece in De Morgen on crime in Sao Paulo. He takes the PCC, some rumors he must have heared on what is happening in Paraisopolis and writes a story. It is clear the man has no clue of the history of the Primeiro Comando do Capital ; let be of what is going on in Paraisopolis.
The problems in Paraisopolis started with abusive PMs entering the favela; you can read all on it here . Yes, the PCC is a criminal gang; but they have a huge support in the local communities ; not only by criminals. If you truly want to report on crime in Sao Paulo, you need more than Lode Delputte's shallow articles.
What was most disturbing in the article however was the only piece of factual information it contained, quote:
"Omdat de moordcijfers er hoe dan ook erg hoog liggen -120 per 100.000 volgence cijfers die vorig jaar op de Urban Age conferentie werden geciteerd-". 120 homicides per 100.000 ?!
Why is this so absurd ?
1. To begin with: the source that Lode Delputte mentions, Urban Age , has no homicide data whatsoever and never published homicide data on Sao Paulo.
2. Secondly: you will find in no publication whatsoever a Sao Paulo homicide rate higher than 45 per 100.000 (whereas Le Delputte mentions the absurd figure of 120. That peak happened in the 1990s when Sao Paulo saw a bulge in the proportion of 19-24 year-olds, which coincided with a rise in youth crime. Even in the most crime-ridden favela of Sao Paulo, Jardim Ângela, a poor suburb of São Paulo, the peak crime rate has never topped the 112 murders per 100.000 in 1995.
3. What Lode Delputtefails to mention is that crime in Sao Paulo has seen a drastic decrease since 2000; actually the murder rate in the state of São Paulo has been cut in half since 2000. As a journalist, Lode Delputte should have known of the " unsung story of Sao Paulo's Murder rate drop . Why didn't you write about this downward trend. Real journalists wrote ablout it in The Economist . Have you ever heard about the recent "Dry Law" and its impact on crime ? The data that Lode Delputte publishes is 600% higher than the data the Economist publishes . Who do you tend to believe: the economist or some obscure biased Belgian journalist?
4. Actually, the murder rate in São Paulo dropped below 20 per 100.000 in 2008. This is a lower homicide rate than the following American cities in 2007 :
Atlanta
Baltimore (45:15 more than Rio)
Buffalo
Cleveland
Detroit (46: 16 more than Rio !)
Newark (more than Rio !)
Oakland (same as Rio)
Philadelphia (!)
St Louis
Washington (Washington has a slightly higher homicide rate as Rio !)
Mr. Delputte: you don't speak a word Portuguese, stick to the countries which you visited more than once (like Venezuela, Colmbia, Honduras and Guatemala), all of them have countrywide homicide rates which are the double of those of Sao Paulo.
I wrote Lode a mail pointing him to the ridiculous facts he states in his article; let's see what he responds. -
Jan 27 2008
Robin Wouters flagged me this excellent Sketch on the Long Johns explaining the subprime crisis. I laughed, for a moment.
A few minutes later, Vincent Touquet send in this excellent article hon the real dimensions of the(subprime) crisis and the role of the Fed in it.
I think the concern that there is the potential for a much worse credit crisis than we are currently experiencing is what is driving the Fed. They are looking at the problem from the inside, and realize that they simply have to engineer a much steeper yield curve to allow the banks to make enough profits so that they might be able to grow their way out of the crisis over time. If I am wrong and the Fed was responding to the stock market, then we will likely not see a cut this next week. But if we get another 50-basis-point cut, as I think we will, then it means the Fed is responding to concerns about the credit crisis. And we will get another cut the next meeting and the next until we get down to 2% or below. Here is how I think the next few quarters are going to play out. Each new downgrade triggers more losses at financial institutions. You don't write down a bond insured by MBIA as AAA until there is actually a write-down. And then you do, and announce it at the end of the quarter. Along with the rest of the losses caused by new downgrades. We are going to see massive write-offs every quarter by the same financial institutions that have already written off $100 billion. We are only in the beginning innings. There are very serious suggestions that several extremely large banks (and not just in the US), of the "too big to be allowed to fail" size, technically have negative equity. With each announcement of a new massive write-off, we will see yet another large capital investment announced as well. And every time it happens, the market is going to be disappointed. And continuing disappointment is what keeps a bear market intact. Couple that with earnings disappointments from companies with exposure to consumer spending, and you have a recipe for a bear market that could linger for awhile. -
Jan 23 2008
Last night on the Belgian television: André Bergen, CEO of KBC . He tried to convince us that the 0,5% extra that Rabobank, Deutsche Bank end Keytrade Bank give on their savings accounts is not a real differentiator. The man has a point of course. On amounts smaller than 5.000 EU that 0,5% doesn’t compensate the hassle of opening and managing an extra account. And when you have more than 5.000 EUto save, you must be somewhat retarted to use a "spaarboekske" (BR: poupança) as a savings instrument.
André Bergen points out that the network of agencies is KBC’s real differentiator. I personally go at most 6 times per year to my ING agency, even though I have more than 12 private and company accounts I manage at ING. The “local touch” of a bank agency has disappeared; completely.
Going to a physical agency has become a hassle, for everyone. Last week I saw that ING deducted 93 EU bank costs for 2008 on a startup company I founded in 2007. They however credited it back into the account of the company the day after with the message ‘new startup company pays no bank costs the first 2 years’. However, I have another startup company at ING. Also a BVBA which was also started in 2007. On that second company the sum of 93 EU was not credited back into the acount. I hate banks which are inconsistent. I call my agency to clarify the ‘different treatment’ on the two companies. The local ING agency in Gent couldn’t give an answer and had to call ‘Brussels’. I could as well have send a message via the online application and cut out the local agency. And this is exactly what ING wants to do: cut down on their agencies and invest in online features and convenience. This in sharp contrast to Fortis who will be further expanding its real world 'physical layer'. I can already feel the difference, in my local agency agency I can only do 'money transactions' at the counter in the morning from September 2007 on. Well, ING, given your strategic dimension I have some questions for you. I do a lot of banking, in a lot of countries. Most of it in supposedly ‘third world countries’ like Brazil and South Africa. Now, let me tell you that (online) banking in those countries is way more sophisticated than what ING (and most Belgian banks) offer me in ‘cutting edge Belgium’. Let me take some features from one of my South African banks ( ABSA Bank ) I truly miss in Belgium:
1. As the administrator of my accounts on ABSA, I can enter my mobile number. On every account can set a limit. If I do an expense on that account exceeding that limit, I get a warning with the details of the payment exceeding the specificied amount. Via SMS on my mobile. Simple but extremely powerful. This works as well on my bank cards as on my credit cards. So when my wife goes shopping with the credit card, I can basically see which shops she is entering. Sheer convenience. Only not when she the SMS warning states the name of a lingerie shop; I tend to get distracted in that case.
2. In the Homebank Plus Offline package I can only export to a messy txt file. I work a lot with Quicken. No problem in South Africa and Brazil, all my banks offer me export facilities to .ofc (MS Money) or .ofx (Quicken). These banks already offer this for years. How comes this is not possible at ING?
3. Cellphone banking. On my South African Telephone I can access my accounts via my Cellphone. Get my account balances, view statements, transfer funds, pay accounts,… Why is this not possible at ING?
4. Integration with online spending management tools. For my personal accounts I would love to use services like Spendview . Still no support for any of those services (countless Spendview-alikes are popping up).
5. Credit card statements. Can you believe that ING Belgium you cannot follow-up the payments of a corporate credit card online? They only have an online follow-up for private credit cards issued by ING Belgium. I already flagged this two years ago. They agreed it's 'somewhat unconvenient' and that they were going to remedy this. Still no solution since then. I mean: we want direct realtime follow-up of our credit card payments, export facilities and SMS warnings; on all of our ING credit cards, especially the corporate ones. This is the year 2008, not?
Why is ING not developing and launches these services? Why do runner-up banks like Keytrade leave this opportunity untouched? If they would only support 2 of the above features I would already switch away from ING.
Differentiate and innovate, Belgium! The third world is catching up on you! -
Jan 15 2008
While things are starting to look grim in Europe , the situation in South Africa also gets somewhat cloudy. Remax in South Africa predicts that 17% of the South Africans could loose their house this year . In the US the mortgage crisis currently affects 2 million households. With an average of 3,6 Americans per household, this makes 7,2 million Americans and on a population of 200 million represents (only) 3,6% of all Americans affected.
And for the next two quarters, South African should brace itself for even harder months ahead. The consumer price index excluding rates on mortgage bonds was hovering at 7,9% year on year in November instead of between 3 and 6% as targeted by the SA Reserve Bank. At the end of this month the Reserve Bank will determine whether to impose another interest rate hike. It has already raised the interest rate four times in the past two yearts because inflation is not coming down. If raised, the interbanking prime rate would go beyond 15% !
However, for a variety of reasons I see light in the South African tunnel. Consumer debt is slowing since the introduction of the National Credit Act and the economic output is projected to keep growing at figures between 4 and 5% and the bulk of emplyment would remain relatively secure. With regards to growth and job security (South) Africa is much more resistant to the impact of this crisis in the long run than Europe is . The key question in both continents is how middle class will keep it's buying power in the coming decennium. -
Aug 27 2008
The last 2 weeks I've been hearing more people around me claiming that by Q1 2009 things will brighten up economically wise. The only substance for that claim I've heard sofar is that they believe inflation will go down and as thus the economy will pick up again.
First of all: credit will remain tight, for long times ahead, just read that Libor signals tigther credit as banks balk at lending or read what the IMF is saying :
A towering grizzly bear guards the doorway to the Federal Reserve's annual policy retreat in this Teton Mountain resort, serving a reminder to central bankers of the battle to sooth the credit crunch. "This turmoil is not going to go away quickly and will require serious efforts to overcome it," a top official of the International Monetary Fund, John Lipsky, told Reuters.
There's the Russian clouds coming over and another piece of the puzzle to consider is China's Olympic Sized Bust . The opening ceremonies were fantastic, but where was the payback? In a command economy there does not have to be a payback. Appearances are often more important than realty, and deviations from plans are simply not tolerated. Things look extremely troubled in Chine, the China hink thank expects 10,3% growth in Q3 , personally I can hardly believe this growth is sustainable into 2009. Just look at the environmental disasters there . China's growth story is stopping.
I will keep repeating myself: don't expect thing togo back to 'normal', the 'old times' are not coming back, cheap credit is over, foregood. Once upon a time, central banks had bank vaults. In these vaults were blocks of gold. This was used as the basis of all banking. In addition, all the member banks had to collect something we called 'savings'. This was also called 'liabilities' by the bankers since they had to pay these savers 'interest'. The interesting thing about interest is, this money has to be relent at a higher rate so the bankers could then collect interest, too. And they were allowed to do this on a reserve of savings of less than 10%. Even with the central bankers controlling this reserve requirement, the member banks often ended up in the ditch, overextending loans too much. This is because they love collecting interest rather than paying interest! The investment bankers decided to play this game with less than 1% reserves. To do this, they needed the Bank of Japan's 0% lending. At 0%, a bank can lend forever. US banks sit on virtually no reserves while Asian banks sit on mega-reserves. And this is hyper-unbalanced. And mirrors unbalanced trade relationships.Now, the central bankers no longer hold more and more gold as they lend. They don't hold more and more capitalist profits. Or more and more worker's savings. The FAKE interest rates are responsible for this situation! Since all the central banks set rates below the rate of real inflation, everyone is putting their money into various instruments that THEY HOPE, HOPE will grow faster than the other nasty hag, Inflation. But Inflation gets stronger and bigger, the faster money grows! The more everyone seeks a greater return outside of the banks, the more powerful Inflation is. -
Feb 21 2008
MoneyWeek is one of my favorite news sources in South Africa, they publish excellent articles like these . Last week, the South African business magazine had a special on Latin America. Their argumentation why Brazil has all the elements to become one of the strongest economical players on the globe are head on:
"In a nutshell: the United States and Britain have been victims of their own good luck; the banana republics had the good fortune of bad fortune. In the last twenty years, for example, the world rushed to lend the Anglo-Saxon tribes money. North of the Rio Grande and the Isle of Wight, credit was as abundant as calories. But when lenders visited the tropics, they hid their money in their underwear, and left their watches in the hotel safe. Our man in Rio sweated and counted his change. Our man in London or New York splashed out, and bought a $5 million house...and another one as an investment. In the air-conditioner zone there was no one to borrow from. Residents of the banana republics were spared the lure of debt, thanks to the near universal agreement on the part of lenders everywhere, who wouldn't give them a dime. And now, England and America are caught in the debt trap, while the Latinos swagger down their avenidas with hardly a care in the world. The price of soybeans is at an all time high...and their balance sheets have some of the lowest debt ratios in the world. An investor in Latin America has the trade winds at this back; the rainbow currencies are rising; so is the price of food. Most of these countries are net exporters - of bananas and other agricultural commodities, often of metals as well. Like China and the oil exporters, they are building up large piles of dollar reserves and watching their own currencies go up against the greenback. Several have had to intervene in foreign exchange markets not to protect their local currencies...but to keep them down."
The coming days, the Brazilian Central Bank will indeed have to buy massive amounts of dollars to push the currency back down .
The full article from MoneyWeek can be found behind the break . -
Jun 14 2008
I don't need to write on the dramatic problems South African's Eskom has providing the country with electricity, that tune has been song countless times before . The country's electricity supply is depending for 90% on... coal. And the dramatic side of the story is that Eskom announced last week that it's coal supply only in it's power stations only accounts for 20 days now (it's winter in South Africa and these months are the peak usage months). Not a susprise that the word is out the load shedding will soon resume .
I noticed myself for the first time a dramatic situation was upcoming when I flew into South Africa in July 2007, the news on Eskom's supply problems was already out in some sources. But many waved my worries away, "Eskom had plans" and would soon control everything again. I couldn't see any concrete signs of new production plans or a vision on energy sourcing. The last year many wild speculations have been out. Some said this was the chance for South Africa to build a 'new green energy supply system'. The reality was and is clear: a massive shift to nuclear backed by some alternative energy sourcing is the only way out of this nightmare.
The government finally has take a decission: it will start a massive nuclear roll-out plan, with in between 24-30 HTR generation4 nuclear reactors. You read that right: 24 to 30 ! Brazil has 2 reactors and after a year of struggling started to build a third and Belgium, not a rooky when it comes to nuclear energy has 7 reactors.
So, South Africa is placing all its bets on sourcing its energy from Generation4 nuclear reactors . A first test reactor would be build in 2010 in Koeberg, 35 miles west from Cape Town and the first commercial plant would be 'commissioned in 2014'.
Now, you must know that these type 4 reactors are still in an experimental phase and every expert in the field will tell you that a commercial model before 2020 is highly unlikeable to become real .
Conclusion: Eskom's way out of the current problems is ... a set of theoretical nuclear reactor designs currently being researched?
-
Jan 7 2009
Some people really don't get it. Wayne Mc Currie of South African RMB Bank is one of them. Soon the South African Reservee Bank should announce the December inflation figures . In November the CPIX consumer price index was at 12,8%, coming from 13,6%. 12,8% is still massively high (by way of comparison, the consumer inflation index of the last 12 months in Brasil was 6,39% , less than half the South African inflation.
Now Mister Warne Mc Currie claims :
"Now in South Africa, to divide our market into two - the non-resource shares - we know there's good news coming. So with the banks, the retailers, we know interest rates are coming down, inflation's coming down, the price of petrol's coming down - despite what the oil price has done in the last couple of days. But after the peak it's actually a massive fall - when diesel went above R12 and petrol went above R10/litre. So there'll be a massive fall. Of course, in the next three/four months the inflation numbers are just going to plummet. So we will see further - and quite significant - interest-rate cuts. So for let's call it the consumer shares, the outlook is actually reasonable. We just don't know yet about the resource shares. Now, they have rallied. Some of the resource rallies have actually been strong, simply because they fell so much."
The simplistic man believes that all will be well just because inflation is coming down a bit (but still double digit); mainly because oil prices went down. The man fails to talk about South Africa's massive negative current accounts, the painful fundamentals of South African's energy-import depence, the fact that South Africa became a net food importer . And worst of all, Mr. Wayne Mc Currie fails to understand the massive negative impact of South African's Brain drain : more tha n 2.100 South African doctors are emigrating to Canada, mainly because of the skyrocketing crime in South Africa . And when Mr. Wayne Mc Currie believes consumption will be the "all good like before" in South Africa; he should check the fundamentals and understand that South African's are already swimming in debt . A slightly lower interest rate won't structurally solve this. -
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 de flation 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 .
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