I've just finished reading this book: The Big Reset by Willem Middelkoop. The author is Dutch and I've been following him for a while (on twitter) and was eager to learn what he had to say in his latest publication. The book was first published in English (so good news for you all) but I waited for the Dutch version to appear (lazy as I am). It has the benefit that it was already slightly updated as it includes some reference to the recent tensions on the Crimea. This may make you wonder what the book is about. Well it is about finances and more specifically about the Dollar as the world's reserve currency, how this has given the US a major advantage over the rest of the world, how the US has and is doing everything to keep their status and - this is the interesting bit - how this is all coming to an end. Hence the title 'The Big Reset'. Whilst I did not learn much new, it is still enlightening to read it all in one book which connects all the dots and makes you look at some events in a different way. If you think this book is about some wild complot theory you'll be disappointed. If you think you'll read about the upcoming financial armageddon, you'll be disappointed too. It does present you with many facts and does point to what may happen next. It is not so pretentious that it gives you a scenario of the world financial future, nor does it give a timeline of what will happen when. And that's good, if the author would have done that, he would have lost all credibility. But the facts do lead to a certain direction our financial future will take and understanding this is of utmost importance for our (individual) financial future. And, not unimportant, it is an easy read as it is written very fluently avoiding financial speak.
Look at this mind boggling infographic. Things like these are often used to show the speed of development and technological progress. But to be honest, it scares the hell out of me. Millions of people don't have access to drinkable water but we do have an average of 3 connected devices per person on this planet. What is wrong with us?
In the mean time, researchers found for the first time an Earth-like planet in a habitable zone around a star (see here). And it is close by, only 500 light years away which is neglectable in the infinity of our universe. The atmosphere seems to be all CO2 so breathing for us might be a problem. But as it will take a while before we get there, we'll probably have mutated by that time so that CO2 will smell like a fresh see breeze.
Ain't life weird. Greece issued for the first time since years new government bonds and they were oversubscribed 6 times! One of our Belgian top economists even found it necessary to state on national tv that "Greece is the only one that is still offering a reasonable interest". The interest he refers to is 6% and yes that's a lot more than anyone else but, and he didn't mention that did he, Greece is still virtually bankrupt. The only reason that banks are buying the bonds is because of the interest rate and because they have seen that European politicians are not going to let any euro-country default. In contrast Sweden, which has one of the healthiest government finances in the world, had difficulties placing its government bonds. Everyone who is not blinded by the hunt for interest will see that this situation is crazy. Question is: how long will it last before it blows up (again) in our face?
"Human rights, democracy and the rule of law in Europe now face a crisis unprecedented since the end of the Cold War. Serious violations – including corruption, immunity from prosecution, impunity, human trafficking, racism, hate speech and discrimination – are on the rise throughout the continent. People’s rights are also threatened by the impact of the economic crisis and growing inequalities. The Council of Europe and its member States must act urgently to stop this erosion of fundamental rights.": this is the opening paragraph of Thorbjorn Jagland, secretary general of the Council of Europe, in a just released report titled: State of democracy, human rights and the rule of law in Europe.
In the document they list following shocking numbers:
Discrimination against ethnic and national minorities: 39 of 47 states
Overcrowded prisons: 30 states
Corruption: 26 states
Police misconduct: 23 states
Violation of human rights of immigrants and asylum seekers: 20 states
Human trafficking: 11 states
Limited freedom of speech: 8 states
In addition they found countries where the judicial system is completely corrupt and they fear that unemployment and poverty in some countries will drive the population to extremism and confrontation.
Yes I know the membership of the Council of Europe is larger than the EU. But with scores like 39 or 30 states out of 49, many EU countries are involved too. None have been named though because of... political pressure. Freedom of speech???
I was scrolling through some photo albums and came across a trip to Seoul in 2007. Every aviation enthusiast has heard about the Smithsonian in Washington DC and, if in the neighbourhood, has visited it (like I did). But I can recommend the Korean War Museum too. Tragic as the Korean military situation has been over the past 50 odd years, they do have a smashing collection! What else would you call following line-up: O-1G Bird Dog, S-2 Tracker, KT-1, T-37, C-46, C-123, H-5H, MiG-15, OH-23G and so much more! So when you do find yourself in that corner of the world, go and have a look, it is well worth it.
Obama made a blitz-visit to Brussels (less then 24h) and the whole country became victim of Obamania.
Police had warned car drivers not to drive to Brussels during the Obama visit as the complete city would be in gridlock. I chose to ignore the advise figuring everyone else would listen to the police and I would have a pleasant drive to work. So I did and had the swiftest most relaxing morning drive into Brussels ever. Sometimes it really helps being contrarian!
In our airspace it was less pleasant. EBBR shut down for Air Force One to get in and out. Obama flew with Marine One a return between EBBR and EBKT which basically shut down the main part of Belgium. This is the chart that went with the NOTAM...
So unless you wanted to test the interception alertness of the Belgian airforce, taking your aircraft for a spin was not a good idea.
And I can't help but also post this table which crossed my internet travels this week:
Do you think there is a problem in the eurozone with non-performing loans? Non-performing loans is nice-sounding jargon for loans that are not being paid back. Nothing to see here, please move on.
We know a thing or two about elections in Belgium. In fact the past 5 years we have been hopping from one election to another, and we have established the world record government formation. So I guess you can call us Belgians a bit of experts. On May 25 there are European elections and with the run up to these elections I'm wondering about something.
Since last Summer, it seems the European crisis is over. The peripheral countries are slowly recovering (btw whoever came up with this dreadful term 'peripheral countries'? As if they are a bit of a drag that we are trailing along behind us, I find the term very denigrating). No one talks any more about the interest rates on government bonds. The eurocrisis is but a long forgotten nightmare. But is this true? Or... are our European politicians purposely painting a rosy picture in view of the European elections? With eurosceptics doing well in the polls the traditional parties are indeed a bit worried the balance of power may shift in the Parliament.
The below slide is made amongst others by the IMF and shows how well Europe is doing economically compared to 2011. For those who forgot, 2011 was the midst of the eurocrisis. And to be clear: the red colour means the situation is worse than in 2011. But hey, all is well.
As the red colour is so prevalent in the above slide, it nicely links up with the major news coming out of our beloved aviation world: the Red Arrows have a new colour scheme on their tailfin!
Here it is:
And yes of course I have seen the Red Arrows numerous times! And, what did you expect, I have the pictures to prove it :-)
Some sport journalists commented a bit laughingly about Vanessa Mae's performance at the women's giant slalom at Sochi. I don't know why. So yes she finished last about half a minute after the golden medal. So what? It was brave to train and participate. I can understand that a young woman who has travelled the world playing the violin, who performed with world renowned orchestras, pop and rock artists and sold millions of records needed a bit of a different challenge. So I take my hat off for her. What a woman.
It's the World Economic Forum in Davos this week. For that occasion Oxfam issued a publication titled 'Working for the Few'. This is the picture that goes with it:
If that doesn't make you stop and think, how about this:
Almost half of the world’s wealth is now owned by just one percent of the population.
And
Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
You can read all about it here.
With growing inequality putting more and more stress on the social fabric that holds nations together, this does not bode well for our collective future.
One more statistic from Davos: Chinese investment in the UK in the past 18 months was equal to that of the previous 30 years.
For some reason this week there were some human interest articles about 100 years of commercial aviation. I say 'for some reason' because the first scheduled flight happened on January 1 1914, so our dear journo's are lagging about 20 days behind. That first flight was between St Petersburg and Tampa in Florida and was operated by SPT Airboat Line. Airboat because the aircraft operating the route was a Benoist Type XIV. It made me think back to those exciting pioneering days of aviation and about the legendary flights of the Vickers Vimy. It was the first airplane that made a successful transatlantic crossing (June 15, 1919). John Alcock and Arthur-Written-Brown were the pilots. After having crossed the Atlantic John Alcock said "Yesterday I was in America... and I am the first man in Europe to say that." Statements like that make my world stop for a moment!
Later that same year the Vimy (registration G-EAO God 'Elp All Of Us) also flew from London to Adelaide. They left Hounslow Heath (now Heathrow) on November 12 1919 and reached Darwin on December 10, 1919. They continued on to Adelaide the home town of the Smith brother's (the pilots). If that ain't adventure, nothing is.
I saw a replica of the Vimy at Farnborough in 1996. The replica repeated the 1919 flight in 1994. Again quite an accomplishment! There is a magnificent book about the 1994 journey of which I have a copy signed by Peter McMillan one of the two pilots (the other one was Lang Kidby).
When you do something stupid and hurt yourself in the process, you tend to learn the lesson and not to repeat the stupidity any more. When we all dived into the 2008 financial crisis, the lesson learned (amongst others) was: too much derivatives on the banks balances and not enough capital to guarantee losses on their (derivative) investments. Basel III (the rules devised by the Basel Committee (composed of central banks and chaired by Mario Draghi)) was supposed to solve this. They adopted the international standard for the leverage ratio* on January 12. Without going into the technical details, here is what you should know about it (but only very few media have reported upon):
it eases the requirements for products, such as derivatives, which make up large parts of the banks' balance sheets
according to Financial Times sources, the effect of the adjustments could be a raise of big global banks’ average leverage ratio from about 3,8% to just over 4% -> This means that the Basel fiddling on how to count derivatives gives the banks a free 0,2% leverage ratio avoiding a capital increase of billions of $ or €.
entry into force is only 2018, and the minimum required ratio is still not defined. Basel has proposed a minimum of 3%, but the US wants to strengthen this (higher %). Europe is lobbying to stay with the 3%. Go figure...
You want to have it crystal clear? Here's a quote from an analyst at BNP Paribas, who said the result was “more of a win for the industry than I was expecting”.
As a result of the Basel III agreement bank stocks went up 2-3% on Monday.
Lessons learned? None. At least we and our politicians have not learned any. The banks on the other hand have learned an important lesson: We (the banks) can gamble the global financial system, be bailed out with public money if it goes wrong, not be punished for it and even better, can start all over again playing the same game.
Often I get the impression that many of us who live in the Western world still haven't grasped that the centre of gravity on economic, political, hey on every level (except for earth's centre of gravity) has shifted to the East. This picture courtesy of the Worldbank should give those who believe they are (still) the centre of the world something to reflect upon. More people live in the highlighted area than outside of it.
Worldbank - More people live inside this circle than outside of it.
* From the Basel website: The leverage ratio "promotes the short-term resilience of a bank's liquidity risk profile. It does this by ensuring that a bank has an adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted into cash easily and immediately in private markets to meet its liquidity needs for a 30 calendar day liquidity stress scenario."
The dark days between Christmas and New Year are a great time to do some reading. So I embarked on a heavy book (literally and figuratively) titled 'Breaking the code of history'. A beautifully glossy publication written by an interesting guy. Dyslectic as a child David Murrin studied physics and became a geophysicist. He spent two years in Papua New Guinea searching for oil in the jungle where he had interesting encounters with local tribes. He then ended up at the London stock exchange on behalf of JP Morgan. Those of you who wonder about that career switch should know that in those days, banks were on the lookout for mathematicians and physicists to calculate the best way how to trade. The author also has a life long interest in history. And all of that background is felt throughout the book. The first 370 pages (yes...) are a walk through history using numerous examples to prove the author's premise on how empires rise and fall. Empires on large and small scales (he saw the same dynamics in the jungle tribes, the stock exchange, countries, nations and our whole planet and he draws a parallel with fractals). The second part of the book he looks into the future and gives us some predictions on what could happen. This is interesting because the book is from 2010 so 3 years on, one can already get a feeling on how right or wrong he is. Without giving you any spoilers, let's just say that my scepticism grew whilst I was progressing through the book. First of all, he only remotely touches upon the influence of new technology on our future and he barely takes new social structures (through social media) into account. But what really threw me is that he applied basic mathematical principles to social science. His basic premise of rises and falls of empires is represented by a gaussian curve. That is of course utter nonsense because it is a fact that gaussian mathematics work perfectly in physics but are completely useless and wrong when they are applied to social science and economy. So I had an interesting read but believe the whole theory is based on one big flaw. Maybe the author sees himself as a Hari Seldon, the 'hero' in Isaac Asimov's foundation trilogy who calculated to the second the rises and falls of empires for millennia to come. That is fiction of course and it will remain so.
We had some good year wishes from our European President Herman Van Rompuy who said that the crisis is behind us (what else would you expect him saying with European elections in 5 months where anti-European parties may gain a lot of ground?). Mario Draghi almost immediately responded that although the crisis is less acute a lot of work still needs to be done for things to really settle down (he means: politicians you have done nothing with the time I bought for you!). As illustration a graph from @komileva showing the debt as a % of GDP comparing 2010 to 2014 (based on the IMF Oct forecast). We are doing jolly well...
I came across an intriguing picture whilst I was strolling twitter and did some research. Yes that is a man standing on a DC-8 taking the art of wing-walking to a whole new level.
Rick Rojatt – The Human Fly did this in 1976 when he mounted himself atop a Douglas DC-8 and was flown at speeds in excess of 280 mph at 5000ft (watch the full 23 min movie here). Wing walking has been (almost) as old as aviation itself and you can still see it at airshows. There is a British team (here's the website - different colour scheme today) who does the Summer airshow circuit. I saw them a couple of years ago at Beauvechain (EBBE). Not DC-8s but Boeing Stearmans and impressive nevertheless! (Yes the lady is really wing-walking in the second picture, have a close look in between the wings.)
I took half a day off this week to join a speech from Barry Ritholtz. Those of you who don’t know him, Barry is world renowned in the economic and financial world. He has his own wealth management company, is a regular guest on Bloomberg tv and his blog (the big picture) is ranked by TED amongst the top 100 sites one has to know and it has more daily pageviews than USA Today.
So when I received an invitation to attend his speech I immediately put in my request for half a day off.
Now Barry threw a lot of interesting graphs at his audience but the one thing that made me think was something he said. In the late 19th century companies were laying down a complete railroad network across the States. These companies struggled for survival because of the high cost of the endeavour but everyone wanted to invest because the future was here. Until it all went ‘pop’, the bubble burst, companies went bankrupt and the infrastructure was bought up by others for pennies on the dollar. The buyers made a fortune as they had in their hands the basic infrastructure at a very cheap price upon which a whole new economy developed. Fast forward to the turn of the 20th century and companies were laying down fibreoptic cables across the country. A very high investment (100s of dollars cost per mile) but everyone wanted to invest because the future was here. Until it all went ‘pop’, the bubble burst, companies went bankrupt and the infrastructure was bought up by others for pennies on the dollar. The buyers made a fortune as they had in their hands the basic infrastructure at a very cheap price upon which a whole new economy developed (e-commerce, social networking, ...). Fast forward another decade. Debt was build up and everyone was out for a loan because investment was plentiful and a sure bet. Until it all went ‘pop’, the bubble burst, companies went bankrupt and ... Nothing. Here is the difference between the current crisis and the above big crisis. The railroad and fibreoptic crisis gave us, after the bubble burst, infrastructure at low cost upon which a new economy developed. When the bubble burst in 2008 it left us with debt. Conclusion: it will take a lot longer to recover from this crisis.
What made me wonder is where the next ‘useful’ bubble is. ‘Useful’ meaning giving us something to build on at low price. If I knew I would be in for some serious money making but I don’t know. However I am just wondering if green energy is not a good candidate. Windmill parks, solar parks, ... are developed with a lot of incentives and government support. Once this support falls away (due to austerity cuts), these new energy parks seem to run into trouble as they have too much debt and without the incentives, too few revenue to pay off the debt. So, if these go belly-up, the interesting bits will be up for sale at a cheap price. To those of you with deeper pockets than me, maybe this is worthwhile reflecting upon.
Off to space! This week China sent a lunar rover to the moon and SpaceX (from Elon Musk) put its first satellite into orbit. I include two pictures posted by Elon Musk on his twitter account.
Fascinating as it all is, it is dwarfed by these breathtaking pictures from Cassini. Talking about a big picture, they rarely come more beautiful than these! No one understands how that hexagon was formed on Saturn’s north pole. Researchers are running all kind of hypothesis to get a grip on it. Nature is wonderful isn’t it.
The European Commission announced this week that they are going after so-called postbox companies. These are global companies that set up subsidiaries across the world to optimise their taxes. The result is that these global companies hardly pay any taxes at all. The European President stated some weeks ago that all EU members together miss 1000 billion € in taxes per year because of this high-tech financial wizardry.
Needless to say that the announcement was greeted with a lot of acceptance and sympathy both by the media and the public. After all, going after the big bucks from those who apply sneaky tricks is only fair. Or is it? I have some mixed feelings though. Is it ethically and morally questionable when the richest companies on earth use every rule in the book to lower and evade taxes? Hell yes. Is it legally wrong?
The thing is, those 'rules in the books' were voted and implemented by... governments. Countries purposely create rules beneficial to global companies just to attract them and set up shop in their country. In fact countries compete heavily amongst themselves to attract business. My own country, Belgium, is no exception. Belgium invented a very interesting rule (when using their own capital for investing in R&D, companies can deduct it from their taxes as if it was a loan) and then went on a global road show to pitch it to multinationals. Of course many saw the benefits (handy way to lower their taxable income). Can you blame them? Other countries have other incentive schemes. And when companies happily apply (of course!) then suddenly they become the bad guys. Again, it is ethically and morally wrong but shouldn't the Commission go after its own members because it is the Member States that created the rules that companies use? But I guess it is more popular to go after business sharks then go after your own members. And then one another point: Commission officials don't pay taxes on their income as us normal mortals have to do. So who are they to speak about socially unacceptable tax evasion?
I came across a website featuring a flying machine that tickled my imagination. I remember as a kid seeing these things in a comic book ('De speelgoedzaaiers'). But here is this company in Perth that is developing them. Have a look:
We Belgians have always been way ahead of the rest :-).
Ok ok ok, just to prove that I do have some sort of self-relativity as well here is Monthy Python about us Belgians:
For those of you who can't get enough and who missed it (shame of you if you did!), here are they again announcing their new reunion show called "One down, five to go":
There was a fantastic quote circulating the net last week regarding inflation. You can’t switch on the tv last months or you have a central banker or a politician proudly saying that inflation is low. Of course we all know the calculation is rigged (last change in Belgium was to include the Summer and Winter sales in the inflation basket). The bread price on the other hand was taken out years ago already. So inflation is not representative at all about the real cost of living, as anyone who does his weekly grocery shopping himself knows very well. So I give you this wonderful definition of inflation and central banking from Dylan Grice:
“Trying to control a variable you can’t measure (inflation) with a tool you don’t fully understand (money) in a complex system with hidden, unobservable and non-linear interrelationships (the economy) is a guaranteed way to ensure that most things which happen weren’t supposed to happen.”
I came across a graph (courtesy of Bloomberg and Zerohedge) that really spooked me.
It’s the New York Stock Index divided by the US FED balance sheet. Ok so 2008 is Lehman we know that. The thing is since Lehman, the US FED has pumped 4 trillion $ in the economy as reported last week. This has not done anything to the stock exchange if you divide it by the FED balance sheet. So the optimists will look at this graph and say: “Wow! The NYSE can go up another 500% just to reach the 2008 levels. Let’s rock-and-roll!” The realist in me however is scared sh#tless (excusez-le-mot) because 4 trillion $ has done nothing, null, zero, rien. Never mind that stock exchanges are breaking new records. Taking the FED balance sheet as basis, shares haven’t moved an inch. Basically we fell off a cliff in 2008 and since then flat line... The economy and financial system is dead and they don’t know it. Bucket loads of money are acting as defibrillator but no matter how often they push the defibrillator button (printing press) the patient is brain dead and the heart beat is not coming back.
Contrary to the new NYSE records which are in the news almost daily, this piece of very interesting news, hardly got any media attention: Germany argued against the use of European funds to help banks.
From Euroactiv: “Ahead of the meeting, French Finance Minister Pierre Moscovici told reporters: "France continues to believe that we ... must not exclude direct recapitalisation by the European Stability Mechanism as a last resort." Speaking just yards away, however, Wolfgang Schäuble, Germany's finance minister, poured cold water on the idea. "The German legal position rules it out now," said Schäuble. "That's well known. I don't know if everyone has registered that." Inside the meeting room, people close to the talks said the two clashed again, when Germany asked for the removal of any reference to ESM bank aid from the ministers' statement”.
Just politics you say? Well yes of course but there is more behind it. I see some stars lining up here and it doesn't bode well for us working class who try to save some money.
The ECB is going to do a big bank stress test next year. Contrary to earlier bank tests (which were a joke) this time it seems the ECB intends to do a proper job that risks exposing many banks short of capital (because they still have too much bad loans). Latest estimates talk about 95 billion € of losses.
The question then is: who will pay for the losses? A new European wide system was meant to do this, but this is what Germany now opposes to. And what if some banks are not worth salvaging?
The answer is disturbing: “Any state help will come at a heavy cost by imposing losses on shareholders and junior bondholders. In time, possibly as soon as 2015, senior bondholders and even depositors with more than 100,000 euros will be forced to take losses.”
So yet another confirmation that the ‘never-to-be-repeated-once-in-history’ saving of the Cyprus banks slowly but surely becomes institutionalised.
During a meeting in Auckland we were shown below movie of the approach in Queenstown. Very challenging but oh so beautiful. Watch this tribute to airmanship and enjoy the scenery!
I had some spare time this week so I took the opportunity to catch up with my reading. I recently, after a one year search, acquired a copy of the book: ‘The Edge of Chaos’ written by M. Waldrop. It’s a thrilling story about the brilliant (Nobel-prize winning) minds at the Santa Fe institute (in the late 80s early 90s) who discovered how the world adapts itself to a state of continuous renewal on the edge of chaos. In fact, life can only thrive on this thin edge. The word ‘world’ you can interpret as biology, physics, evolution, chemistry, nature, climate, economy (aha!)… In one sentence: how life develops into ever more complexity floating on the edge of chaos. From only a couple of basic and simple rules, complex behaviour emerges and this behaviour stabilises under the right conditions to a limited number of steady states. Let me give you some examples from the book:
a water molecule is very simple: one oxygen bound to two hydrogens. Nothing spectacular, but throw some trllions of them together and what you get is emergent properties (properties that a single entity does not have but a group of entities do). Water is fluid, or turns into ice below 0°C or becomes vapour above 100°C. When boiling water, the convection bubbles are purely chaotic.
or how people in the Middle Ages were able to build cathedrals using only some basic heuristics as they did not have the knowledge to perform stress calculations. Still catherdrals are wonderfully complex and have stood the test of time. Compare this to today's buidlings and structures calculated up to 5 digits behind the comma.
or chess: from a limited number of rules, there are 10^120 different moves. In case you have trouble picturing this number (a 1 with 120 zeros), if you would make one move every microsecond since the Big Bang, you would only have scratched the surface of the 10^120 combinations by now.
or boids, the simulated computer equivalent of birds that are programmed with 3 simple rules but behave like a flock of birds and have no problem avoiding objects, just like a real flock of say starlings. The three simple rules are: keep an as small as possible distance to other objects in the surrounding, including other boids; keep the speed equal to the speed of other boids around; try getting closer to the center of the group. Compare the computer simulation with a video of a falcon diving on a swarm of starlings. Isn't life (and science!) wonderful?
It all also links in with the fact that history does not flow but that it jumps (see Taleb et al), with "The Tipping Point" (Malcolm Gladwell), with "Thinking Fast and Slow" (Daniel Kahneman) and of course with "Chaos" (James Gleick). But back to ‘The Edge of Chaos’, finally I read a book confirming my feeling there is something wrong with the term 'sustainability' (I never liked it)! I always felt that sustainability does not exist otherwise dinosaurs would still be around. Maybe a harsh picture but so it seems, rather accurate.
Not a chaotic combination at all.
In between the reading, birds kept me entertained (no it's not what you think you dirty minds, I'm talking about our feathered friends). Mocking birds were picking up walnuts, flying high in the sky and dropping hem on the terras and street to break them. Blackbirds and buzzards were doing dogfights (with spectaular wingovers and barrel rolls). And a black redtail took his daily bath in the bird water tub. Ah Autumn can be so wonderful!
