The big picture²

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.

Taxes are only for us normal mortals, youfly and one down five to go

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":

A definition, breaking records, stars lining up and approaching Queenstown

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!

The moon is upside down and the madness is everywhere.

I was taken aback by an opinion published in the Wall Street Journal. A certain Andrew Huszar, former manager of the US FED QE program (which buys 85 billion $ of bonds every month), wrote a piece titled 'Confessions of a Quantitative Easer". Although I knew most of what he wrote, it is still a big reality check. QE did not and is not working... except for Wall Street that has made huge profits thanks to it. 2009 (with the financial crisis in full swing) was the most profitable year for Wall Street. 4 trillion$ of QE generated 0,25% of GDP growth (equivalent to 40 billion $ -> that's a return on investment of 1%), 0,2% of the US banks control 70% of US bank assets (who said 'too-big-to-fail' was a problem?). And still the FED and Wall Street continue claims that QE is necessary and helps Main Street. Madness. Read the full opinion piece here, please do so it is worth it.

The moon is upside down, it's the end of Spring, the wine is Tasmanian and the beer from the Western Territories. Other than that there is not much difference between my country and Down Under. Whilst fighting my jet lag on Wednesday I listened to the news  about a discussion in the Aussi Parliament to raise the debt ceiling from 300 to 500 billion AUD. I can only conclude that no matter how far one travels from home, there is no hiding. The madness is everywhere.

Thinking about all of this one song came to mind: "Baggy Trousers" a Madness classic: "All I learnt at school was how to bend not break the rules"

Exciting news, what's the fun in that and I thought so...

Exciting news this week on virtually every aviation and technology website!
Skunk Works revealed the Mach 6.0 SR-72! http://www.lockheedmartin.com/us/news/features/2013/sr-72.html

Those who understand the code in the above sentence now have water dripping from their mouth.Those of you who don't know Skunk Works nor the SR-71 (not a typo, read on) will have some of questions...

The retired SR-71 was designed by one of the most innovative aeronautical engineers of all time: Clarence “Kelly” Johnson. He became instrumental in the Lockheed Skunk Works where he worked amongst others on the U-2 and the F-104 Starfighter. And Skunk Works is the official alias for Lockheed (Martin’s) Advanced Development Programs. Skunk Works is the birthplace of the P-38 Lightning, F-104 Starfighter, the U-2, the SR-71 Blackbird, the F-117 Nighthawk, the F-22 Raptor and the F-35 Lightning II.

The Blackbird truly was one of a kind. On wiki you can learn that the SR-71 was the world's fastest and highest-flying operational manned aircraft throughout its career. On 28 July 1976, SR-71 serial number 61-7962, broke the world record: an "absolute altitude record" of 85069 feet (25929 m). Several aircraft exceeded this altitude in zoom climbs but not in sustained flight. That same day SR-71, serial number 61-7958 set an absolute speed record of 1905,81 knots (3529,6 km/h), approximately Mach 3.3.

SR-71 Blackbird   Copyright: Lockheed Martin

So now work is on its way on an SR-72! At Mach 6.0 it promises to be another wonder of science and technology. But then... the bummer. The damn thing will be a pilotless aircraft!!! Hey guys what's the fun in that????

SR-72   Copyright: Lockheed Martin

It's always sad when an airplane type retires and even more so for the real iconic ones. I know, I have talked about iconic designs in the past but it's a hard search to beat the SR-71. Usually when airplane types are taken off line they are replaced by a new one which is better and more advanced. Not so with the SR-71. It didn't get replaced at all because there was actually nothing flying that could match it. Same for Concorde.

It's 10 years now since its last flight. Gone are the days of supersonic passenger transport. Nothing flying today even comes close to bridging large distances at twice the speed of sound. I saw Concorde for the first time in 1994 in Farnborough and will never forget it. I was standing along runway 24 as it landed and took off, its mighty Olympus engines roaring so hard my heart was resonating in my chest. Ok it may not have been the most fuel efficient airplane around and a lot of technological advances have been made since but if you were offered a transcontinental flight today and could choose between Concorde or any other airliner, which one would you choose? I thought so and rest my case.

Not a chaotic combination at all and entertaining birds

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!

We don't have a clue, the Ten Commandments and a birthday present for me (please!)

Now that the weeks of Nobel-prize winning announcements are over, we can do a little evaluation. The Peace-prize was given to an organisation that not many knew before, a Belgian (François Englert) shared the prize for physics together with Peter Higgs, but the prize that raised many eyebrows was the one for economy. First of all, this isn't a real Nobel prize anyway as it is awarded by the Swedish Central Bank and not by the Nobel Committee.Only physics, chemistry, medicine, literature and peace were named as official prizes in Nobel's testament. Since 1968 the Swedish Central Bank prize for economy in commemoration of Alfred Nobel was instituted. So actually it is the odd one out and shouldn't actually be part of the Nobel prize-list anyway. Economy is not art (like literature), does not serve mankind (like working for piece) and it definitely is not a science. This year the economy prize went to Eugene Fama, Lars Peter Hansen and Robert Shiller. Summarising why those three won it could be done like this:

• Fama proved that "the value of shares are not predictable (in the short term) and do a random walk"
• Shiller proved that  "the value of shares is predictable on the long term"
• Hansen is an econometrist who found some complicated way how to "estimate  population parameters by equating sample moments with unobservable population moments and from that estimate the quantities..." (yes I know... I read this as "if you don't know the defining parameters of a population, you estimate some of these parameters and then calculate the quantities". Not helpful either? Let's just say if you don't know what you are looking at, you estimate what it is and from that estimation you then calculate it. Or even simpler: a statistical method to measure Fama and Shillers theory against the real prices).

But next to that hocus pocus, I think the real message behind awarding those three with the prize of the Swedish Central Bank is: "about economy - well... we don't have a clue either". It's about time someone finally admits economy is not a science. I would have preferred if the Swedish Central Bank would have just bluntly stated this and abolished their prize. Alfred Nobel would rest in piece again if they did. After all, they got it spectacularly wrong in the past. In 1997 Merton-Scholes got awarded the prize because they found a formula to put a price on options. They started their own hedge fund in 1994 using their self invented formulas, received the Nobel prize in 1997 and went spectacularly bust in ... 1998 loosing 2,3 billion $ in 3 weeks for a total of 4,6 billion $ loss.


Former Nobel peace-prize winners met this week and Lech Walesa came up with an inspiring proposal. He said we should make a new version of the Ten Commandments that would be accepted by all cultures, nations and religions: "We need to agree on common values for all religions as soon as possible, a kind of secular Ten Commandments on which we will build the world of tomorrow." That's the kind of idea that stimulates my mind! At first sight one might say that Mr Walesa is a bit too ambitious, that it is impossible for everyone to agree on ten basic rules. On the other hand, we are all human and irrespective of our culture, religion or political system, we all experience the same emotions that make us tick. In his speech Mr Walesa stated that besides universal values, the international community needs to focus on the economy of tomorrow, which definitely should not be based on communism nor on capitalism as we have it today. He is definitely right about this!
I am not going to post the Ten Commandments Moses brought back from the mountain, let's do this exercise with an open mind. the floor is yours.

Picture AFP

My birthday is coming up next moth and for those of you who are still desperately looking for a nice birthday gift, please have a look at this website: http://www.rmauctions.com/lots/?SaleCode=NY13&feature=0&sort=lot The 1966 Jaguar E-Type or 1956 Aston Martin DB2/4 MkII would be highly appreciated. I'll show you my eternal gratitude by taking you for a spin!

Pictures courtesy of RM Auctions