Code red for the US?
Last Sunday, I was waiting at Schiphol airport for my flight to Los Angeles to head off on a one-week trip to the US. Via the west coast to New York City to be precise. At the time, Iceland had issued an orange aviation alert due to the possible eruption of the Bardarbunga volcano. Four years ago, the Eyjafjallajökull eruption caused major delays in global air traffic.
Thankfully, we were able to leave on time, arriving in LA 11 hours later. The purpose of this trip was to attend a training session with the ING team in NYC and to visit several clients to get feedback on the (geopolitical) situation in Europe. I’d also planned a number of appointments with Asian investors in NYC to discuss the financing of potential oil and gas projects in the US and Mexico.
In his newest blog Jeroen Plag (ING) talks about his recent business trip to the US. On the agenda were a training session with the ING team in NYC and meetings with several large clients to get their views on the geopolitical situation in Europe. The unrest in Russia and Ukraine was a hot topic of conversation, as was the, once again, faltering European economy.
Silver lining for Europe
The unrest in Russia and the Ukraine was a hot topic of conversation, as was the, once again, faltering European economy. Although nobody is panicking about a possible new recession, our conversations on Europe were far from optimistic. In contrast, the American market is picking up considerably and we are seeing significant growth in different sectors. According to consultancy firm PwC, shale gas developments will have created one million jobs between now and 2025 alone. A silver lining on the European agenda is the optimisation of working capital flows. Given that revenues in Europe are currently lagging behind, international companies are increasingly looking for any opportunities to optimise credit either from suppliers at the back end or to buyers at the front end of the business. Of course, this presents us with excellent opportunities to support our clients with working capital solutions.
You’ll be interested to know that I spent 29 hours (!) travelling on various planes, so there was plenty of time for me to finish Timothy Geithner’s Stress Test. In his book, he describes how different US institutions, from the Fed to the SEC, have fought the financial crisis since 2008. In Geithner’s view, mistakes were certainly made, for example during the bailouts for Lehman Brothers and Washington Mutual. What’s interesting though is how he compares the situation with Europe’s bailout of Greece, where, surprisingly enough, many of the same mistakes were made. A decisive factor in Europe was, of course, the different views and positions that the national governments held regarding Greece, whereas in the US, the various institutions were all working towards the same goal. I believe, however, that there is another difference between the US and Europe that is more important, namely that characteristic American perseverance – something which is bearing fruit as the economy is once again growing. This reminded me of the period after 9/11, when we’d just moved to NYC. Even though the grief was immense, the will to overcome this attack and rebuild the Twin Towers was much, much stronger.
Tenacity is one thing, but so, too, is your position on the social ladder (unfortunately). In a video, Richard Reeves of the Brookings Institute uses Lego figures and blocks to suitably illustrate how the opportunities for different population groups in the US to realise the American dream are very different. It is very clear that such things as background, education and ethnicity are crucial when trying to climb the social ladder. Just this week, racial tensions surfaced again following the shooting of Michael Brown in Ferguson. There was extensive media coverage of his funeral on every TV station, as well as all the investigations into the true circumstances of his death. Silent protests against racist police violence were held in several cities. The sting has clearly not been taken out of this national debate yet.
Another important topic that emerged from discussions with our clients are the developments around shale gas and the US becoming self-sufficient. Now that regulations in Mexico have been changed and foreign investors can get started, they are seeing good opportunities there too. We also discussed the impact of cheaper energy on the American car industry with a number of major customers from the business. Does cheaper energy boost the trend towards more emissions or not? Several technological developments in stop-and-start technology and aerodynamics have resulted in more efficient cars linked to reduced CO2 emissions. Although these are positive developments, energy-saving alternatives, such as full electric vehicles or LNG for trucks, are still too expensive. LNG trucks, for instance, are 20-30% more expensive than conventional diesel trucks. Green driving doesn’t pay off in the end either, as the average truck needs to be replaced after three to four years, before the price difference has been recouped.
And now I’m waiting at JFK for my flight back to Amsterdam. As far as the possible volcanic eruption on Iceland is concerned, it’s a case of no news is good news. Just straight on home then!
Follow Jeroen on Twitter: @JeroenPlag
Initially published by Dutch daily 'Het Financieele Dagblad', with permission re-published by ING.