Debt as a Learning Experience
Pfäffikon SZ, Switzerland – Investors are fussing about the devaluation of the Chinese yuan. It reminds me of the release of the peg between the Swiss franc and the euro earlier this year. This resulted in many investment opportunities. Opportunities which we are also spotting and acting on this time around. The past ten years I have covered many topics in my columns, one of them being the phenomenon of debt. Now that the discussions surrounding a possible hike in interest rates are flaring up, the debt factor automatically surfaces.
Debt Position
Recently I had a lunch in Zurich with an incredibly friendly Dutchmen who spoke freely about his current debt position. The ease with which he explained this, underlines my statement that debt is now labeled as being normal in the Netherlands. The house, the decor, the car, the degree, the many credit cards, everything is based on debt. No one seems alarmed. The so-called margin of safety for many households is zero point zero, whereby the liabilities go through the roof. This a not a healthy way for things to relate to one another and it is worrisome that by now entire generations are experiencing the current situation as if it were entirely normal. The government meanwhile helps you out fiscally so it can wring you later. This is how populations are subdued.
Businesses
On a business level the perished Imtech is an illustrative example of how accrued debt can bring a former stock market gem to its knees. But may I also remind you that the adulated Aalberts Industries fought a noteworthy fight with its banking syndicate. Jan Aalberts in my view is one of the Netherlands’ most zealous entrepreneurs, but up until today I have found the debt factor in the company to be too high. Analysts beg to differ, but they’re sitting on the sidelines and not at the center of the field.
Countries
On a country level it is also interesting to examine the debt issue. The recent developments in Greece in that regard, speak volumes. Some investors do not understand why, for many years we have been heavily and happily investing in, for example, Russia. Perhaps a closer look at Russia’s debt burden would be enlightening. Moreover the country bursts with reserves in natural resources and there is a lot of value to be found at a reasonable price. There are more positive points that can be noted, but those have to do with other focal points such as the demographic composition, but that as an aside.
Learning Experience
The debt factor has already resulted in a learning experience for many civilians in the Netherlands. However, many put their heads in the sand because they want to cling on to a propped up level of prosperity. They do not realise that this system causes financial wringing and fiduciary possession. A rise in interest rates will, over time, cause some remarkable surprises. Debt is one of the investment criteria I take into account when I look at publicly traded companies and it causes me to disregard many. Debt, for many, will once again result in a learning experience.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the other above mentioned shares and has no intention of doing so in the next 72 hours.
