Thursday, 28 February 2008
Here is the statement from the state statistic agency :
"Consumer confidence in the economy weakened further in February.
The consumer confidence indicator stood at 10.1 in February, having been 13.1 in January and 16.8 twelve months ago.
Confidence in the economy was also weaker than the long-term average in February.
The consumer confidence indicator last received a lower value than this in April 2006, when it stood at 9.4. "
I would like to highlight this particular sentence from their statement:
"Consumers predicted in February that consumer prices would go up by 3.7 per cent over the next 12 months. The long-term predicted average inflation rate is 2.1 per cent."
You wonder if they interviewed consumers or economist ... I think the consumer I have been talking to are more talking about 10% increase in consumer prices i.e Food, rent, oil... this 3.7% remind me the Ford (US president) campaign to fight inflation with his slogan W.I.N : 'Whip Inflation Now' that terribly failed...
What about a boom doom gloom technical analysis? :
In fact we have 3 scenarios:
1- The consumer confidence recovers from that point. We are just witnessing a mild slowdown. The US doesn't fall into a recession and Asia fully decouple from the rest of the world. Europe continue its record breaking growth. Everything is great and birds are still singing...
2- The consumer confidence fall to level seen in 2001. The U.S fall into a recession in the first half of 2008 and slowly recover through 2008 and beginning of 2009. We are witnessing a V shape recovery. Europe is growing albeit at a slower pace. Asia with China and India are still seeing good growth. Everything is fine and birds are still around...
3- The consumer confidence is on free fall, going much lower than the 2001 mild recession. Housing doesn't support any more economic growth instead become a drag. U.S. can't avert a recession and the Fed is struggling to stabilize the economy. It will take 3 years to start seeing good or near potential growth, it's a L shape recovery. Asia recouple with the economical issues seen in the US and Europe. Everything need to get worse before it gets better, bird flu is hitting again...
Tuesday, 26 February 2008
"The existing financial problems are deeper than we've had for a while, so I wouldn't be surprised if this recession is deeper than the last two shallow recessions,''
"The Radiation Nuclear Safety Authority says that 50,000 homes in Finland need to be checked for radon gas. Reducing radon gas in the home can usually be done through inexpensive and simple home improvements."
"The Radiation Nuclear Safety Authority is trying to get local governments to step up radon gas monitoring. The Authority says that radon causes 300 cases of lung cancer in Finland each year."
This issue has been known for very long... Looks like we could have the same law suits similar as for Abestos. i.e anyone including municipalities that have sold land or housing to private people without making the necessary health check should be sued... Just re-read the headlines..300 cases of lung cancer per year linked to the radon gas... This is unaceptable.
Friday, 22 February 2008
5- It's important to notice that rent fluctuate almost synchronously with interest rates : When there are high so is rent, when there are low so is rent. Housing price tend to lag by a few years as the amount involved are on different scale , same could be said to the psychology and demography components.
Further analysis or charts to do would be :
- rents vs interest rates
- rents vs M3 (debt growth taken by households)
- rents vs housing price
- rents vs income
- rents vs baby boomers (The demographic "tsunami" wave created between 1945-1950), wave that has created shock throughout the economical timescale (that's the one who disrupted the 1990 boom) and the one that are causing issues with mass retirements...
Feel free to provide some charts, links or analysis....
Wednesday, 20 February 2008
Finland has shown a single digit growth in the past few years, believe it or not. Those figures are calculated on prices for the whole country thus distorting the reality. As people might not know, the economical situation of the Lapland area, and east side of Finland is not in a great shape. The reality is that in the greater Helsinki area and in big cities , prices have grown in a double digit level in the same way as UK, Spain or France.
But the housing market in Finland is different to France, UK or Ireland but in fact tend to be more similar to Spain. Why? because housing loans granted by banks in Finland has been in 98% of the case settle on variable rates based on a 12 month Euribor...
Variable rate mortgage is a great tool for bankers to bring affordability down when interest rates are unusually low. This has happened during the 2002-2005 period. Now most household have seen their mortgage payment almost double.
That's clear that housing affordability has plummeted from year 2000 as housing price have kept on rising and interest rates came back to their more natural level.
According to the ECB the "Crude" affordability is at a decade low. The "crude" index is the ratio of households’ nominal disposable income to the residential property price index.
So the "interest rate adjusted" affordability has been mainly pushed higher in 2002-2005 due to low interest rates but since then plummeted to reach as well a decade low.
So affordability is at a decade low, can this situation persists? This blogs is all about that to denounce this situation and warn potential buyers to be cautious as we are on thin ice here. The housing market is vulnerable to any unforeseen shock albeit political, or economical ones.
Then there is this irrational supply of housing flooding everyday the net. Sellers taking buyer for dumb, and first time buyers behaving in an irrational way (by buying!) due to stress or social pressure. Here are some examples:
Most dramatic some landlord are proposing low or free rent on exchange of services (read that as sex services.)
Thursday, 14 February 2008
Consumer prices were pushed up most in the year by increases in the prices of food and liquid fuels. The cost of food went up mainly due to risen prices of milk and cereal products, and meat.
Risen interest rates, increases in the prices of restaurant and café services, and retail prices of alcoholic beverages, as well as higher prices of owner-occupied flats and real estate also had an impact on inflation.
By contrast, the rise in consumer prices was curbed most in January by fallen prices of passenger cars, entertainment electronics and computers.
So for the ones who got a 3% or less pay rise, it means that you just got poor by the time you are reading this article. But no worry, according to the ECB it's a "hump", so it should be temporary. Or is it going to be? I guess they thought that oil price would fall in the beginning of the year, after all, everybody planned that the U.S. slowdown will solve this situation ... but it's not happening (the U.S. is slowingdown but not the oil price, or wheat, gold etc... )
So what if the U.S. doesn't go into a recession and the emerging market start to re-accelerate..then a price of 150$ and gold over 1000 $ should not be a surprise to anybody.
This is not the ECB, BOE or the FED that is failing but the emerging central bankers that do not control their economical boom from going into an overheating situation that has implication for the entire world. But let's not put all the fault on the emerging market, there are as well those investors and banks that have pushed people consuming beyond their mean thus stimulating even greater the export from those countries.
Coming back to the Finnish inflation, It's just scary. Almost 4%, it would mean that if the ECB cut interest rates then indeed we will go back to the 90's type of inflation sooner than people will have forecasted.
At the end of the day, the ECB is failing its mandate for the Finnish citizens and that is unacceptable. The weak and the poor will have to pay the price, and that is not fair in this world where the gap between the rich and the poor keep increasing at an alarming rate.
...And the words are not enough to explain what is currently happening in the Forest industry.
After Stora Enso, partly owned state company , announced mass lay off and the closure of the Kemijarvi Factory, few weeks ago.
"For his part, Matti Vanhanen (centre), the prime minister, said the government had been in talks with Stora Enso during its statutory cooperation procedure talks in order to find an alternative to closing the mills."
Now it's the turn of UPM-Kymmene to lay off 650 people across Finnish sawmills.
The kemijarvi economical balance has been "demolished" by a hand wave of the government and investors. Unfortunately, this region will bear the scare for generations to come ...
Sweden's central bankers know how to shock the market at a time of financial turmoil.
On Wednesday, they raised the key interest rate by 25 basis points, to 4.25%, defying the widely-held belief that rates would be kept on hold at 4%.
" Inflation has risen rapidly in Sweden in 2007, and will remain high over the coming year," said the Swedish central bank, known as the Riksbank. "The inflation rate has been pushed up by higher energy and food prices, but there are also high cost pressures in the background."
Looks like our neighbor country is serious about fighting inflation. It's an easier task for the Swedish central bankers than the ECB . The ECB has to deal with various economies. For example it will have to support growth for Italy, France and Germany while letting other country falling into an overheating mode like Spain and Finland. Indeed those last countries should have had higher interest rates at key times in order to cool credit and housing.
So the ECB is between the rock and the hard place, a situation that the Swedish central bank is not.
The morality of the story is that the ECB is having a hammer to deal with any situation while the Swedish bankers possess a Swiss knife ...
Wednesday, 13 February 2008
"When Mary Kamanu paid $409,000 (274 000 euro) for a house in Folsom, California, she never imagined that three years later it would be worth about 20 percent less and she would have to pay the bank more than $80,000 just to sell the place."
"`I'm completely upside-down on my mortgage, like a lot of people,' said Kamanu, who wants to move 12 miles away to live with her fiancé in a suburb of Sacramento. `I know I'm going to have to come up with a big chunk of change.' "
Kamanu said she doesn't want to put her life on hold until the housing market improves. She's planning a sunset wedding later this year on the beach at Folsom Lake, about half a mile from her property, even as she waits for a buyer.
"She said she's willing to sell the three-bedroom, two-bath, 1,272-square (120 m2) foot house fully furnished and include two wide- screen televisions to entice a buyer. The home has a fireplace and a two-car garage."
"``I'm hearing it might be a year or two before the housing market comes back, and I can't wait that long,'' said Kamanu, 38. ``I'm relying on luck, hoping that someone will come along and fall in love with the house, like I did.' "
So this house on sale for 220.000 euro fully furnished and 120 m2... Who is saying that there is a housing bubble in the U.S.?
NCC Q4 profits fall 17 pct on weakening demand
Monday, 11 February 2008
"During the course of 2007 some 194,000 bad debt matters were referred to district courts - that's 40,000 or 20 percent more than the previous year. "
"A report in the Savon Sanomat newspaper quotes the Justice Ministry as saying that the growth in bad debts is due in large part to borrowers defaulting on instant loans."
"Heikki Liljeroos, a Government Counsellor with the Justice Ministry says the dramatic growth in unpaid debts comes as little surprise to officials."
We all know that debt has been accumulated in an unreasonnable way for many households, allowing in the way to inflate various asset classes. Can that continue? NO. I don't think so.
Imagine, those people are defaulting at a time when the economy is booming (or has been) and at a time when the job rate is an historical low. So what would happen if the economy reverse gear and the job rate inch up?
After all the economy won't boom if you stop giving cheap credit, that's how the world economy has been engineered in the past 10 years...
Friday, 8 February 2008
After the ECB press conference, it appears that not only Trichet , The ECB president, has soften its tone toward risk to inflation but seem to have given signals for probable rate cuts (probably April).
At the same time, the U.S. is or will be about to enter into a recession and with it, UK is following suit.
Europe starts to see some scary signs of a slowdowns. Usually it always starts in the periphery of Europe : Spain and Italy for the South and Sweden, Denmark, Norway and Finland for the Nordic area.
The Euribor will fall and fall throughout the year and most probably until mid next year. This should match falls in housing prices as Europe might experience a recession which we don't known yet its nature whether is a mild or severe one.
So the target could be 3% by mid next year, then we will enter in a completely different world where inflation is a constant threat as some commodities become scarce : oil, food as the global consumer pool is increasing at a rate ever seen. Rate will have to be higher much higher than the average we have witnessed in the past 20 years...
Thursday, 7 February 2008
Today the ECB is expected to keep the interest steady at 4% while signaling that risk to growth is increasing.
Banks, businesses have been expressing their wish to have the ECB to lower the interest rates since too high , indeed 4% is restrictive to their view.
Such a move will exacerbate any asset bubble and could trigger bad investments on households side thus promoting "moral hazard".
Banks have shown a degree of incompetence in the past 5 years especially U.S. banks that now are beeing rescued by the Fed, the TAX payers and Sovereign Funds.
The question will be if the ECB acknowledge that the risk of a recession is greater than inflation. If so signaling to the market a rate reduction by year end. Indeed we could see a spike in prices as in 1989 since real estate and builders have set current prices at bubble level. The consequences could be disastrous for many families that have no knowledge of current economic situation and who are trusting real estate agents and medias.
If rate goes down then we might be heading to a recession by year end. Because in an environment where oil price is around 90 dollars, food prices, rent, service is all up, then deciding to slash interest rates is simply because the threat to the economy is serious...
Update: According to the ECB press conference, it seems that there are evidence that risk to growth have grown. It seems that they somehow open the door for interest rates cuts. Some market participant are predicting that we could see a rate cut as early as April with possible two further rate cut by year end bringing interest rates to 3.25%. That is the rate the 12 month Euribor will soon head too...
So the European interest rates and its economical growth won't support any more the Euro, and it's clearly shown in the intraday move :
Tuesday, 5 February 2008
The Problem what we have is that Asia regions is on the brink of overheating: China, Australia, India , and at the same time the U.S. and Europe is slowing down.
Decoupling or Not , that's the 672 856.951 Euros (1 million Dollar) question.
If Asian central bankers don't tighten interest rates or commit a policy mistake then the consequences will be harsh... they will then engineer bubble economies that will have a deep impact on the rest of the world...
Monday, 4 February 2008
Banks have lowered their credit standard to a level not seen since the late 80's.
So what we have been witnessing is a double digit inflation in housing price and at the same time the wage were unable to keep the same pace. I'm not even talking about rising import prices meaning that the last two decade of cheap import has come to an end, eroding further the house purchasing power.
What has been the solution to solve this economical "equation" in the past ? High Wage growth or second round effect as refered by the ECB. How did the monetary policy handle such event? interest rate increase unless... a recession comes then asset price and wage growth collapse.
"Everywhere you turn these days the buzz is about soaring real estate prices. If you are lucky enough to be a homeowner in one of the hot markets like South Florida or New York City, owning real estate is almost as good as winning the lottery."
"When you strip away all of the white noise around a housing bubble, what you find is a robust market for housing that is undergoing several profound changes all of which manifest themselves in higher home price indexes, none of which adds up to a housing price bubble."