Monday, 31 March 2008

Second-round Effects?

"ECB President Jean-Claude Trichet said March 26 it's ``imperative'' to avoid ``second-round effects,'' a term that describes attempts to offset higher costs for items such as food and energy through bigger pay or price increases."

The issue is mainly coming from the biggest economy in Europe, namely Germany.

Currently the ver.di Union (not a fake one) is negotiating pay increase in the magnitude of 8% for more than 1.3 millions public sector workers.

Regarding price increase, there seem to be a move in Finland by Valio to increase the price of Milk. It is estimated that it could reach 1 euro per liter by year end. According to Valio it will help the producers to "offset higher cost by price increase". Well read that, as well, as shifting state farming subsidies to an indirect tax on consumers for profiting overly subsidisized farmers.

Valio Ltd is owned by Finnish milk producers and processes and markets primarily milk based products.

"The ECB "will act'' to contain "alarming'' price pressures if its inflation goal is threatened, council member Axel Weber, who's also Bundesbank president, said yesterday, signaling the bank is ready to raise interest rates even as a global credit squeeze threatens the economy. "

So most probably Ver.di , the second biggest Union in Germany, will come to some kind of compromise in order to calm the ECB from aggressively increasing interest rates in order to avoid the propagation of this second round effect to other area in germany or Europe

For Finland, "bad luck", consumers are betwen the rock and the hard place. On one hand, Finland clearly suffer from lack of competition and are notorious for price fixing (usually agreed in Sauna, at least you can't get spied?) and in the other hand, wage pressures are on the downside due to glabalization or delocalization, thus clearly squeezing the consumer purchasing power.

I would not be surprised to see in the year or so, more housing and car being put back on the market as households discover that banks lend them money that they can bearly afford and is making too much stress on their finance and quality of life .

If the economy start to slow more sharply than anticipated then the offer will exceed the demand, at a time when "smart" investors are fleeing the real estate market, causing a sharp retreat of the housing price. What we will witness will just be what has happened in the past : housing market is cycle by nature.

Friday, 28 March 2008

Joke of 2008 :"Smile"

Sorry but couldn't resist about talking of the Kanerva "Water Gate"...nothing to do with housing but maybe more with househol(ds) ...

"Foreign Minister Ilkka Kanerva announced on Friday that he does not intend to resign and he rejected rumours of a reshuffle of Conservative cabinet ministers."

"Earlier in the day he declined to comment on the latest development in a scandal involving hundreds of cell phone text messages he sent to an exotic dancer."

"On Thursday, the Helsinki District Court rejected a motion by Johanna Tukiainen to stop the planned publication of a series of mobile telephone text messages that she received from Kanerva."

I don't get it..Kanerva sent some sms to Johanna (Let's call her Joe), Joe gave those messages to the "paper" "hymy" that made a decision to publish it. But then Joe decide that she won't (maybe after an another sms from Kanerva?)...So why on earth the Helsinki District Court rejected that, after all Joe is the sole owner of the smssss (200 of them)???

Right, I'm not a particular fan of Kanerva, but I don't like when one man is dragged that way, "humiliation", this is what the Helsinki District court decide to stamp and honour...that's non sense.

You will say as well what would have been the reaction if the court would have blocked the decision to publish those sms: Would it emerge as some corruption tentative, politicians pressure on law maker?? now you wonder if the decision was about the sms or about the fact it was a showcase of indepedance of the justice?

At the end, this should not be allowed to my opinion. There is a freedom of press but I think the limit are being tested here...

"Alarming" Inflation, Interest Rates Going Up?

European Central Bank council member Axel Weber said the bank will raise interest rates if needed to contain ``alarming'' price pressures, even as a global credit squeeze threatens to damp economic growth.

Inflation in the euro region accelerated to 3.3 percent in February, the fastest pace in 14 years. The ECB has refrained from following the U.S. Federal Reserve in lowering borrowing costs to bolster economic growth.

The ECB aims to keep inflation just below 2 percent.

If inflation goes higher then the ECB has no choice then to deliver a rate rise in order to get the price stability they promised to the 300 millions citizen but in particular to those pensioners, low income, middle income and student (the new poor when inflation is triggered).

So far it has failed its mandate for the past year and forecasted it will fail for the rest of the year but promised that 2009 or 2010, inflation will go below the 2% threshold.

In the past, the seventies, inflation was raging while interest rate was low, artificially low thus benefiting the house owner or debt holder. Today that premise in untrue since the ECB will make sure that current rate are high enough to stop inflation.

Look at Iceland, this week they have raised interest rates to 15% amid a devastating inflation and a weakening currency. The Icelanding bank reacted too little and too late.

Now don't be fool. Europe will be affected by the global credit crunch, it's just a matter of time. UK and Spain most probably will be hit first in the next few months and the rest will follow suit.

In that sense, they are right to predict that inflation will go down next year as Europe might see a recession in 2009. How deep it is going to be?, it all depends...

interest rates will come down maybe after the summer or later in the year as the global economy ex-U.S. start to contract... U.S. has already entered a recession and will probably know one that will last longer than the last two (1991, 2001).

After all credit will not go any more for funding real estate but instead redirected to business for improving productivity in time to prepare the mass retirements that will start to hit Europe in 2010-2015...

Thursday, 27 March 2008

Sampo or Is There Still a Finnish Bank Around?

"Problems that emerged with the new online banking system of Sampo Bank on Tuesday were not limited to breaks in service and incorrect or missing information on money transfers and bank balances"

"The glitches, that continued on Wednesday, were prompted by changes enacted at Sampo aimed at integrating its operations with the Danish Danske Bank, which bought Sampo last year. "

"One customer in the Uusimaa (Helsinki) region noticed on Wednesday that his monthly housing loan payment had been deducted from his account twice. "

Humm...looks like Danske bank is in need of fresh cash...since they are trying to get twice the money from that poor customer...well he will get it back after few days...hopefully with interest...since this time it's the customer that lent money to the bank...

Nethertheless , the question you migh ask is : do we still have major Finnish bank in Finland? Nordea is Swedish, Sampo is now the second question would be : Do we then need Financial Watchdog and a Central banker like Erkki Liikanen? Well hard to say since they have no control of foreign banks... Welcome to the financial "wild wild west", where Erkki is driving the main car without wheel...or it's as well like Tarja Halonen being president but without the power or like the U.S. financial system without corrupt Paulson ...

Wednesday, 26 March 2008

"It's the 'Deflation', stupid"

Sometime it's interesting to revisit certain speech or article as they make more sense in today context. The one below is from Ben Bernanke, Chairman of the Federal Reserve made in 2002.

It's about Deflation and its consequences. I have put an unusually big extract from the speech as it is really worth to read.

Although I would like to highlight few points and correlate them with todays actions and situation.

"even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation"

"massive financial problems, including defaults, bankruptcies, and bank failures, were endemic in America's worst encounter with deflation, in the years 1930-33--a period in which (as I mentioned) the U.S. price level fell about 10 percent per year"

Some action taken:

->Now interest rate in the US have been falling very sharply, they went from 5% to 2.25% within 6 months.

->At the same time, deflation is bitting hard : house price are on free fall. According to Case-Shiller Survey , Home price index in the U.S. fell by 10,7% in January..a Record since the last depression in 1930.

Let remind us that chairman Ben Bernanke spent much of his career studying the Great Depression and realized that it was the failure to respond to the collapse of financial institutions in the 1930s - and the panicking of banks - that turned a market crash into a general economic disaster. You could read his book if you want to know more see link .

So the last episode was about Bear Stern... or rescuing a major financial institution, what would have happened if they didn't? have a look with the following analysis :

"We may never know for sure whether the Federal Reserve's rescue of Bear Stearns
averted a seizure of the $516 trillion derivatives system, the ultimate
Chernobyl for global finance.

Bear Stearns had total positions of $13.4 trillion. This is greater than the US national income, or equal to a quarter of world GDP - at least in "notional" terms "

"If the Fed had not stepped in, we would have had pandemonium," said James Melcher, president of the New York hedge fund Balestra Capital.

We are at an inflection point where the global economy could go both directions, for the best or the worse... Let's hope that the guy at the wheel knows what he is doing ...

Another important poin is if we are heading toward deflation, on a global scale then debt is a burden and cashholder are kings.

No wonder you see some institutions or investors buying 2 year US Bond yielding 1.75%...people are parking their money in the safest possible place: government bond... at least for a period of 2 years...

Looks like more and more are thinking that chairman Ben Bernanke will not succeed in rescuing the financial system. Europe will come to the rescue most probably at the end of the year after the U.K. Spain housing market join the deflationnary party...

Here is the article regarding the ravaging effect of deflation, by chairman Ben Bernanke :

"Deflation is defined as a general decline in prices, with emphasis on the word "general."

"... some have expressed concern that we may soon face a new problem--the danger of deflation, or falling prices."

"So, is deflation a threat to the economic health of the United States? Not to leave you in suspense, I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons."

"The first is the resilience and structural stability of the U.S. economy itself. Over the years, the U.S. economy has shown a remarkable ability to absorb shocks of all kinds, to recover, and to continue to grow... . A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year, our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape."

"The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand--a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers..."

"Deflation great enough to bring the nominal interest rate close to zero poses special problems for the economy and for policy."

"To take what might seem like an extreme example (though in fact it occurred in the United States in the early 1930s), suppose that deflation is proceeding at a clip of 10 percent per year. Then someone who borrows for a year at a nominal interest rate of zero actually faces a 10 percent real cost of funds, as the loan must be repaid in dollars whose purchasing power is 10 percent greater than that of the dollars borrowed originally. In a period of sufficiently severe deflation, the real cost of borrowing becomes prohibitive. Capital investment, purchases of new homes, and other types of spending decline accordingly, worsening the economic downturn. "

"Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation. This burden arises because, even if debtors are able to refinance their existing obligations at low nominal interest rates, with prices falling they must still repay the principal in dollars of increasing (perhaps rapidly increasing) real value."

"Closer to home, massive financial problems, including defaults, bankruptcies, and bank failures, were endemic in America's worst encounter with deflation, in the years 1930-33--a period in which (as I mentioned) the U.S. price level fell about 10 percent per year."

Tuesday, 25 March 2008

"Mind The Gap" or Mind the Crash?

1- A friend story

In the past few days I didn't have time to update the blog as I went to London for a business trip.

While I was there, I met an old friend that is currently working for an Investment Bank. As Usual after a pint of good lager, we started to chat about the housing market in London among other interesting subjects...

I was surprised and shocked by some revelations : He told me that he bought a flat back in 2005 and asked a real estate agent to estimate the value of his flat beginning of 2007. They told him that He could sell it 20% this time my friend went on holiday and was too busy at work to consider selling it ... Although, three months later He asked again an evaluation, this time they told him that He could sell it at a price that is 50% higher...He couldn't believe that and thought maybe it's good time to sell as things were getting crazy..He finally sold it in june 2007 at 55% higher than the original price...

It's important to note that He did sell it before the credit crunch started to byte in the U.S. , U.K. and world wide. Second, He is a smart guy, you see the seller is not the one that commit a mistake but instead the buyer that is purchasing an inflated asset...

He thinks that price will go down at least 20% in U.K. by christmas. He shared the same view as other non related friend I met during my London visit...

2- Real estate investment Craze

You just have to walk through any london street to see that heavy investment has been redirected toward real estate. Old buiding, old commerce are being destroyed and appartment block being created. With some British humour, it looks like people are able to create gold from lead other there...

Advertisement regarding real estate are everywhere. You could find them in the london tube. For example, one is pushing people to buy room for hotels! "why not making money while other sleep" that's the moto and say as well that they can use the room for free whenever... you could start to see that speculation is now moving toward hotels...of course, you can fins as well lots of advertisements about partly own flat (30%) where you put a small deposit (30 to 60.000 pound, little but maybe not for everybody)...

3-Easy Mortgage drying up

The time of easy money is vanishing very fast in London. You can't hardly find a mortgage broker willing to give 100% or 130% mortgage instead they are asking first time buyer 25% deposit...


At the end, it looks like the supply and demand is reversing as the number of properties on the market is growing faster than the number of people looking for it.

A crash is likely to happen in the U.K if both interest rate and unemployment rise sharply (icome shock) because of the continous credit crunch and a possibility that U.S. economy will fall into a (deep) recession.

U.K. is the canary in the coal mine for Europe as it was back in the late 80's. If U.K. has a severe recession that Europe will be affected... again there's the domino effect: when the first wave is being hit, the next will fall too but with a time lag...and so will interest rates in Europe...

It's worth to note that Mervin King, the governor of the Bank Of England, warned that the economy will slow down (sharply?) end of the year and that property price will eventually fall in the same period. At the same time, lots of banks and investment banks will be hit by the credit crunch (let's call it the end of the credit cycle that started in the mid 90's or even in the 80's), so thousands of jobs will be lost in london...

Monday, 17 March 2008

Financial Crisis Spiraling Out of Control

The Federal reserve, in an emergency move, again comes at the rescue of the banks by lowering their discount rate to 3.25% while at the same time the majority of customer will still have very elevated rate mortgage rate at around 6%...the idea being that bank rebuild their balance sheet. Indeed the one who lent irrationally are now being rescued...

At the same time, in a coordinated action with JP Morgan, they came to the rescue or bail out of Bear Stern, an American security firm.

All come at a cost :

-plummeting dollar

-financial system deteriorating with a snowball effect

-moral hazard

Moral hazard is the fact to reward bad investment behavior, the same way the Bank of England did with Northern Rock, coming to the rescue to the bank with tax payer money.

One could argue that sometime in order to stabilize the financial system, one has to take any measure, even if anti capitalist... a kind of anti "invisible hand".

So it start to get really bad in the U.S. but since the whole world is using instruments in this global financial platform, in one way or another everybody will suffer. At which degree? nobody knows , we could quite easily get the world slump experienced in the early 90's but it's all in the hand of Mr Ben "academic" Bernanke, U.S. president of the federal reserve and to an extend China, India, Brazil and Russia ..and very little to the ECB that can only try to reduce the collateral damages...

Time is ticking...and we will get the result in 2009-2010. Is it time to invest in real estate, where price are disconnected with fundamentals...yes if you want to play Russian Roulette otherwise you better have a "wait and see" attitude and witness the storm unfold.

The Majority on Diet and The Minority Getting Fattier

"Finland's Parliament said Friday that its remuneration committee had decided that MPs' basic monthly pay would rise by about six per cent to 5,860 euros on 1 May. "

"The monthly salary of lawmakers with more than a dozen years service behind them is to rise to 6,300 euros from the current 5,950 euros, while the speaker is to receive 10,800 euros, an increase of 600 euros a month. "

Yeaaa , Jean-Claude Trichet from the ECB is asking for moderate wage growth...for the rest.

Let's take an example, the Finnish nurse after a hard fight got something around 50 Euro/month increase for an already low salary.

I believe the job of some nurses is more vital and harder than some parliementaries/politicians (where some spend their time spamming call-girls)...

Life is not fair and is getting unfair... My opinion Union should be dissolved for incompetence, inaction and for not representing the right of the majority of workers... it's neither a procapitalist or socialist call , it's just a fact...
Let's have a minute of silence regarding this inequality growing...or maybe thousands of minutes of silence, we could call that strike..oops but the lawmaker will make this strike illegal as they did for the Air Finland pilots :
"The employers' association representing Air Finland said Friday that the carrier's pilots had cancelled strikes that had been scheduled for 19 and 26 March."
"The announcement came after the Labour Court found a 24-hour strike earlier this week illegal."

Friday, 14 March 2008

Official Corruption, and it's Only The Beginning ...

"Mr X, a former head of Helsinki Water, sat in the dock of Helsinki district court on Thursday and was charged with accepting bribes and abusing a position of authority."

"The indictment says Mr X accepted free labour and building supplies for his house and a summer residence from four companies three years ago."

"The prosecutor said Mr X also used Helsinki Water workers on his building sites and charged building supplies to his employer."

Corruption is creeping, greed as well. Usually it's not the middle class that will try to cheat the system even if their purchasing and wealth is low, but instead it's the high ranking officials or rich (through bribes, position abuse and tax tricks or evasion)...

Now if the situation is so bad today with regard to housing price and rent, it's simply because it profits official in municipalities, some insurance companies that heavily invested during the housing slump of the early 90's and the authorities that are simply not directly concerned by the problem... Yes you will hear the government complaining about rising cost (metro, library,rail) but at the end it's the tax payer who will be paying the bill..

Yesterday I posted an article showing that some authorities have started some investigation on trying to explain why some cost are very elevated...let's see how far they can go into dismantling this corruptive system that only profit few and threaten to destabilize the Finnish society...

- Money Laundering

"Finland is taking steps to more effectively deal with terrorism and money laundering used to finance terrorist activities."

"The government is to present Parliament with new legislation to prevent money laundering that can be more widely applied than present law."

Great news... I mean we all know that's nothing to do with terrorism but instead a start of a crackdown on tax evasion and corruption. (that the way politics work by the way you play with images, at least the American citizens were tricked by the Republican that way..but they learn the lesson the hard way and will show it during November election)

Indeed lots of dirty money need to be recycle in the system and usually one way is to "wash it" is investment in real estate, art etc.. We have seen that in London and Paris...

See eira flats (see link) ...


Well for some it could just be a representation of PI :

"pi represents the number you get when you divide the distance around a circle (its circumference) by the distance across (the diameter). "

For Household it's more about ...inflation, "3 point something..."

- in January we had 3.8%
- in February we are at 3.7%

What next? 3.9%, 3.1% ?? it's all depending on the circle...or let's call it bubble...housing bubble in particular, when it implodes we will see the true value of inflation...

Do you wan to try being in wheel of the central bank and monitor interest rates against inflation, money growth , unemployment and production then why not trying this link : Central Bank Simulation(click on the Monetary policy game)

Thursday, 13 March 2008

Oil = 110$ , Gold = 1000$ , Euro = 1.6$ and Purchasing Power ...

Everything is rising and rising fast except your purchasing power that is being eroded due to a ramping inflation...

Now the questions are :

1- Will competition between companies push price down? depends... if there is a cartel or price fixing then indeed not...the poor will get poor and the rich behind the schemes get richer, greedy and loose most probably the key to paradise...but the rich don't care as long as they manage to make the gap between them and the majority of citizen as big as possible...in1789 in France the "Aristocrat" managed to get it as big as possible...then it ended up in a revolution...don't forget the average citizen is not as dumb as you might think...In todays world, the "aristocrat" are politicians and CEO, not all are corrupt by the definition but are living well beyond the average citizen that they represent...they should remember that...

2- Will a slowing U.S. , Europe, U.K. push commodities down? depends..if the speculation continue and if monetary policy mistakes are made in emerging market then indeed you will have to wait a bit longer until the bubble deflate or implode...

3-Inflation will concern oil and food prices but not Salaries as it was the case in the late 80's or 90's ... then if salaries rise a little it depends on how fast the inflation grows...higher it gets and lower your purchasing power become... The ECB will act ..but unfortunately with Germany and France in mind the biggest economies in Europe , the other one will most probably adjust abruptly..

and finally :

4- If you have gold teeth it's about time to sell...if you have a car of type SUV like a "hummer", the car will represent few days work for fueling it, so get rid of it... at some point it might be cheaper to buy anything from American online store, especially if the Euro continue to be on free fall (oops forgot that the government is in the middle through the custom tax or "protectionist tax" of 20%...let's wait for the euro to strengthen another 20% 1.90 euro) ... Hey Wall mart when are you gonna implant in Finland and push prices lower, we need some help on that...

Investigating High Cost of Living in Finland

"The Finnish Competition Authority has undertaken an investigation into the high cost of living in Finland. Media conglomerate Alma Media says the study focuses particularly on housing in the capital city region."

"The Authority is looking into the lack of competitive pricing when it comes to construction, materials, and use of land. However, Juhani Jokinen, the director of the Competition Authority, says that so far there is no evidence of any kind of cartel in place."

You really wonder why it took so long before the Finnish Competition Authority started to act.

Everybody knows that competition is completely distorted in all area from the food retailer (S and K market and municipalities slowing Lidl and others to develop) to the construction company, real estate agent and rental company that are clearly agreeing prices thus falling into cartel type sheme.

You know that this investigation will bring nothing and will not dismantle a powerfull system that benefit a few on the top so it's just a smoke screen that makes people (poor or middle classes) feel happy that someone is doing something about their plummeting purchasing power...

At least they start to recognize that there is a problem...let's see what will be the cure...

Tuesday, 11 March 2008

European Interest Rates NOT going down

"European Central Bank council member Axel Weber said he doesn't see any leeway to lower borrowing costs after oil prices jumped to a record."

"The surge in oil prices is a major concern and I don't think it leaves us any room for a loosening of our monetary policy,"" Weber, who is also president of Germany's Bundesbank, said at a press conference in Frankfurt today.

The ECB last week kept its key rate at 4 percent.

My comment:

So after all it looks like the ECB is serious about inflation. Some people think that we are going to head in a period similar to the 70's where inflation is raging but interest rates stays low thus "inflation is paying your housing loan": that's a total non-sense.
let me expand that :

1- Monetary policy maker are independent. I'm talking about Developed country i.e Europe, Australia, Canada, and U.S for example. Some other Central banks, i.e from emerging market will make and are making policy mistakes as their analysis is being pressurized by political and economical forces i.e China where inflation is raging at 9% and deposit rate is at 4% ....

2- They will allow interest rates to go higher than their limit ONLY if seen as being a short term phenomenon OTHERWISE they will act and increase interest rates especially if they see wage growth threatening price stability.

3- In the 70's monetary policy failed because they didn't understood it in full extent and were not fully independent. Now after years of study, confidence in central bankers in developed countries has been very strong and this is reflected in the long term borrowing cost rate (10 years german Bund rate for example)

4- If inflation grow rapidly through wage growth then the ECB will act as central banks did in the late 80's and 90's by aggressively increasing interest rates with the condition that the economy is re accelerating. As we know there is no wage growth if the economy enters into a recession thus allowing central banks to ease as shown in the U.S or U.K.

5- Now it seems that we are in the perfect storm: Food and Oil shock. If thess shocks don't resolve by themselves by for example slowing economies around the world, then it will certainly trigger second round effects (salary wage growth). The ECB will act otherwise as salary rises, company become uncompetitive and delocalization re accelerate...the Euro will be soaring thus pushing away from Europe any manufacturing company... the nightmare that the ECB want to avoid.

Are Our leaders Gone Mad? Spitzer , Kanerva , Sarkozy ...

1- Eliot Spitzer

YESTERDAY: Eliot Spitzer, the "incorruptible", As U.S. attorney general, Spitzer took cases relating to corporate white collar crime, securities fraud, internet fraud and environmental protection. He most notably pursued cases against companies involved in computer chip price fixing, investment bank stock price inflation, the 2003 mutual fund scandal.

New York Governor Eliot Spitzer told his aides that he was involved in a prostitution ring, the New York Times reported. See link

Reports say he will announce his resignation at 1530 GMT (12 March 2008) in New York.

2-Ilkka Kanerva (Nat. Coalition Party)

Kanerva is a member of the Finnish National Coalition Party. He is a master of Political Science from the University of Turku. He has been in the Finnish Parliament since 1975.
Kanerva is the Chairman-in-Office of the Organization for Security and Co-operation in Europe for 2008

The latest controversy over claims that Finnish Minister for Foreign Affairs Ilkka Kanerva (Nat. Coalition Party) had bombarded a young woman dancer, an "erotic dancer", with SMS messages (200 mobile phone text message) has left the party’s chairman, Minister of Finance Jyrki Katainen (Nat. Coalition Party) "perplexed". see link

Matti Vanhanen and Jyrki Katainen back him up...maybe they are involved too: Vodka, Women and Cigars...?

3-Nicolas Sarkozy (UMP)

Nicolas Sarkozy is the current President of France and ex officio Co-Prince of Andorra, elected on 6 May 2007 after defeating Socialist Party contender Ségolène Royal during the second round of the 2007 election. Before his presidency, he was leader of the Union for a Popular Movement (UMP) right wing party.

There's been further controversy in France after President Nicolas Sarkozy insulted a member of the public at an agricultural show last weekend.

You should always shake him his hand...otherwise he will swear at you...

Overheated Southern Finland

"Jarmo Korhonen, the outspoken party secretary of Finland's Centre party, was quoted as saying by Maaseudun Tulevaisuus on Monday that the total cost of rail investment plans in Espoo, Helsinki and Vantaa, at about two billion euros, was greater than what was realistically available for the entire country."

"Mr Korhonen told the rural newspaper that the total cash available for railway investments in the current legislative period for the entire country was 1.4 to 1.6 billion euros, adding the sum should be spent evenly across the country."

"There is no need to heat further the overheated economy of southern Finland. The costs of construction have spun out of control in southern Finland, partly because prices are being swollen by too many simultaneous projects," Mr Korhonen told Maaseudun Tulevaisuus.

At least now some start to talk it up, people start to recognize the's a first step. Indeed we have an overheated economy (in the South), with housing price going out of crontrol with rent spiraling higher and poor getting poor due to a ramping inflation...

The ECB can't do anything as some economy such as Spain, Italy, Greece, Ireland are on the brink of collpase... Italy seems, day after day, to be better off outside Europe...after all if the situation doesn't improve there is a chance that finally we will see the first break in the European foundation...maybe Italy will take back its Lira and devaluate it in order to be competitive especially against the German Competitive Machine ...

Monday, 10 March 2008

The Pensioner, The ECB and ... The Government

Question To Trichet (The president of the European Central Bank, the one that set the European interest rates.):

Mr Trichet, I am not so happy with what you said. You said that you always do what is necessary to deliver price stability. And then you said that we are in a more prolonged period with inflation rates over and above the target of the ECB. And probably you know that there are a number of people around, including economists from banks who cannot really say what they think, and ask not to be quoted on this, who say that the ECB is supporting the banks when they should actually be giving more support to the pensioners in the street.

Because, if you keep on with these inflation rates of 3% and more, that means a cut of 10% in three years in pensions, and that could put many people in poverty. This is not a nice questions for me to have to ask, but are you sure that you, as the ECB, have the people in mind which you should have in mind regarding your mandate or are you placing too much importance on the banking sector? And the whole thing connected to this. You have a good reputation, but to my mind you are endangering your reputation right now.

Trichet Answer : I have already said - anticipating your remark - that our 320 million fellow citizens are asking us to be faithful to our mandate. It seems to me that a number of observers, including market participants, often forget that we have a mandate, and that this mandate is clear.

If we need any confirmation that we have to be faithful to our mandate, this would certainly come from the 320 million fellow citizens of the euro area, who are asking us to deliver price stability.

They know very well that we are not ourselves able to modify the price of oil when there is a commodity price shock at the global level. However, they are asking us to deliver price stability in the medium term. This is our mandate.
So, I will very much echo what you said. That said we believe that the present monetary stance is precisely in line with this objective.

My comment :

Indeed the ECB is failing its mandate for the 5 millions or so fellow Finnish citizens. Inflation has gone to the roof, purchasing power has been badly damage. The situation during the next two years seems to provide no relief at all , on the contrary 2008 and 2009 are predicted to see inflation over 3 said earlier it would mean that in 3 years time your purchasing power will be reduced by 10% if you salary doesn't follow suit...

Now the smart government headed by the financial minister Jyrki katainen has promised to reduce income tax thus most probably fuelling even more inflation. The incompetent housing minister is being pushed in corners by lobbyist and is unable to make the reforms (land reforms) necessary to underheat the housing market.

By the way, there have already made inflation worse by increasing oil tax at the turn of the year by 10%, indeed their plan is to push for Biofuel as they have a vested interest through Neste oil (which is 50,1% state owned)

I'm not even talking about Matti Vanhanen, since he is busy to destroy the free press and shaping a "Mr ecology" profile before the next election...

So what do we want? an uncorruptible and politically free ECB that is serious and act on inflation. What do we want about the government? nothing we just need to get another one: at best let's try a change, we have nothing to lose as I can't see how we can get worse ;->

Spain Housing Bubble : "Olé" ?

"The Bank of Spain has said Spanish homes may be up to 30% overvalued. The government, which faces elections on March 9, expects house-price growth to ease to low single digits but not turn negative. But it is no longer just housing which could be a problem."

"Commercial property -- pricey by regional standards -- could suffer too since a slower economy will undermine corporate demand for space and drag on rental growth."

"But it could yet face more trouble as an unprecedented construction boom -- accounting for almost 20% of Spain's economic growth -- slows sharply. Across Spain, unemployment is rising faster than anywhere else in Europe."

"Consumer confidence is at its lowest level since Spain's last housing crisis, in the early 1990s, according to Eurostat and Bank of Spain data."

"Spanish property developers, having enjoyed what once seemed an unstoppable boom, could face a severe mauling unless they bow to more realistic pricing as the economy slows and banks rein in lending."

So housing bubbles start to "pop" around Europe with first Spain and Ireland, next to follow are the UK, France and the nordic countries. As in any party, there is an end...finally 2008-2009 would be remembered as the peak in another over extended housing market driven partly by unusually low interest rates...
See an article that was posted in November 2007 : what could be the trigger...Spain?

Friday, 7 March 2008

ECB Fear Materializing : "second round effects"

"Wage talks between the German government and the public sector union Verdi have broken down, raising the threat of further industrial action."
"Verdi wants 8% pay rises for two million federal and local government staff, including public transport workers and kindergarten staff."

"Talks that began Jan. 10 also stalled over a demand by Ver.di and the DBB civil servants' union for an 8 percent pay increase this year. The government offered 5 percent over 24 months for a longer working week and an incentive bonus, a proposal dismissed by unions as being worth no more than a quarter of their demands. "

At least the german union knows how to count...not like the Finnish Nurse Union (Tehy). 5 % over 24 month means 2.5 % per year lower than the 3.2% inflation rate which would be in effect a salary reduction... on the opposite the Tehy union got a bad deal even if in paper the number looked attractive, the reality was different...indeed they were fooled... but don't tell them...

SO what it means for the 350 millions citizens in Europe? well interest rates will not go down in april as speculated by the market instead there is a chance that they will go up unless the global economy collapse under the credit burden weight...and the cheerleader to watch is the U.S.

If the U.S. fall into a recession and a bad one, it will bring down the whole global financial system thus like a domino spreading the recession to one country after another...

Then of course the ECB won't have any choice then cutting rate aggressively. The moment of truth will be sometime around the summer, to check whether or not the U.S. rate cuts and fiscal stimulus are working and stabilizing the economy

Where the Finnish Tax Payer Money goes ...

"City of Helsinki plans to revamp entire South Harbour area"

"In order to bring the old city centre back to life, the City of Helsinki intends to revamp the South Harbour area completely."

"According to a plan commissioned by the City, the old Olympia Terminal, the adjoining terminal areas, and the adjacent large parking area would all be covered with a green deck. "

The redevelopment of the area will cost a huge sum of money, but the plan is feasible, as it will give the City more land that can be developed and sold”, estimated Mikael Nordqvist, the head of the Helsinki Real Estate Department.

Most probably it's a rescue plan or bail out to construction company that have heavily invested in constructing very high price apartment in the eira zone.

Housing is unaffordable, rent inflation start their spiraling trend upward and then...the government through the city of Helsinki is building unnecessary site that will require vast amout of money... Are they living in another planet? Pluton? or are they completely unaware of the problems?

Wednesday, 5 March 2008

eSubprime Government Crack Down ...

"Finnish tabloid Ilta-Sanomat reported on its website on Tuesday that Finland's Consumer Agency would take an instant lender to the Market Court, adding Atlas Invest had breached marketing and general terms and conditions regulations."

"Several other instant credit companies have complied with our instructions not to issue text message credit at night. After all, one does not conclude credit card contracts in the middle of the night either," Anja Peltonen of the watchdog told the Finnish News Agency (STT).

What don't they force all those predatory lenders from providing instant credit. I'm not sure what good things they bring to the society as a whole as they target the weakest : the youngest...

"The agency underlined that borrowers must be offered a chance to study terms and conditions before accepting credit and that referring customers to an internet site was not enough."

This was already highlighted in a previous article "eSubprime: Living beyond your mean" , this article was mainly showing the watchdog inactivity of handling such reckless lending.

They should go further and dismantle as well the financial engineering system put in place by construction company and real estate agent to bring to consumers and future households affordability traps :

Now even some web site (oikotie - YIT) are warning the consumer that the price shown is not the reality but one should be careful in calculating what they will have to pay i.e Myyntihinta vs Velaton myyntihinta and any short term fixed rate that reset to higher rate....

Myyntihinta 49 680,00€
Velaton myyntihinta 331 200,00€

And here is the warning:

"Huomaathan, että uudiskohteiden tiedoissa olevat tiedot asumismenoista (rahoitus- ja hoitovastike, vesimaksut, jne.) ovat arvioita, jotka perustuvat tämän hetkiseen parhaaseen tietoon. Ilmoittaja pidättää oikeuden muuttaa tietoja."

Tuesday, 4 March 2008

HYPO: "Properties Beyond Reach Of Even Top Earners"

The Mortgage Society of Finland (Hypo) said in a statement Tuesday that the number of unsold houses and flats in the country had risen to 1,500, adding said properties were beyond reach of even top earners.

1,500? They must have forgotten another zero or two : I would say most probably around 15,000 to 150,000 of unsold dwellings for the whole country and it's growing fast...

"Hypo blasted builders for neglecting the needs of a broad range of customers and urged the companies to build more affordable housing."

"It is of course nice to build those expensive and lavishly equipped dwellings," it added.

Right, So in order to bring affordability, the solution is to build low standard house...and avoid doing the right structural reforms?? (land planning and monopoly break down) . Housing cost will come down in the years if not months ahead no doubt about it so it's not an issue. Hypo is again shouting facts and proposing nonsense solutions...

"Hypo said it was possible but not probable for Finnish house prices to start falling later this year."

They will fall no doubt about it, the question is by how much? it all depends how long the market is not allowed to go to its natural equilibrium. who are the actors to blame in this disequilibrium?

1- The government : Providing subsidies in a market that didn't need it. It just shifted tax payer money to the wrong resources. In particular the housing minister has been almost an inexistant actor... where is he? and most important what is he doing?

2- The Municipalities : In making land planning and availability a speculation game...

Monday, 3 March 2008

100%, That's The Current Debt Burden.

"Finland's household debt-to-equity ratio inched beyond 100 per cent for the first time on record, Statistics Finland (SF) said in a statement Friday."
Not a surprising news. Household have been pilling up debt fuelling an economy that rely on it.

"Tuomas Rothovius of the agency said that although the ratio had risen, it was moderate when compared with other industrial countries'."