Wednesday, 21 January 2009

Inflation or deflation? Can Policy Makers Affect The Outcome?

I'm rebounding (in the literal way) to what Andrew said in one comment which I though was interesting as it raised major questions.

"If we just want to have a sound monetary policy after the madness of the last years then most surely we will have global implosion and chaos...

If money is devalued then people will tend to move out of cash and into assets. And importantly if money is devalued then debt will be eroded.

Savers are now the governments enemy as much as they are the banks friends. The bank guarantees were not wholey good ideas.

The government risks saving its friends to destroy itself and ultimately everybody else.

If inflation spikes higher then the money borrowed from the future can be returned to the past by destroying it.

This seems to be the plan so far.", Andrew

The strategy you described is the one adopted in the 70's and that has been clearly condemned by the ECB and highlighted as being one of the root cause of the high unemployement figure in the 90's and beginning of this decade.

Just look at Finland, we are now at 6% while we have had a phenomenal global growth in the past two decades. I'm not even talking about competitiveness loss and the disastrous effect of high inflation that can have on economy.

People have to undestand that now we have shifted to a new phase in the economical cycle. Saving is more than ever needed for industrialised world for a major reason: arrival of a massive retirement wave. I'm not even talking about the surealist expectation that some have, the belief that you can spend more than you earn- and that is the current reality.

So the industrialized world will have to save more while the emerging markets will be asked to spend more, basically correcting the global imbalance.

In Finland, government pensions have promised a certain level of income for retiree. As you know we will have more people retiring than people entering the active life, and that is the issue that will change the type of economy we have known until now.

An interesting thought here, with regard to nominal interest rate: "The short-term nominal interest rate, however, cannot be less than zero, based on a basic arbitrage argument: no one will lend 100 dollars unless she gets at least 100 dollars back.", Eggertson, on Liquidity Trap.

Regarding interest being "negative", here is what the last nobel laureate in economics had to say , (please refer to the article picture):

"In 1982, interest rates — elevated in part thanks to high expected inflation, in part because a tight-money policy was what caused the recession — were high. This meant that conventional monetary policy had plenty of room for action, and thus offered an adequate response to the slump.

Today, however, with expected inflation roughly zero and a recession that is the fruit of past irrational exuberance, conventional monetary policy has run out of room. That’s the point of the Goldman Sachs exercise, shown below, which asks what the familiar Taylor rule would prescribe for monetary policy over the next few years; the answer is a Fed funds rate of -6, which isn’t possible.
", Krugman.

So actual rate should be around -5%, according to the taylor rule, which is not possible as they are actually in the range [0, 0.25%], to take the example of the U.S. .

Nevertheless I stick to the deflationnary scenario, not that it's best or the worse, but simply because that's what we actually have- you can't fight the market forces. As a result you will stay in cash and avoid losing massive amount of money in stock market, credit market and in housing since a sharp correction can be expected.

So to answer the main question, I think, policy makers (Government and Central bankers) can only soften the correction we are currently witnessing but cannot avoid the outcome (asset deflation). By softening, I mean an orderly unwinding of the imbalances , orderly in the social, economical and political dimension.

Add1: Deflation is here and will last until the system - the banking system - is rescued and safe. The deflation will end at some point and most probably be followed by an explosive inflation - thanks to government and policy makers. As in the late 80's, interest rates will most probably reach double digit and prices in almost all commodities will reach record level.

When this time has arrived, the deflation strategy i.e staying in cash will not work but instead investing in commodities or related company will pay off. The idea being , to get out from cash as it will lose value, but only at the right time

Now countries that have still wage indexed to inflation could be for a big ride, if government doesn't put a cap or will see its sompetitiveness deteriorate.

The main question is when does deflation end? (Although Trichet is talking about disinflation and do not want to hear about the Deflation word.) - to my opinion : [1-5 years]

What to do? [gold] or [commodities]

How about housing? its value will be eroded by inflation, if you are protected agains inflation then it will get cheaper.

Any view on those questions??


Andrew said...

People say one thing and do another. No point in listening to the words we need to see their actions. The ECB created the bubbles in Europe such as they are today. Partly that was because they had very low interest rates for many years to get european growth moving again after reunification of Germany. The ECB appears to have used the high exchange rate as an excuse not to raise rates higher because of the perceived inflation dampening effect of a high exchange rate. Where were the regulators controlling the bank lending?

What will now happen if there are two years or more of exstremely low interest rates? Will people work to pay of debt or will they accumulate more? What happens when inflation finally moves upwards again and rates potentially go much higher than many younger people with mortgages can every imagine is possible?

Are we now entering a new era of financial responsibility or instead is this beast going to be reinflated at all costs and by any means possible?

There are no easy answers today. The easier answers where in the past before greed and lust for power created the scenes we now see being acted out.

We are what we are. Dont listen to the words - look at the actions.

HousingFinland said...

Indeed in 2003 US and Europe, may have committed a policy mistake by letting rates too low for too long.

This Euphoria period was clearly helped by reckless bankers that were lending massive amount in order to pay themselves incomprehensible high bonuses.

This was combined with sleeping regulators that most probably spent more time in Opera or bars than doing their job.

But that's the past, you can correct it neither learn from it as the situation is completely different.

Hyper inflation or double digit interest rates will be disastrous for the economy, for any economy.

But the core issue, and you highlighted, is that the ECB is nothing else than the German Bundesbank with some french flavor.
The policy we got and are getting is to support mainly France and Germany, the country at the Root of the creation of Europe and the single market.

So all the peripheral countries are collateral damages from policy that had concentrated on the core continent.

Thus Spain, Portugal, Greece, Ireland and Nordics have have too accommodate policy: interest rates were too low and allowed bubble to form. The problem is that Germany never recovered from the 1990 housing market a housing bubble forming was virtually impossible.

In general, Modern "economist" ( a Charlatan?) think that people "expectation" is what drives mainly economy and inflation/deflation. So I'm not surprise to hear Politicians, Policy maker giving positive message on a regular basis (the same that was done during the 1930's depression, year after year telling that the recovery was on the way... that didn't work. see the book of Galbraith on the 1930's story)

This time Europe is at the turning point and any mistake will be costly.

An hyperinflation scenario will be disastrous, especially for Finland as it is part of Europe and has the Euro currency. It will be disastrous because of the competitiveness impact and resource allocation. Finland could then lose market share and accelerate delocalization to the Asian countries....Today, they just can devaluate the currency as it was done in the past to boost competitiveness ...

And just think about the Big neighbor, not to name it. It has devaluated its currency, so if at the same time prices were to go out of control, it will be very hard to sell anything to them: tourism will ne affected very hard, and housing won't be sold...that's why i don't believe in such scenario as the internal consumption is not enough to maintain good growth...

Andrew said...

"the internal consumption is not enough to maintain good growth..."

The Nordea chief economist recently said
there will not be a 'Great Depression" because:

1. Enormous government/public spending is already agreed to stimulate world economies.

2. The government/public sector is a bigger part of the economy than the 1930's

I suppose he has a point. Super K will probably come on board sooner or later. As will Germany who seem happy to bail out their banks also. France seems to announce massive packages each week now? Or is the same one just getting bigger?

Plus ca change.....

Andrew said...

it incorrect to say that deflation is here. Some prices are rising and some are falling. Government actions are highly inflationary. Other real world effects are highly deflationary. We could still have an inflationary depression there is no gaurantee for this deflationary depression followed by very high inflation.

No doubt Trichet wants to avoid deflation. You have to consider he might be successful. There is that possibility. Just because he is French does not mean he does not know what he is doing.

HousingFinland said...

Would i trust what a banker has to say? Nordea Chief economist, has put his own bank into issues and now he wants tax payer money to come to the rescue.

My conclusion is that the words of the Nordea chief economist are not better the one from my barber: both make prediction and both have 50% chance to happen...although i tend to listen more my barber than those reckless bankers.

Obviously between inflation and deflation, you have a period of disenflation. So it's better to say that disenflation has started, and it will be followed by deflation.

Coming to deflation, here is what Monsieur Trichet has that for definition of deflation:

A deflationary process, by contrast, is a persistent and self-reinforcing decline in a very broad set of prices.

This spiral is propagated by anticipation of prices declining further in the future.

Such negative inflation expectations mean that investment and consumer demand is postponed, which would cause a second-round demand shortfall and put further downward pressures on prices.

I think one or two quarter of falling housing price will anchor the belief of further drop thus a deflationary anchor (the same hold true for the reverse).

I think Government in general have no choice but to intervene and take debt otherwise they will get social tension with rising racism. I think the process has somehow started...

Now the question how fast their action can produce an effect? 1-5 years? (Japan had 20 years of deflation, US had 10 years or more of deflation during 1929-1939).

Coming back to Nordea... I think they have a serious problem. The loan growth is collapsing and their asset is shrinking..As Roubini said the banking system is insolvent as they lent more than they own in equivalent asset. Just look what investor think about Nordea has been divided by 4, Sampo is following the same path.

Now I'm not syaing that after this deflationnary or long disenflation we won't have an explosive emerging market that will seriously export their inflation that could trigger inflation thus double digit interest rates.

Monsieur Trichet is in a difficult position compared to the US....the ECB cannot rescue a country, but the US can rescue a state through their TARP or CRAP i.e California (to compare with Spain).

At some point, a strategy will have to be changed from a deflationary to inflationary...that's the most important question is when? there are some clues, and i think the yield on long bond could give an answer...

Andrew said...

Nordea Chief economist does seem to be behind the curve. However he was really worried back in april of last year judging by how he was in the Nordea videos back then.

The US system might be insolvent but the Finnish system is different I believe so far. There is no way that Nordeas loan book is not performing very very well in income terms. As far loan asset values go what percentage of loans were issued at 90% and over in the last few years? There are issues in the Baltics but as far I know the Baltics forms a small part of the total loan book. Most borrowers are more or less repaying their loans at 4% per year. So if Nordea is no longer lending out as high as it was it is receiving a very high return of cash. Also they are getting cash when people sell their nordea shares. Cash is king. People fear a share price decline. It does not mean Nordea is not in a strong position. Where are the *defaulting* loans?? It must be fairly tiny at the moment.

Nordea just increased their lending margins a small amount which they said would be coming if Eurbor went lower. They dont need an increase of lending to remain highly profitable. However if lending does not remain robust it will have a huge deflationary effect on the economy leading to job loss etc etc etc.

The other issue is the degree to which Nordea needs to fund its loans from real money loans it has to source from capital markets as opposed to the money it can create via leverage and bank ratios.

When i last checked around july of last year there were very very few Scandanavian loans going thru to the ECB bank bailout - it was mainly for example spanish loans. Nordea has said they can still raise wholesale funds at near Libor even in October at the hight of the credit crisis and they are getting extra deposits and have other investors etc etc etc.

It is hard for the ECB to allocate money to the euroarea in the same way as the US treasury can allocate money from the future to companies. However the ECB can easily allow unlimited financing at the penalty rate to any bank that wants it.

I was listening to Bank of Bilboa? CEO on
FT Video in the credit crunch video series
. Even spain is not so bad from his own banks point of view. His own bank is one of the strongests banks in the World? Trichet is also talking in the same series.

Meanwhile i am very interested of course in getting more information about the health of Finnish banking as i am a saver with Nordea.

What do we actually know so far?

That is what interests me now. Not so much as what is going to happen but 'what do we know now'.

Banks are buisinesses. Naturally if they can feed at the publics bailout nipple they will do so. Given the benefits to them they can put resources into helping them to get that. So far Finnish banks to my awareness have not shown any desire to go down that dishonourable and cowardly route so they can get fatter at the rest of societies expense for no good reason.

HousingFinland said...

Regarding Spain, I think they will be heading for a hard landing whatever banker have to say. At the end Banker as well as some corrupt politicians (in some cases, they awarded permit in protected area, few meter from the shore and many got bribed) have allowed the build up of a massive housing bubble fueled locally and helped by the foreign demand.

Now I'm not sure how it will end there but I won't be surprised to see the same type as rioting we saw in Greece when unemployment will head toward 15%-25% in the years to come.

Coming back to Nordea, I have no idea about their balance sheet or their company management but I understand that they have been involved in aggressive lending in the Baltics (an area that will go through a depression where default will most probably rise at record levels).

They have been involved in Denmark where housing price grew at record level and the bubble have started to pop. Other there, most probably that some sort of government intervention will's a matter of time.

I think what policy makers didn't plan is the synchronized global slowdown as well as the overcapacity build over those Euphoria years (especially in China, that is decelerating at record pace).

Now we will go through the most severe recession since the WWII. That's the reason why I have still a very bearish view on the economy especially in the most sensitive of its component: the housing market.

Now, what I would like to understand is what will be the impact of those government bail out and its timing.

It's scary to see politicians, policy makers experimenting policies that have never been used or tested. It's like a giant laboratory where the consumer-mice is being experimented on...

Andrew said...

The Tarp Song

I can see this one becoming a number one!

Andrew said...

For those who have time this presentation by Kone to analysts after the recent 4th quarter results is very interesting.

The next company i am interested in is Wärtsilä who said at end of November they did not expect a major change and had a solid order book.

(Wärtsilä Corporation will publish its Financial Statement Bulletin for the year 2008 on Friday 30 January 2009 at 8.30 a.m. Finnish time. The bulletin will be available on the company website at after publishing.)

If Wartsila and Kone are doing ok then it is reasonable to say that KoneCranes will also do well. They report February 4, 2009.

HousingFinland said...

"Kone is doing well"

When I see residential and commercial permit plummeting around the world. When i see emerging market defending currencies...i do not see a bright future for Kone.

Permit are indicator of the health of the construction industry for the near future.

As long as they do no show any pick sign, i would ignore reports such as the one Kone had...a little bit like in year 2000 when IT company showed good health and order book, to only collapse 1-2 years after.

So I prefer to be forward looking (looking in indicator that hint to what could happen - permits, spreads, futures, stocks etc...) and i would ignore current statement as they only describe the past or a momentum that is the result of the past (the inertia thing...).

Construction will go for a major readjustment, something that happens every 20 years. I think we clearly in one of them-i don't believe in the soft landing scenario for this sector...

Andrew said...

When you can listen to what Kone said.

HousingFinland said...

Kone is still in the view that Asia has fully decouple from the rest of the world since this is what they stress and appear to be their only growth point.

They are counting on government subsidies (China) i.e tax payer money to grow their profit which is weak point.

They underestimate the economical deterioration but what would you ask from a company that do not want to deceive investors.

There has been a boom in construction sectors due to low interest rates globablly and a underestimation of risks....this has changed.

Let's review the situation of Kone after 2010. A beer if the situation is as they portray it.

Andrew said...

I cant believe you have actually listened to the presentation Kone made to Analysts that i went to the trouble of linking to.

In the Americas for example Kone said that markets began weakening in spring 2007 but they have been able to win market share and have all thru this time not noticed any dramatic fall off in orders. And specifically they were also talking about quarter 4 2008. Markets like the UK and Dubai are dramatically weaker.

These guys are not the fools you imagine them to be. They are world leaders in their products.

And if you imagine that Kone are fools to think they will not get some benefit in China also when China is about to spend 586B USD to support the economy over the next two years then i totally give up!! Beer wont be enuf! :-(

At the end of the day Kone appear to be doing well because of excellence of product. They also have no debt. Arguably they are doing everything right.

Your depression wont come to Finland because you want it to happen.

HousingFinland said...

"I cant believe you have actually listened to the presentation ..."

I listened, but not until the end..i was annoyed by those people (journalists?) eating while the presentation was happening.. couldn't they eat before hand ;->

These guys are not the fools you imagine them to be. They are world leaders in their products.

I think you do not understand my view. What I'm telling is not about the fact that people are or not competent..they are just powerless as they were the sellers to market that has completely crashed or disappeared.

If you just look at the home market, you will notice the amount of offices that have been build as well as the number of shopping malls, if you extend that to the whole country and to other part of the world where construction went crazy - US, Middle east, Europe etc...etc... you will have to recognize that a deep slowdown is going to occur, at least in the construction sector, nothing seen since 1990 or i would go further down the line toward 1980 or earlier...

Kone is highly dependent on that. thus my line of thinking. Ok they highlighted that they have maintenance contract...I wonder how much it represents on their profit.

I believe Renault, Saab, GM etc.. have excellent products..but credit have and will shrink so will the market...

Kone had enjoyed about 20 years of non stop growth due to historical credit expansion. Now, Kone will know few years of hard time, where they need to be very careful at the cost and cash flow until the markets revive, then most probably kone will do well...but it's not going to be in the 1-5 years. The stock market have already price a decline in profit (50%?), I guess, they can't be wrong.

Andrew said...

What Kone are clearly saying is that the market has not crashed and dissapeared for their products.

You are telling me that their market has crashed and dissapeared.

And you are saying that credit has shrunk and will shrink. Has it shrunk?

China Credit growth is for example very robust. Still growing in NZ and Australia.

Growing in india

Just about growing in Brazil and check out the interest rates. 44%??????

"BRAZIL, Latin America's biggest economy, cut its reference interest rate by one percentage point to 12.75 per cent on Wednesday as it took steps to temper the effects of the global crisis"

After 20 minutes of searching I cant find any evidence of a credit contraction.

Interesting that Brazil and China still have inflation problems however.

Kone have staff all around the World. They are saying that some markets are down but generally things are pretty good.

In 36 hours Wartsila report and then we can see how foolishly optimistic and out of touch they are also. :-(

HousingFinland said...

In reality, you can find almost every views on the internet, in few seconds...

The question is to filter the news, to figure out the right and the false information. There is a lot of noise, and usually hard statistical data tells more than company, or other source of news.

I'm afraid the dynamic has changed. I'm looking at the trend and what i see is a deflation threat everywhere I look, in the medium term (most probably it will still be valid for the next 1-5 years).

Steel price, copper price, oil price have all but collapsed. This is not manipulation but signs that All market has drastically slowed. They were propped up with a new paradigm, now a shift, a tectonic shift has occurred: you cannot ignore it.

Why would China put in place a stimulus if the demand was still brisk?

"India’s key wholesale price inflation slowed to 5.6 percent this month, half the level recorded in August, driven down by lower commodity prices and weakening consumer demand."

All in all, we are at critical point in that either we have a severe recession or a deep depression.

I think policy makers and government have acted accordingly and will spare us the shadow of a deep depression. So 2 years a sluggish growth where many companies will disappear.

Andrew said...

China had an exstraordinary tight monetary policy until september 16th and has still got a fairly tight policy but even so bank credit has surged since september.

Australia also had a large fall in inflation and is in a better position to cut rates and bank credit is rising.

The issue here for me personally is how is this going to effect an exporter like Finland or Kone in the next few years and then further out into the future.

China last month or november still had enormously high retail sales growth and construction spending growth at over 20% each and had reasonable fears about inflation continuing and therefore had a pretty tight monetary policy considering how slack it is in europe and the usa.

These things cannot be so lightly dismissed to be replaced by a reasoning founded on some claimed superior ability to look at the data.

When inflation expectations worsen in China then monetary policy will be easier.

How does this make a difference to Kone who are continuing to gain market share in china?

Why is your future so correct and so certain and mine so easily rubbished?

Andrew said...

Why bother to ask the question as to inflation or deflation if you already know the answer?

Do you want to discuss or just broadcast?

HousingFinland said...

"Why is your future so correct and so certain and mine so easily rubbished?"

I never said that how things will unfold are clear, far from that.

In 1990, we had a severe recession that plunge the world economy in a long slowdown while economy such as Japan never really recovered.

Why would I think that this time the consequence will not be similar or worse since the heart of the system has been hit hard (the (US) financial system).

That's my view, I would not change it until I see significant readjustment:
-Correction of 20-30% of published index of current housing market that is grossly overvalued.
-Stock markets correcting a further 20% from the current level.
-Inflation starting picking again, and heading back toward the 2% or higher.

Then I will think some kind of bottom or light in the tunnel is appearing...

In the meantime, I still keep my Bearish view. Although I'm not discarding voices such as yours which, I think, see inflation or hyperinflation in the very short term and assume that this is a simple slowdown and the economy will function as it was before 2007, and the export will boom again.

But you might be right at some point. It is clear that after this period, the export will be booming and inflation will be a problem. The issue I have is that i do not want to go toward that scenario as of now.

If I would follow a quick recovery scenario amid high inflation, then i will start investing in Stock market (oil, material, exporters) or housing. But what is the impact to follow such scenario too early? I think big losses- that's my view.

I will feel comfortable to invest in stock even Kone, maybe sometime in 2010 and housing in 2011 as housing correction is always done in a slow motion (see historical data, or see current UK, US, Spain etc...)

That has been my view since 2007.

Andrew said...

you dont even know what my view is. instead you lump me in with the others you dismiss.

I have got this time and time again from people on the internet and it is just too much now. Nobody is listening. It is a waste of time. The internet has been a useless experience for me.

That is my reality.

HousingFinland said...

I'm listening but I do not necessarily agree with some arguments put forward.

I suppose, this put in place a debate where facts and ideas are shared. Now, all the data you put forward (often good arguments), I or others keep them in mind and wait if it confirms or not, thus allow me or others to change the general view.

The problem with internet is that you have so much "information" that provide contradictory views. So who to believe, who is right? Some will try to mislead, for whatever reasons, some gives a platform for discussion that can clarify or confuse our views on some subjects.

One thing is sure: no one knows the future but some have proven more right than other over time.

I will limit myself to few sites, and I will remove the one that have political or extreme (hyper inflationary ones, geopolitical, religious etc... ) agenda.

Internet information is like a virus, once infected, it's hard to get rid of it. The symptoms:
-false sense of reality

Andrew said...

So your solution is just to delete my responses and edit your own ones?

HousingFinland said...

I just removed what you say was incorrect about your view...

Have you read this article :

It really put what I think is going on... a situation quite exceptional...not the recession we had in the past...

see that from the trader point of view:

And again, I 'm sure there will be oposite view on the web...

Who is providing the right information? hard to say...

Have the look to the following:

Andrew said...

i have been following the baltic dry index for some time. But back in nov 2007 a shipping owner/expert said that shipping rates were unsustainably high and must correct. Mr Su from Taiwan i recall.

At the moment the index is correcting off rock bottom.

I think part of the problem was that china was attempting to control inflation. As china recovers from what might be an overcorrection then we will get to see what is happening.

In September the world ended. But since then the end of the world has been at least delayed with credit factors much better.

We dont know the future.

Companies like Kone suggest that things are not as bad as we might believe. We need more time and more information to really know what is happening.

Likewise 50,000 people or more are layed off in Finland. Will that be temp or permanent? We dont know at this point.

From here things can be bloody terrible or less than terrible.

HousingFinland said...

Wartsila outlook forecast:

"Wärtsilä's final-quarter order intake fell by 48 per cent to about 823 million euros."

Last point to close this article discussion.

There will be inflation, but being too early can hurt too. So i do not think we will see that for at least 1 year although I more incline to see it maybe in 5 years time.

There will be financial adviser or other that will sell inflation...that will only increase volatility and this is where those people are making money: pushing market higher then shorting it...

Bank profitability will not return for a very long time as bad asset will accumulate especially in Europe as the Housing market has clearly started its synchronized slump.

But who knows, tomorrow might be different.

Andrew said...

i think you are wrong to continue to suggest that only dishonest people or government or vested interest people are pushing inflation.

I just got back to Finland so i suppose my focus will now change and maybe i will become infected with doom and gloom also?

Meanwhile i listened to the Wartsila report and it was pretty upbeat. It appears their order backlog is so large that a fall in orders does not have much impact until 2010 and for that reason the guidance they gave in November about a solid order book is still unchanged (The first impressions of the report were it was a big change but questions and answers made it clear there was no change)

The next things to watch are konecranes and nordea. There is no way that Nordea are going to be reporting a loss and given what Kone have said i imagine konecranes will be similarly upbeat - however konecranes are exposed to shipping and wartsila made it clear that there are big issues there.

Interesting that Gold is breaking higher against the euro. If Gold significantly rises against the euro and USD some kind of defense will be necessary and that could prove pretty devastating and ensure a long lasting recessionary environment but while these rates are so low a bounce from here is possible.

As you know i did not forcast lower rates. I was believing that rates would be forced higher due to the amount of inflation present.

Gold is saying something i believe.

HousingFinland said...

Gold, today, is not an indicator of higher or hyper inflation. It rather highlight the fact that market participants start to doubt that the system can be saved by the current monetary and political policies.

It's a sign of distrust of the current monetary system ...especially after the path chosen by the US and UK monetary institutions.

In 1980, Gold shoot up so did interest rates. Inflation was anchored.

In 2010, Gold will shoot up, reversely interest rates will plummet. Deflation will be anchored.

HousingFinland said...

Although I admit Konekrane has announced good results and seem to be confident in the future (although the decline was steep in the last quarter)... As you said.

So it's worth to keep an eye in those company and see how they will do by mid year. It will give us a good indicator if the slump is limited and recovery is on the way...

Andrew said...

I am not describing things as you seem to want to believe i am describing things.

Many Finnish companies have effectively reported a collapse in orders. Do you understand i have said that?

But is this collapse in orders temporary? or will the 3 month layoffs be announced as additional 3 month layoffs or will these firms collapse? Will they indicate the news is better or worsening? That news must be due for update soon.

My argument is that in August/ September the commercial world did freeze up and more or less collapsed. But since then the financial side has dramatically improved but the industrial side has worsened.

It is a fact that there are worldwide stimulus packages and low interest rates with great likelyhood rates are to go lower and spending to increase.

Niall Ferguson who believes in the beneficial effect of American empire seems to want to deny that we do have a sort of one world government today with coordinated stimulus.

These spending programs will have some influence on todays events.

The effect in my view will be an inflationary one.

Please note i am not saying it will be a hyperinflationary one.

So far some finnish firms are reporting that buisiness is not as bad as the worst case doom and gloom presentation that i think you are believing in.

I am not really in the prediction game. I just report what i see and then wait to see if other data support that view - if not then i have a new view and i can then see if the data support the new view.

Harvard and Oxford professor Niall Ferguson (who you quoted from the FT) makes the point that there is not one future. Instead there are many possible futures.

We dont know which future we get until we get there.

Over at the Financial times 'view from the top' video section Mort Zuckerman is saying he is still spending on USA prestigious real estate programs (so he supports kones Americas view) and he has been a long time bear according to the interviews.

News from China also supports Kones view that China growth will enable them to gain market share and so forth.

Bank of China seems to have gone thru the last month without altering monetary policy suggesting they are comfortable with earlier predictions of growth and inventory reduction predicted to end in about 2 months time.

This week NZ and Australia have lowered rates and Australia announced a 42 AUD spending program. NZ commodity prices seem to be recovering.

By early 2010 a bottom will likely be in place in US housing. Europe will lag.

There is then the long grind out of here.

There is no simple bounce out of here.

HousingFinland said...

If you don't mind, I could publish the last comment as an article as I think you are making a good case.

Andrew said...

No problem and thanks. It needs a few edits to stand alone though - as you wish.

Andrew said...

Continuing record lending in China

Andrew said...

Northern hemisphere blues getting to me a bit but here is a video from PIMCO to suggest that the Feds are winning the battle to get mortgage rates lower.

Already for example orange county foreclosures are selling at 100.1% of asking prices in one month of being offered.

Andrew said...

On the topic of improving credit markets

On the subject of Cisco I was talking to a guy in Telecom over Christmas who has seen videos of the new holographic 'conferance suits' that Cisco are installing in NZ. Apparently very impressive as if the person is really there in the room.

Andrew said...

Baltic dry index continues to make a strong recovery

Copper is rising

Nordea strong result

Andrew said...

Baltic dry and copper continue to recover

Specifically today being:

China demand likely to continue to recover

Andrew said...

"Mainland fixed asset investment in cities continues to surge - 26.5% higher - in the first two months of the year, indicating an economic stimulus package is kicking in.

This was slightly higher than the 24.3 percent growth registered for the first two months of 2008.

And suggesting that Beijing's policies had a lot to do with the surge, investment funded by the central government was up 40.3 percent in the first two months of the year."

"CPI turning negative for the first time in six years."

Baltic dry at 2298. Cu at 168.90

Andrew said...

China stimulus on track. :-)

750B Euros of German trains ordered

2% Chinese mortgage rates

Copper strongly up to 180

Baltic dry strongly lower at 1795

Andrew said...

Baltic dry much higher at 2600 copper similar price at 207.

Indian stocks twice triggering upper circuit breakers within seconds of opening after elections and analyst euthoria.

NZ commodity prices generally stronger.

BOE Fed and ECB buying assets.

Deflation pressures likely to persist though due to massive bank leverage and reluctance to lever up further in the face of possible elevated loan losses.