Friday, 13 March 2009

The Finnish Niagara


Everything is falling and at record pace. Maybe one should list what is not falling as the list will surely be smaller.

So what's not falling?

1- My daughter since she knows how to walk and very well , alas now she learn quickly how to run and how to run fast...
2- Matti Vanhanen, still holding hard as a prime minister: his party is falling apart yet like a magnet he seems to defy gravity...
3- A post-it that is on my fridge that always remind me that I should not forget one important thing: " Is it time, today, to go around the world as an adventurer? "


Well what's falling? , let's try to be short

1- Not as a surprise, housing prices continue their downward trend (we are just at the beginning...)



Finnish detached house prices fell by an average 4.3 per cent in the last quarter of 2008 from the year-ago period, Statistics Finland (SF) said in a statement Friday.

Prices fell by about 5.1 per cent in the capital region and by some 4.2 per cent in the rest of the country.

The number of house transactions plummeted by 44 per cent year-on-year.


What is important to note is the total collapse of the demand. People are not interesting to buy at those prices and are keen to wait when normal prices or bargains starts. Of course the economical situation is playing a lot here amid rising unemployment and household limitation to take on more debt.

So if price continue at this pace : 5% per quarter, we will get 20% for this year and 40% by next year..hum nothing goes in straight line though...

2- Dramatic drop in new orders in manufacturing




Where are the trading partner?

Russia has shut is market, Sweden, UK, US are devaluating their money and their economies are on the brink of collapse i.e shifting from recession to depression hence the rush to cut interest rates to level not seen since the appearance of the "Homo Sapiens".

3- Where are the tourists? hey oh...it's shining, the temperature has risen to +3 degrees, it's almost summer..so where are they???


Indeed the number of tourists has fallen drastically: currency issues, change of consumption habits, economical issues, or just fed up to travel?

My hat to the Dutch, still bucking the trend.

27 comments:

Anonymous said...

one more thing goes up, +7% per year in Jan 2009:

Food prices in February were seven percent higher than at the same time last year. According to data from Statistics Finland, the escalating trend was also evident in the previous month, January.

from YLE (http://www.yle.fi/uutiset/news/2009/03/food_prices_surge_in_february_613249.html)

HousingFinland said...

For me food price rising in Finland shows you that the market is clearly not functioning:
- Lack of competition
- Probably price fixing

Russia has vast reserve of food, it has a massive surplus of grains while at the same time energy prices have plummeted (their transportation should be cheap too).

You have Sweden that have devaluated their currency hence importing milk and other food raw material should have been substantially deflationist in that regard.

But then you have on the other hand this government that signalled that it will cut VAT this year...a strategical error, to my opinion, ...so what happened price rose sharply...

Now who is the most impacted by high food prices?
-The poorest
-The elderly, the pensioners
-The student and single parents.

But do you think K and S industrialist cares about that? no. All they need is to pocket vast profit and please the investors, no more no less.

Andrew said...

On food inflation there is also i think a modern phenonema or habit.

When i was a kid my mum had the time to shop for bargains. she could pick the cheapest products from a range of similar ones that were quality but cheaper.

Today so many women are working and dont have time to bargain shop.

There is therefore a price reduction or balancing mechanism missing from the market. Food prices are now more or less whatever the shop says they will be. Inflation is so much part of our psyche that we dont reject the rises.

Food inflation in NZ is also at 8%. And food in NZ is much cheaper than here in Finland.

NZ now has free trading status with China and with India. Prices are likely to go yet higher and higher. NZ is currently getting record prices for its lamb.

On the other hand you dont need an expensive house that is falling in value. I think also it is true that certain foods and drinks do well in recessions.

So personally i would say there is undoubtedly a price fixing problem in many parts of the world but that is not the entire answer.

Anonymous said...

Yes, every reach man here is well protected behind the Finnish national flag, while most of the general people is protected with "beer" mentally and physically. That has been and is part of the reason... What can you do? I agree: It is because of

- Lack of competition
- Probably price fixing
- Every general people here believe Finland is the best place in the world.

Following this track, do you see the possibility that housing would also be manipulated in the same way as that of the food price, until it is so profitable to break the huge bubble by the rich themselves. You know, like daily food, one must have a place to leave...

HousingFinland said...

Hi Andrew,

It is true that it is quite complex to understand the cause of high prices of food or other things in Finland.

Each time when people from abroad come to visit me in Finland, they first complain about high prices.

One thing is sure, a big shift is happening in Asia, moving away from the vegetarian diet...that will in effect cause a lot of trouble (thing about the space you need to grow lamb, beef etc...)..some imbalance will occur and one has to be prepared when the crisis will end (2-8 years from now?)...since higher food inflation, this time will be justified.

Andrew said...

I have been looking at a few own home houses in Helsinki to renovate and live in. Prices have weakened but houses are selling and dissapointingly inventory is still falling even though we are now almost into April.

I suppose Eastern Europe could get uglier and that might have an impact here but so far you have to assume that buyers are looking beyond today and believe that house buying is as good a thing to do as anything else with savings and there must be quite a few of these people around. Same goes for flats which are being bought for rentals.

HousingFinland said...

Hi Andrew,

I disagree with you in quite few points.

Regarding the buy to rent, first banks are not going to lend for such speculative investment, because it is clearly one.

You are clearly at a breaking point. You have to have a broad view of the market. In some area that were popular inventory is rising and for the first time price of new flat (not yet sold) are going down (I think it's the first time in almost 15 years).

One building with about 30 Flat went bankrupt few weeks ago...people are not buying and the constructor relied on that. In quite few area supply is rising fast.

Of course, in the centre the supply is restricted although rent are not very excessive but the selling price are..so either rent go higher so to have a lower price to rent ratio...or rent are stable and price will have to come down.

Now history has shown us that U.S. corrects, UK, then Sweden then Finland...the recession propagation is about 12 month to 24 month. I doubt that this time it will be different, in fact this time it could be worse.

But now each individual situation is different, each one has different view on what is housing and the way to live.

For some Housing is no more than housing i.e buying or renting is the same thing. Some need to be mobile,like to move etc...

I see today for buying as one the biggest risks since 1991-1992 no more no less...and it's more than eastern country, add to that Sweden, Russia, UK, US etc... you have the perfect storm.

Another thing housing price are not going to fall 20% in one month but about 1-1.5% per month which could bring you to 20% or more in a matter of 2-4 years...so it seems almost invisible.

That said no-one has a crystal ball but one thing is sure our finance minister and all the banks and think-tank got it very wrong back in last quarter (from predicting a 0.5% to 1% growth to -3 to -4% for this year)

HousingFinland said...

Regarding the first comment with regard to Food.

it seems that the government is going to launch a probe..but most probably won't end up anywhere since they won't jail their friend...but at least it highlights that what is currently happening in the Finnish Food market is not "normal" and most probably some kind of price manipulation is ongoing (agreed in Sauna?)

http://finland.fi/stt/showarticle.asp?intNWSAID=21236&group=Politics

Anonymous said...

Another hidden housing long-term risk could be the fading away of the ~50s baby-booming generation. They will significantly oversupply the market in 7~15 years. Yes, the gov and companies can manipulate the current situation. They run a blue-planned economy. Though, they may not be that capable for that caused by the generation. Again, that will be a world-wide case...

Andrew said...

Following on from the USA action looks like ECB rates will go to zero and then they will also do QE unless inflation picks up.

My NZ property hedge might work out ok as commodities do ok and i dont expect much of a house price fall here in Finland as the ECB prevents deflation.

The alternative is that my euro savings get wiped out with inflation if I am wrong.

Better to have the money in bricks and cement than in a bank doing nothing with the added risk the bank could fail if it gets as bad as housing finland predicts.

Meanwhile i am renting and throwing that away each month.

Sometimes you just have to go with what feels right and to hell with it!

:-)

Andrew said...

oops i suppose that should read there is the added worry of my euro savings being wiped out by inflation if the money just sits in the bank

HousingFinland said...

"i dont expect much of a house price fall here in Finland as the ECB prevents deflation."

I think you misunderstand what is the target of the ECB. Their objective is not to support or try to keep inflated price afloat (i.e technology bubble pricked) but to make sure that such asset deflation doesn't impact the real economy hence they will "lean" against (using their terminology).

One thing is sure price that have been inflated will deflate. You don't have to be a rocket scientist to forecast that you just have to see the country that are now doing quantitative easing and how their property market behaved:

United States:
- 2006-ongoing: property price deflating, an average drop between 30-50% in dollar currency, in Euro, maybe 50% to 60% drop.

-2009 quantitative easing

United Kingdom:
- 2007-ongoing: property prices fell between 20-30% in local currency or 40-50% in Euro
- 2009 quantitative easing

Japan:
-1990 - ongoing: property prices fell 60% in local currency
-2001 quantitative easing

Europe:
- 2008-2012-ongoing: property price falling by ?
- 2009: quantitative easing not possible
- 2010 : quantitative easing framework put in place - introduction of Euro bond?


"The alternative is that my euro savings get wiped out with inflation if I am wrong."

As long as you saving are in euro, I do no see how inflation could erode it.
-in case of deflation, your purchasing power is stronger and it has already
-in case of hyperinflation, you will have to move toward inflation protected investment (stock-petrol, material oriented company i.e global). so it is to understand when this happen and trigger the right action in the correct time.

Andrew said...

Housing Finland

Your faith in European bankers is impressive. But you are also in denial. Anton pointed out certain realities about the ECB and you refused to believe him i recall?

Banking losses in Ireland and Germany and in France have been pretty high so far. Then there is Spain and the none Euro UK.

The UK is the worlds 6th largest manufacturing economy. The USA the largest.

As other countries devalue their currencies to attempt to support asset prices that the banks need to remain compliant (rather than just letting them fail and nationalising them) the ECB will be *forced* to follow.

And worth pointing out too that behind the headlines of massive falls in property values of say the UK the reality for desirable properties is not so exstreme.

Yes they are all going down there is no denying. Ireland spain the UK, the Baltics and others.

The pressure is on the banks who are over levered. The ECB is just a bankers club and they will help the banks with the support of the bankers government friends.

One year Euribor is today 1.8% Give it three months and it will be under 1% at this rate.

Apart from property which is going down in Finland by about 5% per annum supposedly (I think the figure is higher) the purchasing power of my Euros is being wiped out quicker than i think you realise. Rent is going up food is going up.

The name of the game is devaluation.

Either way there is nothing certain about how this is going to work out.

Japan did not fully implement an easing policy as they felt they had done enuf.

The USA is messing around trying to save insolvent banks so that the influential super rich elite behind mega banks hopelessly over levered can be once more super rich. They are doing what Japan did by keeping the Zombie banks alive.

The UK might be being a bit more blunt with their approach and just getting on with what is needed.

Only if the zombie banks are indefinately kept alive will your japan like deflationary scenario come about.

Obviously i do not know what is going to happen. You though seem to have a direct line to the future already!

:-)

HousingFinland said...

"As other countries devalue their currencies to attempt to support asset prices that the banks need to remain compliant (rather than just letting them fail and nationalising them)"

I gave you clear example of those country you put forward, they didn't support those assets as they lost about 50% of their value in almost a year or so.

In Europe, we are just at the onset, the beginning of a long path of readjustment...If there is one central banks that has serious bias toward inflation, it is the ECB therefore I can only see a strong Euro down the path not a devaluation one.

And regarding the inflation worries...the configuration is not the one in the 70's.
1- you are not going to see a wage spiral in Europe and in particular in Finland. The reason is clear,if such thing would happen it will put an end to the manufacturing for good and erode competitiveness for good and speed globalization a level futher (You have seen manufacturing fleeing to Poland, India, China and Russia)

2-The ageing of the population, here we are almost approaching the Japanese configuration should nationalism rise and immigration policy slowed a bit further.

HousingFinland said...

"Apart from property which is going down in Finland by about 5% per annum supposedly (I think the figure is higher) the purchasing power of my Euros is being wiped out quicker than i think you realise. Rent is going up food is going up."

Last year rent went up by 4% or less while inflation was 4-5%...so rent did not budge here.

Rent will increase by 0% or a negative value in the years to come (especially in the commercial renting space).

Food price inflation, is clearly due to incompetence of the Financial watchdog and clear "eye closing" from politicians in the view of price fixing and a will to keep the monopoly in place for too long (too late to readjust now)...I call that corruption, a clever one.

Food price will go down drastically this year, as this time people anger will scare the politicians and break this corruptive framework...so there will be a readjustment and a substantial one.

well we will see in one year time...as those thing evolve in small step.

You remember my bet that inflation will be 0 by 2010...I think I will get it right...bet we took when inflation were scaring everybody and when oil price was shooting up.

Now the Euribor will fall to 1% by summer and with a possibility to go to 0.5%...this is not because the ECB belong to a banker club but simply he cannot afford a complete meltdown of the financial system, otherwise the consequences would be terrible (as a tremendous amount of company will collapse with unemployment reaching terrifying levels, a similar situation Finland knew in 1992 but spread to the whole Euro zone)...but asset prices will continue their downward trend as they will in the US, UK and many other country as it was a global credit bubble centred around real estate...you cannot be in denial about that.

I do agree that there are those people that have been shouting hyperinflation and advised to buy commodity and agriculture shares last year (Mr Rogers for example)...to only see their value collapsing by 60%...

Andrew said...

The euro can be devalued and still be the strongest official currency.

I dont live by official inflation. I dont have a car. But i eat.

Housing Finland the blogg people in NZ also think that food price increases only happens where they live.

The inflatio/deflation debate is a distraction from what is happening for many people. They are getting poorer as what they need rises in price.

The 1970's was created because people took to the streets to demand higher wages. By the 1980's the governments were fighting back with riot police and out sourcing jobs to China. Wages even so did rise.

Do you really think the government is going to force its chums to lower prices??

Or do you really think the people can force the government to force its chums to lower prices??

Here in Finland there is forcast a shortage of workers. Wages in that scenario will rise just as the government is currently predicting they will rise.

Governments are happy that jobs go to eastern europe or wherever because their chums make higher profits. (it does not really matter if none of this makes for a sustainable local system)

You talk about corruption. What you are observing is the system. It is 'what is'. The rest is a mirage.

China just bought 750 million worth of Seimens trains. Some banks in China are now offering 2% mortgages.

Do you think the chinese are going to pay less for food while the government there spends 585 billion USD?

Do you think all of those Kone predictions will be rubbish as you are forcasting still?

Who actually is in denial here?

Moi?

As for the inflation bet i offered it but i recall you did not take me up on it??

Even so maybe we could manage a blogg beer at some point soon??

:-)

HousingFinland said...

Andrew,

A beer will be welcome at some point, no denial about that ;->

Let's make it clear again with regard to inflation.

-I do not see wage inflation for long long time to come.
-I do not see illiquid asset being reflated i.e real estate
-I do not see price rising for long to come due over capacity and over investment (the interesting thing is that at the moment there is clearly a bubble in agriculture land..so many actors (pension fund, edge fund, private investors ) are buying...so down the line there will be lots of food supply coming).

What I could see at some point is a reflation of very liquid assets such as stock market. There will be @some point a lifetime opportunity to enter in the stock market (although being too early is worse than entering at all).

Now that is what I try to understand and try to detect more than worrying if housing price are overvalued or not (which I think they clearly are...but in even in the case they are not there won't be any growth or sluggish price growth for at least the next twenty years...so no hurry to get involved in that for investment purpose).

Regarding shortage of skill, I will look more from the point of view of shortage of manufacturing industry...because if the government do not provide the right competitiveness framework, it will not attract new company in that soil...thus the frenzy of bringing immigrant i.e reduce or push salary lower especially in industry such as forest and construction...in IT the question is not to be asked since physically you do not need to be in the country to do the work...I just find very courageous, people from other country coming with their family to work as IT specialist while their country is booming (that is a conundrum for me, but a clever play from the government).

Now the government Keynesian approach of the problem is ridiculous (fight the debt problems by taking more debt, will surely bring this country to his knee if the situation deteriorates further)...instead of building bridges or road in order to produce smooth GDP figures, it should concentrate to tackle the most important issue that the country has to deal with: demography and education.

Andrew said...

I suppose at this point in time i find your 20 year suggestion for sluggish growth in asset prices that go into the price of building a house as being absurd!

Especially when money can be produced in whatever quantity is required to ensure you are wrong!

You would need to put some more flesh on the bones of that argument for me to understand how you can possibly believe in this theory!

:-)

HousingFinland said...

"I suppose at this point in time i find your 20 year suggestion for sluggish growth in asset prices that go into the price of building a house as being absurd!"

Ask the Japanese...and the Finns that bought in 1990...obviously is inflation adjusted. And you would ask the American in 20 years time, the one that bought in 2006, similar thing for the English and Irish.

So nothing absurd..I think quite many real estate investors have been blind by the house price progression since 1982 (time when the credit growth went out of control, with a first burst in 1990 to resume and finally peak,to my opinion in 2006 for at least a generation or two)

Andrew said...

We can keep on repeating the same thing and give no ground at all and really make discussion worthless.

If we take the so called Austrian view then we just let things take their course and allow the debt to unwind and allow peoples lives to be destroyed until at some point in the future things improve.

A *true* keynsian view recognises that high taxation low government spending and higher interest rates than might be necessary in the boom provide slack in the bust. Similarly even if none of the previous had been done in the boom a keynsian view can be applied now to be replaced later by high taxes low government spending and higher interest rates as growth returns.

I have several times said that in my view the Japanese did not do what was necessary to alter their economy. For example they kept zombie banks alive.

You keep providing the japanese example as your evidence.

And from my own experience the UK housing bust is not as exstreme as the media suggests it is.

The thing about Finland or Japan was that these were local events.

It is very hard to correct things locally only.

But when the problem is worldwide then there is opportunity for debt forgiveness as a way to help all peoples.

Anyway i have said all of this before.

We just disagree and your arguments are just to repeat what you have already told me before and also to tell me my views are rediculous or are vested interest ideas and other insulting bullshit. Stuff the drink!

Andrew said...

sorry. too much pepper in my soup!

Actually drinking and fatherhood dont go together too well as i have to get up in the night

:-)

HousingFinland said...

Regarding the UK, You should look at this blog, coming from an insider from the UK that has been following the market since it got crazy.

http://ukhousebubble.blogspot.com/

I think you under estimate this crisis...and doing so could be very pricey.

One last word, since you keep bringing back again and again Kone.

I'd like to remind that this company used price fixing and has been comdemned by the EU to set up a cartel with similar company.

So why would I believe a comany that has been cheating its consumers, robbing millions from the pocket of honest workers and didn't allow, who knows, a competitor to grow on an honest base.

That's what I think about this company and they release that they will do...i doubt, they are playing poker as they have no clue hos this will unfold especially in their main market Asia.

Here what Malaysia had to say, and I'm sure it's not the only voice that will be honest to tell what's really hapenning...

"Singapore's export-dependent economy will take at least three years to recover from the recession triggered by the financial crisis, the Southeast Asian country's most powerful politician was quoted as saying. The daily Straits Times on Saturday quoted former Prime Minister Lee Kuan Yew as saying that a recovery within two to three years was part of an optimistic scenario that assumed a turnaround in the U.S. economy next year.

Under a pessimistic scenario, it could take up to six years for the island-state to bounce back from recession, he said."

And Russia few days ago had to say:

"Russia is abandoning most of its construction plans for this year and cutting out expenses as basic as road maintenance to save money to combat the financial crisis, government officials said on Monday. Prime Minister Vladimir Putin said the cuts would allow $43 billion to be spent on social and anti-crisis measures in 2009 alone, RIA news agency reported, while the finance ministry released a list of cutbacks for this year's regional budgets. The list called for spending on road repairs, building maintenance and other basics to be slashed 50-100 percent in 21 regions, including Moscow and several oil-producing areas such as Tyumen. Workers paid out of the budgets of eight regions face wage cuts of 10 percent to 30 percent, the document posted on the ministry's website said, while all new budget-funded construction and vehicle purchases are banned this year in 14 regions, including Moscow"

I would not put one penny in such company.

HousingFinland said...

Hi Andrew

Forgot to say...and it's out of subject with this article and the current thread ;->

Congratulation about your baby ;->, I knew it was for February but I was waiting that you announced it since it's private matter.

Good luck..the first 3 month are the hardest...right I have a view on it and I'm sure you will disagree ;->, but if you need advise do not hesitate, I went though that phase ;-).

Don't put too much pepper in your soup too ;o}

Andrew said...

HF

The baby is a challenge but it is a process not unlike an economic crisis. We seem to be past the critical phase of the first month and we now getting better sleep.

Anonymous said...

Then, what would be the smart strategy under the current situation, where both governments and banks are pushing people to use their money to buy private equities and the real-estate, and rob everyone with much higher prices of daily materials? If you keep the cash, they dilute its associated value significantly. If you buy housing, they will ask for much higher loan interest and property tax later soon. If you buy the private equity now, all the mostly drowning banks will eat you right away and make it to sustain their vampire lifetime. All these seem to be out of a perfectly designed huge worldwide robbery by the govs and the companies... The designed huge bubble is part of the way to make huge money, and the blue-planned bubble bursting is another way to make even bugger money. The system seems to be reaching such a stage.
Dear HousingFinlnd and the new father Andrew (congratulations!), what are your suggestions for the smart strategy under such situation?

Andrew said...

Anonymous

The chaos theory makes maybe more sense than the masters of the universe 'they are all in this together' theory? Maybe?

Even so undoubtedly today big banks have their hands out for bailouts and they are doing what they can to get that.

The USA may well be as corrupt as it possibly can be.

But these same forces have organised the world as it is today with the west consuming and the east making things so i find it hard to see that as part of some orchestrated plan that is just some show.

And todays mess could be just a period of difficulties and adjustments and undoubtedly some kind of new world order coming out of the eventual outcome but just how sinister will that outcome be?

the move towards socialism in the last 100 years has probably been crushed so far and so we are going back to a former era maybe?

As you point out i am a father now. Is my family going to be some kind of democratic institution now that i have a child where i only get one of 3 votes? No.

Democracy or rule by committee is a stupid idea, but in an excessively logical world a law based society seems reasonable. The real world never changed though. Reality is made from irrational and rational forces. Matter itself is made of rational and irrational phenonema. Light is an unknown thing for example that has both particle (discreet or detail form) and wave (continuous never ending form)

Benign Fascism or rule by corporations is not an entirely bad idea - given other alternates to how we are ruled.

Globalisation could be a force for good relative to the alternatives where the tail wags the dog and forces corporations to do the bidding of the workers.

In the chaos theory people really did believe the world was awash with liquidity. They really did believe that they had more sophisticated systems for spreading risk around. They really did think it was good practice to always be maximally levered to lend out everything they had and could borrow to lend if they got a profit today. The Interbank lending market apparently made sense as it was practiced.

On the other hand somebody somewhere was invading an oil rich nation in the name of democracy and somebody somewhere else was helping them do that while pretending not to.

*We* wanted the resources but we pretended we were the good guys.

*We* wanted wealth and did not want poverty.

So that is the past.

So how to prosper now?

I see inflation coming sooner or later. The leverage used has ensured our fate. We as a world either deflate randomly into chaos or we inflate by design into another unknown that may well be controllable. So having a pile of debt cant be a good idea until inflation is the known outcome.

Personally i have savings i worry about. Finland does not have large land taxes. Will that come soon? Probably not. But who knows.

For me getting land or property that can be improved via my own labour makes sense as come what may in the future i can add value and maybe even source cheap materials at rock bottom prices and have my own work thru any difficulties short of ww3

WW3 is always the spanner in the works for me. The unknown. Deflation will probably lead that way.

I am in denial therefore - just as housing Finland says. I dont want to see ww3. But neither does Housing Finland i imagine. I imagine he believes we can have some kind of benign world deflation he can profit from??

From a certain point of view it can be seen to be an entirely reasonable thing to do to bail out everybody who is anybody and only ask questions later.

We are in trouble. We need to act now.

In the Swedish solution the countries had to be brought to their knees before the governments did the right thing.

Presumably the USA will do the right thing? Eventually?

HousingFinland said...

@Andrew and all,

I put an article where this thread could resume, I suppose.

regarding your comment :
"I am in denial therefore - just as housing Finland says. ... I imagine he believes we can have some kind of benign world deflation he can profit from??"

Profit is not the right word. I'm not a banker.

The correct word would be protect, myself, my family and maybe people around...in that sense this blog is about that.

People are free to follow what it seems right for them...