Friday, 29 May 2009

Tic Tac, Tic Tac ... A TacTic?



"The European housing cycle lags the U.S. cycle by about 2 years but the extent of house price increases, as well as the extent of over-construction, exceeds the U.S. experience in many countries.

Starting from the mid-1990s, house prices in the UK, Spain, Ireland, Scandinavia and France exceeded the price increase in the U.S. whereas construction as a percent of GDP expanded to unsustainable levels, especially in Spain and Ireland.

This severe construction overhang in the latter countries will take several years to unwind thus retarding a return to balanced growth as suggested by the strong housing-consumption correlation in these countries.

Recent research by Citigroup foresees price drops of 10% to 15% by 2010 and 20% to 30% over the next 4 to 5 years."

To be honest I am astonished by the way the press has been covering the housing market as of late...I suppose they are still trying to trap the last soul amid multi-generation low interest rates.

On the other hand, the Construction Builders are not fool and have sharply reduce their ambition and have put a brake in their future construction plan (building permits plummeting).

On the opposite, the bankers, high in the sky, are still looking to hit their next target.

The Banker latest news reported or let's say propagated by YLE is as follow :

"Bank economists surveyed by YLE do not expect any major changes one way or the other over the next few months. Most predict that rates will remain low for the rest of 2009, beginning to rise again after the turn of the year"


Raising rates beginning of 2010...that's astonishingly surprising and worrying as it reflect a lot of non sense - either they are lying or they clearly have no clue of what is currently happening, amazing in fact ...that could clearly explain the short sighted banker views that have not only seen anything coming and will most probably see nothing coming too.

Interest rates will probably stay low for at least 2 years as there won't be any inflation threat for at least for the next 2-3 years since private and public debt have reach historical levels both in industrial world and emerging markets. As a matter of fact, this year and next central bankers will be fighting against the deflationnary threat.

So I read this piece of news as a last trick from bankers to cheat again consumers and trapping them in a massive lifetime debt burden as they did during the dot.com bubble, as they did from 2006 by allowing people to take debt they should not have been eligible in the first place and for assets that were grossly overvalued.

Nethertheless, this blog is all about warning people about this type of statement clearly misleading the public and warmly echoed by newspapers and online channels that have clearly self interests in doing so...it is sad, but it is the true reality.

All in all when a storm is hitting and thunder striking (the current crisis that will probably finish in 2011, obviously this is the optimistic view), it is better to be patient while the dust settle (the onset of the crisis)...

7 comments:

Andrew said...

Latvia having a few problems

China doing ok

Kone even managed to sell almost 300 escalators for the stations along the route of new high speed link from Shanghai to Bejing

Baltic dry now almost 700% higher from darkest moments after Lehmans went bust which must be good news for Wartsila if they ever worried about what might happen to ship orders beyond this year.

Still no sign of an inventory spike in Helsinki own home houses. Country wide there is quite a bit less for sale for all units since i started looking about one year ago.

HousingFinland said...

Hi Andrew,

Welcome back! How is the baby...finally he was born during the economical recovery... ;->

Well, in fact I have not changed my point of view...The recovery is just a stabilization after very powerful action from central bankers and governments around the world( including China that have massive reserves but massive issues too if the economy does not hold and grow from here...Kone should thanks the Chinese subsidies...regarding China, here is a good article that highlight some facts : http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a721bsK5OmLE)

So Baltic dry index came back to 2007 level (http://www.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AIND)

you wonder why? as the activity is much lower than during that period or and has slowed in almost all regions...maybe people are stocking oil, materials...so the temporary need of those tankers (see http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ar.MDg1.RGBg)..I still think Wartsila has not yet seen the worse...

Regarding the Housing market, think about it... interest rates are at record low, especially here in Finland where 98% of household are taking variable rates...yet the volume of mortgage declining.

Price are not rising, in fact they are declining, albeit at a slow pace since people are still doubting that price could fall much more...It's just a matter of time...in any case house price has never risen during unemployment growth and this is forecasted to happen well into 2011...

Now, my guess if that price will continue falling for at least the next 2-3 years.

After that I will advise people to start looking into buying hard assets including housing since Central banks will most probably be confronted with bigger issues and will fight a double deep recession, from 2010-11 that could be worse than the one we are in... and undoubtedly they will let the "inflation monster" out of the box...but not before 2012...or later - who knows, as we discussed the only issues is to have the timing on when deflation end and high inflation starts...not about the outcome.

Regarding the inventory in Helsinki, time will create it for many reasons (mass retirements, rental housing subsidized by tax payer money (to put a floor on construction unemployment etc....), a declining service industry that expanded during boom time and will shrink back to a normal post 2010 growth )

Regarding Eastern Europe or Europe in general...it's only starting, usually you have a lag time of about 2 years after the US collapse before receiving a shock wave...

Regarding the stocks, as I said this is where the most opportunities will arise...not the housing market...this was said with the point of view of investment.

Now I believe there will another big opportunity, last quarter of 2009 or or sometime in 2010...who knows ...again it's all about timing...

Regarding timing, I suppose you are quite busy lately ;->, almost a full time job and the best investment around...I hope you get enough sleep though...what is his or her name?

Andrew said...

Hi HousingFinland

We had a girl and yet it has been tiring but we are past the worse now with her often sleeping thru the night. I am delighted so far.

China can spend so much because it saved so much, and obviously it cannot keep spending and remain a saver but if China is not a saver then neither are the debtors debtors anymore. Most of the Finnish debtors are for example saving for a debt free house at about 4% per annum.

But this financial mess never looked good when it began and it is not looking good now either.

As i said before what seems to interest me is to look at what is happening now and then see how that is going to influence events later. China had savings and it had high interest rates and when faced with high stocks of export ready goods in an export collapse situation it took a while to work thru the inventory to meet the new lower demand. Meanwhile the credit crisis with massive government support is more or less over while there is massive government support.

Similarly death is avoided when we are permanently connected to life support when we are unable to live unaided.

Meanwhile if you go shopping in Finland it seems very busy. :-)

Andrew said...

I note also that Trichet looks like he has aged 20 years in the last year

http://multinews.kauppalehti.fi/multinews/images/klo/etusivu/2009/06/04/22899_8796_0_232_105_150_105x150.jpg

HousingFinland said...

"Meanwhile if you go shopping in Finland it seems very busy. :-)"

I agree, although the statistics show that retail sales have been dropping pretty fast...in the meantime people are more careful and start saving too...

But I suppose you are most probably referring to the "capital region" where people have the highest level of debt and more or less still euphoric : thanks to the banks...

I suppose people are not afraid of buying big items or taking big loans since they think it will be "business as usual" in a year time...thanks to distorted news from the media and some politicians/economist...

As I said in this title...it's better to wait before committing and taking risks in term of investment (housing, for stock I will still wait a bit )...otherwise it's a good time to real investment : family, education, find a better job

HousingFinland said...

Regarding Latvia and its link to the nordics... I 'm pretty sure you can put more country in the same bag i.e Estonia for example

"The Baltic country, which is suffering the severest recession in the European Union, is struggling to rein in its budget gap in order to secure the continued payment of an international bailout.

Latvia’s economic collapse is threatening the prospect of recovery in Sweden, known for its textbook handling of its 1990s banking crisis, because the largest Nordic nation’s banks are the biggest in the Baltic region.

The situation in Latvia is “markedly worrisome,” Swedish Finance Minister Anders Borg said in a statement on the government’s Web site today. The economy shrank an annual 18 percent in the first quarter."

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