Friday, 12 June 2009

Green shoots ... Not Really.

Some country have witnessed signs of recovery, what some officials called "green shoots".

In March , it seems that the downward trend was broken and that a recovery was appearing, it was short lived. Indeed in April the data show again a continued deterioration and no signs whatsoever of a recovery.

Let's look at the data.

The industrial output is still extremelly depressed:

The same can be seen in the new orders in manufacturing :

While at the same time, around the world the "growth" or "green shoots recovery" was partly fuelled by very low, dangerously low interest rates, government stimulus and money printing in some cases (US, UK etc...).

In some big country, the recovery could turn to the worse as they are creating the base for an economical tsunami. Here is more precisely what I mean:

"China’s new lending doubled in May and industrial output and retail sales climbed more than economists estimated as government stimulus spending revived the world’s third-biggest economy.

New loans jumped to 664.5 billion yuan ($97 billion) from 318.5 billion yuan a year earlier, the central bank said today. Industrial-output growth accelerated to 8.9 percent and sales rose 15.2 percent, the statistics bureau said"

" 'The rapid growth of credit should be regarded as a warning sign,' Andrew Crockett, a member of the China Banking Regulatory Commission’s international advisory committee, said in Beijing today.

'Nearly always when we have financial difficulties at banking institutions, it’s preceded by rapid growth in lending,' said Crockett, also JPMorgan Chase & Co.’s international president."

Nethertheless in the past 3 months the policy makers had averted a confidence crisis.

In the meantime, I will advise to be very carefull if you are thinking about taking big debt -it is definetely not the moment - as this crisis has not yet reached it's full force and next year could be very decisive.

It is clear that the export market is being hit pretty badly, while in the meantime the internal consumption is not doing any better.

Kesko press release highlights some of the symptoms.

"In the building and home improvement trade, sales in May were €218.8 million, a decrease of 27.0%.

Sales in Finland were down 31.0%. Sales in foreign countries decreased by 23.6% in terms of euros and by 16.3% in terms of local currencies. In the Baltic countries, sales were down 33.5%.

In the car and machinery trade, VV-Auto's sales in May were €44.0 million, which is down by 46.5% compared with the previous year.

All in all retail sales are doing pretty poorly as highlighted by statistics Finland

According to Statistics Finland, retail trade sales fell by 2.2 per cent in March from March 2008. Sales volume fell by 3.5 per cent during the same time period.


Anonymous said...

Thank you for your blog! I come to check it every week. Have learnt many useful things :)

HousingFinland said...

Anonymous , you are welcome! if you have some interesting subjects that can be put in the spotlight ...let me know.

Krösus said...

I agree with anonymous, great blogg! Here is subject more on the market psychology side: why has the "lama-generation" i Finland been sucked in to the housing bubble? You would think that finns would be extra careful in the housing market beacause of the crash in the early 90:s.

HousingFinland said...

Hi Krösus,

Well there was a boom and bust housing cycle during 70's too, then the 90's then during this first decade...

Have a look to this link : HousinK... From Boom To Bust

So it looks like housing bubble's doesn't hold into people memory for many reason...
-each time you are dealing with different generations - all part of the successive baby boomers...although the last one is clearly running out of steam i.e modern world

-The media role into dealing information toward self interest, pushing and amplifying the boom

-Politicians easily corrupted by powerful lobbies - dragging their feet into passing key legislation with regard to an overheated housing or closing their eyes in some shadow deals - "corrupt" politicians have been around and will be around at all periods so expect more boom and bust periods.

-social effect, in 2004-5 it was very clear as almost everyone was talking of buying or had there was clear signs of can call that the lamb generation or sheep generation, I guess each country has its animal...maybe in Finland would it be the "pike generation" : big teeth and not very smart ;->

-Policy makers that clearly mad a mistake in 2003-2005 when they let interest rates far too there are somehow fighting past mistakes...and they will commit or have already committed mistakes that have put the seed for the next crisis : hyperinflation (maybe in 3-5 years time)

Anonymous said...

I agree with anonymous, great blogg! Here is subject more on the market psychology side: why has the "lama-generation" i Finland been sucked in to the housing bubble? You would think that finns would be extra careful in the housing market beacause of the crash in the early 90:s.

The UK in particluar has had the same sort of housing bubbles at roughly the same time. Fred Harrison has studied and published on the subject of property bubbles and has found that an 18-year cycle is common (search for Fred Harrison on YouTube, he gives interviews there).

18 years is long enough for the first-time buyers not to remember the last bust and the older ones just feel happy that the price of their house is going up. It's a form of financial mania IMO.

With the others I wish to thank HousingFinland for keeping this informative blog. I am especially keen on real numbers and graphs showing economic performance.


HousingFinland said...

One idea that has to be more highlighted with regard to past stock and real estate frenzy : Public Pension Fund.

The public pension fund diversified themselves in the stock market and real estate...becoming the ultimate speculator.

Now with the stock market and housing correction ongoing and at the same time the mass retirement starting they are under tremendous pressure, they will become risk averse and market fulfill their legal requirements: paying an ever increasing amount of retiree in the years to come starting from 2010...

Now this government is trying to solve the problem by running away from it - i.e pushing forward the retirement age.

In summary - the financial cycles that we have witnessed in the past 40 years - from housing and stock market boom and bust - may not occur in the next 20-30 years regardless of the event of the current financial crisis due mainly to the baby boomers or in one word : Demography.

Anonymous said...

For me, the public pension fund is not speculator itself. It is only a pool full of real money. Like the well-cooked ham in Xmas, it is the food for the empty-stomach. Simply, it is a piece of meat stolen by the little gov fox for its friends, the greedy wolfs.