Monday, 29 June 2009

Irrational Exuberance : The Finnish Consumer

"Statistics Finland" has asked to a "basket" of consumer several questions in order to build up the consumer confidence index.

One question was, Is it a Favourable time to make major purchases at present?

The answer was a overwhelming 36.1 points having in mind that all time high was 37.7 and all time low -14.2 which was reach last fall.

First, it has to be noted that we don't really know if the people interviewed are really representative of the population - so clearly it is not a scientific method that is being used, it is more like predicting the weather for next month.

Second, an all time low in interest rates combined with the fact that most mortgage rates are linked to variable rate is currently boosting purchasing power and to that combined with the media "green shoot" paradox and a tsunami of almost real fake sales (i.e shoes that had max price of 100 euro a year ago are now price at 130 euro with a 20% to 30% sales, another example is the amount of really "crap" quality clothes that has flooded the shops to satisfy sales consumer hunger)

Third, at the end, what does that really mean making a major purchase? Since retail sales are on free fall, permit building collapsing, car sales at almost pre war levels and housing price declining.

I would assume that major purchase at present is about "the beer" mainly influenced by the weather which happen to be exceptionnaly good.

After a better reading of the statement, I extracted the following :

"In June, many households had plans to purchase, among other things, home technology during the next six months. Sixteen per cent of households were fairly or very certain to buy a car and 7 per cent a dwelling during the next 12 months. In last year's June the corresponding proportions were 16 and 8 per cent"
First to put together people that have "fair" and "very certain" buy feeling is strange, a little bit like mixing cow and bull, and hoping to get milk out of all...

To be franck, If I put as a title irrational exuberance, is simply because the Finnish consumer have been conditionned to live in a "fairly certain" begnin economical condition, a "V" type of recovery that state that crisis are mild and business as usual resume very quickly i.e inflation rising up, housing price resuming their upward trend, wage rising up and unemployement falling... As you may know by now, I do not believe a second about such scenario.

I believe more in a "W" type recovery or actually a "VL" type recovery.

In a "W" recovery, the first leg of recovery is mainly due to central banks and government pumping money into the system but the effect is short lasting and the fall resume. Ultimately a recovery restart after the economy has readjusted itself i.e less leverage, sound bank practices...

In a "VL" recovery, the first leg is similar to the "W", so after all the "legal doping" simulus is through to the economy, it fall back even lower since the growth in the past 20 years were just artificially created by easy monetary, currency manipulation and high leverage on institution and household and to that you add the demography issue that kicks in.

In Summary here is a simple forecast for the consumer confidence, a little bit like statistics finland methodologie, I used "Paint" software model combined with the help of one of my most trusted and reliable adviser, my barber:


Anonymous said...

well said. And pumping money into the system gives no good results at all

time to buy gold :)
But where in Helsinki?

HousingFinland said...

Hi Anon,

If you were to buy gold I will wait until it is about 670 dollar/ounce instead of the current 940...

It is true that gold could go very high in the next few years if Central banks fail to remove the massive extra liquidity they created (the previous one they created in 2003, ended up in speculative investment such as petrole and food)...this time it will be about the credibility of the fiat system as whole and gold then become the only "currency" tradable is central bank where to make an historical policy mistake.

As a rule of thumb, some people have been advising to have about 7% of your saving as gold, as an insurance against possible mistakes from policy makers (banks and government)

Anonymous said...

For your information, the material gold as currency has been jailed for many years, completely since 1973(?) and partially since 1933-34. Yes, you may be able to buy the material gold as commodity (if there is still some in the shops). However, you have to pay very high extra "tax", not just the VAT. It seems the central banks would like to keep the real money for themselves, but to give us the paper notes, or the "I-Owe-You" paper notes. That is the trick, and the fence to prevent the normal people to run away when they understand the trick.

Anonymous said...

One more, don't buy the so-called paper gold of the stocks issued by the banks or the exchanges. They are shares, like the others. When a bank goes, they go with wind as well.

HousingFinland said...

Thanks for the info, Anon!

Anonymous said...

"But where in Helsinki?"

Tavex in Helsinki is a mostly FOREX business which also sells retail size gold (bullion coins and small bars). Their prices are competitive. Another good company is The company is registered in London but their main warehouse operation is in Germany. It is easy to order from them via their website, receive an invoice by email, pay
into their bank account (they accept EUR, GBP and USD) and your order will arrive after a few days by courier (UPS in Finland).

Note that under an EU law of 1st Jan 2000 the VAT on gold bullion (this includes bullion coins like the one-ounce and fractional common bullion coins) have zero percent VAT.

In the EU silver however has VAT if you take delivery.

For larger scale investment in bullion I know and use two good companies. where you can invest in real physical silver and gold (the silver is VAT-free if you don't take delivery). This company is based in Jersey with vaults in London and Zurich. James Turk is the CEO. (London based) where you can invest in real physical gold. They have bullion in vaults in Zurich, London and New York. BullionVault recently was awarded a Queen's Business Enterprise award for innovation.


Anonymous said...

Thanks for the information of "But where in Helsinki?"

Anonymous said...

Thank you for where to buy retail size gold.

Do we have a quality guarantee system for the precious metals, like that for the diamond.

Who will guarantee the commodity metal is gold, not others, or its proof is 999.9 not 700?

Where and how easy and costly to know that?

Andrew said...

Selling Gold can sometimes be problematic if you dont have the paperwork to go with it. The problem for the buyer is that one day they want to sell it without too much hassle.

For a large bar to be valueable to a private buyer so they can sell it easily in the private market they need to have the refiners paperwork and the ownership trail to the present day. A refiner of course does not need paperwork because they will expect you to pay for the test once they have melted the metal, mixed it and produced their copy of the test and you pay their price based on whatever they find rather than a private buyers 'spot' price.

Gold can be a mugs game depending on when in history you buy your gold. Obviously the miners sell their gold at what they think are the high points in the market and more or less the rest of the time they short the market and since they are in the market all day and every day they have a pretty good idea about demand and the true market price. They can also afford to publish all manner of media to encourage people to buy gold and keep up the mystique just like the Diamond mines and buyers do.

Housing Finland is suggesting people wait to buy gold when it is about 250 dollars lower than today. For all my differences with HF the fact is, he has been pretty darn accurate so far!

Might be time for that beer as I think i am already wrong on the inflation argument by some months now and it looks very unlikely that anything is going to suddenly explode upwards in price - even if i dont recall the bet being taken by HF at the time i offered it!

Anonymous said...

concerning the bottom gold price, I have the link for your reference:

There may not be the chance to reach the 670USD "bottom" anymore...

HousingFinland said...

Hi Andrew,

it will be good to share some though in any case - so it will be great to meet around a beer or a coffee at some point... I lost your number, but you could send me an sms so I can get it back.

Ideally it will be good to meet some time in mid july .

Anonymous said...

Tavex has a website:

Their address is somewhere on the website. (I haven't actually bought from tavex.)

I compared some prices with and CID is significantly cheaper.


Anonymous said...

I guess big investor groups (greenlight capital inc.) thought the same: that's why they just converted their 5BLN US$ funds into gold...