Wednesday, 29 July 2009

Katainen: Deflation is, but not in social benefits..

While government aims to be careful with its purse strings, Katainen promised that social benefits would not suffer.

When the prices come down, usually it would mean that some principle subsidies will come down also but I propose that all of those social benefits and subsidies would stay as they are at the moment and not decrease,” he explained

So Katainen, the Finnish Finance minister is acknowledging Deflation... you can't hide this a sense it is hapenning in a very slow motion - price, almost all prices that are not controlled are decreasing (by the way, price that do not currently decrease is highlighting some kind of price fixing i.e alcohol, food, restaurant price and even hotel price...people prefer not to sell than reducing their price but for how long?)

At the end it's a matter of time - the massive credit expansion that started in the beginning of the 80's is now deflating - it will take maybe thousands of current Finnish stimulus to stop this debt deleveraging - so at best they could only mitigate the effect but not stop it...

Saturday, 25 July 2009

Helsinki "Slump" Dog

"Housing prices in Helsinki came down by 7.7 per cent year-on-year in the first quarter, the city council said in a statement Friday.

Prices in the heart of the city plummeted by almost ten per cent year-on-year.

Overall, prices fell by 2.3 per cent from the final quarter of last year, marking the third consecutive sequential quarterly drop
." - STT
This article is brought to you by "Island Crow", thanks again ;->

As you may have notice..I'm on holiday so no much time to spend on this blog ...but you are welcome to put forward important information.

Wednesday, 15 July 2009

Gowing Forward,Turbulence Ahead?

2009 will be remembered in the same way the late 80's,the end of an economical boom and historical credit expansion, and a reversal that will last, in the best case, a decade or so.

It will be, as well, remembered in the same way as in the 30's where central bankers slowly became powerless and impotent in the Pfizer sense. Ultimately they will transform themselves into "phoenix", to do so they will allow the inflation beast to reappear in order to fight the deflationnary trend that is slowly but surely settling into the basic consumer mindset. So they will reborn from the ashes and like the Incas will sacrifice some retiree, and a good percentage of youngster.

One has to understand that the economy is stable thanks to social stabilizer i.e robbing the wealth of the young and next generations though all sorts of Houdini type of benefits. This is the price to pay for a sluggish but non violent economical and social environment.

For the moment, low interest rates, government benefits and past saving allows this stabilization and gives the false feeling that the situation is not as bad on the ground... mid 2010 will be a very big test as slowly all the stabilizer disappear including the effect of low interest rates, then if the emerging market had failed to restart then we will enter a very turbulent economical environment.

Last but not least, if you have not understood what I tried to demonstrate on the graph above...well print it and bring it to your banker. Depending on the answer, here is a possible profile of your banker:
-A(Answer) : "don't get it"
-P(Profile): He must be as smart as an Elk - maybe a SBank banker?

-A: "hum, not possible...housing price will stabilize, so can't happen"
-P: If he has a bear, give him some red wine and bread...he most probably has already walk on water...

-A: "Finland has no housing bubble, and construction is loses can't grow further"
-P: He may have had an intensive training in a US Camp, probably having the FED or the couple Greenspan-Bernanke as lead trainers...

That's all ...have a nice sunny holiday wherever you are...

Friday, 3 July 2009

Tax Payers On The Front Line

"The unemployment contribution, which is automatically withheld from pay, is expected to rise to 0.9 percent from the current level of 0.2 percent. Employers’ fees are also expected to rise, according to Finland’s Unemployment Insurance Fund."

"The hike translates into the average taxpayer shelling out hundreds of more euros every mont

Is that "lemon" socialism...trying to squeeze out any good spirit left out of the average tax it will be an endanger species pretty soon, on the same level as once a great animal: the dodo...

Thursday, 2 July 2009

Is 1% key interest rate too high for Finland?

"Sweden’s Central Bank Cuts Key Rate to Record 0.25%

Sweden’s Riksbank unexpectedly cut the benchmark interest rate to a record low 0.25 percent, predicting the rate will hold at that level until autumn next year, and said it will offer a financial package to banks." - July 2 - Bloomberg

In Finland, last inflation reading was 0% in May, amid strong downward pressure on almost all prices (ranging from food price, real estate, rents, car to various type of services).

If it is not deflation, it feels like it.

Arguably in 2004-2006, European interest rates were to low for Finland and resulted in a massive credit expansion - a double digits figure that fueled almost all asset prices.

Nethertheless, congratulation Sweden...devaluating your currency has allowed you to become competitive against Finnish companies...that is the price to pay for Finland to have adopted the Euro.

Red Alert : The ECB Liquidity Deposit

"OVERNIGHT DEPOSITS with the European Central Bank (ECB) have surged to a five-month high, suggesting banks are hoarding much of last week’s massive injection of ECB 12-month funds.

Commercial banks deposited €236.2 billion with the ECB on June 26th, the highest level since since January 19th.

The Frankfurt-based ECB last Wednesday lent €442 billion to European banks at its benchmark rate of 1 per cent, doubling the liquidity in the banking system to €897 billion.

The ECB hopes commercial banks will lend the funds on to companies and consumers, which would stimulate spending.

However, after flooding the money market with a record amount of funds, the ECB is now grappling with the most difficult part of its operation: making sure the money fuels economic growth.

ECB executive board member Lorenzo Bini Smaghi and governing council member Axel Weber both told banks last week that they should toe the line after the fund injection.

“Now they have to pass it on to the real economy, make loans to firms,” Mr Bini Smaghi said.

“It will be up to the relevant authorities to ensure that they do.”

Mr Weber said that, if central banks’ efforts to kick-start the economy failed because commercial banks were too cautious in lending, central banks could bypass the commercial banks and take more direct measures.

“I assume that a credit crunch is avoidable, if banks co-operate,” he said. Mr Weber did not spell out what action the ECB might take if banks did not co-operate. But one option would be for the ECB to lend directly to companies, as the US Federal Reserve and the Bank of England are doing.

Mr Weber said he saw no need for fresh action “for the moment”.

On the one hand you have the media echoing that "the worse is behind us" and on the other the European Central Bank is working on the background to keep afloat a system , that will collapse under its ill designed regulatory and banking architecture, if more "blood" money was not injected.

So to summarize in a medical terms, the patient aka the economy had a heart attack in October, it got a electrical shock treatment (unseen low interest rates since the Cro-Magnon) to resuscitate him - remember the economy was on free fall in the first quarter.

Now the patient is artificially kept alive by periodical injection of blood (money) while no one is sure if the vital function are damaged or not - nobody at this stage want to know - it could adversely affect the confidence.

Have you seen Frankenstein? well that's what currently the ECB and the FED are engineering...some form of creature that no one knows how it look like and worse how it behaves...I have to watch again the movie to check the end...

Well I'm wondering why on earth I'm still putting or taking loan from my bank where I can get from the Ultimate Central Bank 1% rate and on top of that be sure that the bank will be around in 5 years time - after all technology allow that nowdays and they seem to be less greedy... so not sure about the rest of the banks, why do you need them anyway? they have just added noise and instability to the economy- they lent irrationally in 1985-89 to then collapse and being rescued by tax payers in 1992 - they fueled the tech boom by lending to shadow tech entities and public investment fund in 1999-2000 and now to fuel a once in life time world wide housing bubble in 2004-2008 where a correction was overdue at that time...

So maybe just in case we should call it WWHB I, you never know that lessons get forgotten and overwelmingly taken by greed once again...maybe in 20 years time we will have again WWHB II.