Friday, 18 December 2009

Finding A Better "Compass"

The extraordinary remedial actions taken by central banks and governments since late last year have been successful in restoring confidence in, and improving the resilience of, financial systems around the world.
Despite the recovery in financial markets and improved financial performance of euro area LCBGs (large and complex banking groups), there are several grounds for caution in assessing the outlook for financial stability in the euro area. In particular, the main risks identified outside the euro area financial system include the possibility of:
  • vulnerabilities being revealed in non-financial corporations’ balance sheets, because of high leverage, low profitability and tight financing conditions;

  • greater-than-expected household sector credit losses if unemployment rises by more than expected;

  • the surge of government indebtedness raising concerns about the sustainability of the public finances, as well as the crowding out of private investment; and

  • an adverse feedback between the financial sector and public finances as a result of financial system support measures, fiscal stimuli and weak economic activity

Within the euro area financial system, important risks include the possibility of:
  • renewed financial strains and that the recent recovery of bank profitability will not prove durable;

  • vulnerabilities of financial institutions associated with concentrations of lending exposures to commercial property markets and to central and eastern European countries being unearthed; and

  • a setback for the recent recovery of financial markets, if macroeconomic outcomes fail to live up to optimistic expectations.
SO a very important article from the ECB that highlight the great uncertainty that lies ahead. In particular, the risk of a renewal of the financial crisis which could endanger a very weak stabilization.

In the meantime, the Finnish finance ministry has published its growth forecast. First it cannot predict accurately the growth on a 6 month horizon but it is confident enought to highlight that 2011 will see growth , contrasting fully with the cautious view of the ECB.
"According to a new forecast by the Ministry of Finance, the recession has bottomed out... With the improving prospects, the ministry has raised its forecasts for economic growth in 2010 to 0.7 percent, up from 0.3 percent in a previous forecast. In 2011, growth is expected to accelerate to 2.5 percent.", YLE
In any case, I strongly urge to make your investment decision on the view of the ECB. In addition, I would like to highlight that since no one knows how the situation will turn out (due to massive intervention and its associated inability to identify the strengh of its recovery)...I will advise to just be an observer: watching how it develops and wait for better opportunity in case you are planning any investment.

Having said that, anyone takes its own decision and this is only my view and the one I will follow.

Friday, 11 December 2009

Finnish Q3 capital region house prices dive 13.5 pct yr/yr

"Finnish third-quarter detached house prices fell by three per cent year-on-year, plummeting 13.5 per cent in the capital region and 1.8 per cent in the rest of the country, Statistics Finland (SF) said in a statement Friday.

The agency added that the average price of land for detached houses had fallen by 4.7 per cent year-on-year but was up by 7.7 per cent sequentially
." STT
Taken as-is from STT.

When you think that interest rates are historically low and unemployment relatively stable due to extreme measure made by governments and central bankers around the world. I would expect a bigger decline going further.

Wednesday, 9 December 2009

The "Finnish" Distorted Food Market

"Gross earnings by farms have fallen sharply this year compared to 2008 addition, revenues from grain sales fell by 110 million euros. A large harvest flooded the market, driving down prices for grains."

I understand that grain and in general any food related price went sharply down in the past year.

On top of that Oil price plummeted and is about half of the peak it reach in 2008. Moreover, transportation cost (for food stuff imports) have severely decline.

In addition, Uemployment has risen which mean the purchasing power as a whole as gone down on the consumer side.

So how on earth food price have not budge in Finland? Why is there not any competition coming from the two biggest supermarket? and what is the competition authority doing?

Disclaimer : whatever is said above does not reflect the opinion of the writer or any one who makes comments on it. This was most probably written by some unknown force, that remind us not to underestimate the power of internet and the lack of knowledge on how the information is controlled, created and disseminated.

Friday, 4 December 2009

Housing Bubble to deflate end of 2010?

The ECB’s decision yesterday to end long-term emergency loans and tighten the terms of its final 12-month tender will give greater traction to any rate increases in 2010 should policy makers deem them necessary.

“The ECB chose a quicker exit path,” said Laurent Bilke, a former ECB economist now at Nomura International Plc in London. “It’s very difficult not to think it’s the beginning of a tightening process.”
...this will happen when the ECB had no other choice but to raise interest rates. It is not because the Finnish economy will do better associated with a risk of overheating, but it is because that the old economy (i.e France) seem to get out of this recession faster than thought. It is as well because states/governments are pilling up debt at alarming rate, thus one has to stop them before you get a situation where countries will not be able to service their debt and destabilize the European monetary system as a whole.

Nethertheless get ready for more shocks sometime in 2010 and see a dramatic correction in the housing and stock markets.

Wednesday, 2 December 2009

"The Black Death"

Please if you were looking for a note of optimism this morning, then switch off you laptop. If you are at work, you should not anyway be browsing this site.

So, let's talk pandemic.It seems that the Finnish government want to vaccinate any living creature on the Finnish soil against the H1N1. I'm not sure about their aim, to enter in the World Record book? maybe as the country which vaccinated about 99.999% of the population (the 0.001% missing ... could be me ;->) .

Pandemic is nothing new, it has happened many time during human history. Not surprising to the readers, the human has always survived. The most known and deadliest is "the Black Death". It occured during the 12th century, precisely around 1348. The impact was tremendous, 50% of the European population was decimated. It was a very dark period marked by economical, social and religious instability. Tragically, like any similar periods, when nobody understand the true reasons, minorities became the targets and were hit very hard.

So this has happened 1348. This is important. Let's go a bit earlier in time an revisit the situation prior to that time:
"During the Medieval Warm Period (the period prior to 1350) the population of Europe had exploded, reaching levels that were not matched again in some places until the nineteenth century (parts of France today are less populous than at the beginning of the fourteenth century). However, the yield ratios of wheat (the number of seeds one could eat per seed planted) had been dropping since 1280 and food prices had been climbing. In good weather the ratio could be as high as 7:1, while during bad years as low as 2:1—that is, for every seed planted, two seeds were harvested, one for next year's seed, and one for food. By comparison, modern farming has ratios of 200:1 or more.

There was one catastrophic dip in the weather during the Medieval Warm Period that coincided with the onset of the Great Famine. Between 1310 and 1330 northern Europe saw some of the worst and most sustained periods of bad weather in the entire Middle Ages, characterized by severe winters and rainy and cold summers.

Changing weather patterns, the ineffectiveness of medieval governments in dealing with crises and a population level at a historical high water mark made it a time when there was little margin for error."
This finally bring to the "Malthusianism" theory:
"I say, that the power of population is indefinitely greater than the power in the earth to produce subsistence for man. Population, when unchecked, increases in a geometrical ratio (Exponential growth)." – Malthus 1798, Chapter 1
So after all, it might be the reason that governments take great care that such thing doesn't occur again or is it just to keep the consumer, the engine of the economy, consuming?

EasyJet : Monaliisa for 29.99 Euro!

"EasyJet opened its first service to Finland, a route between London Gatwick and Helsinki-Vantaa, last year.

"We view Helsinki as an interesting destination because the national airline has held too big of a market share in Finland and there is a lot of demand for low-cost flights," Thomas Haagensen, easyJet's general manager for northern Europe, said in the statement, referring to struggling flag carrier Finnair."

That's a good news for the consumers.

At last we will have choice to choose between different airline and have beneficial competition.

Another news in the same line ...

Irish no-frills carrier Ryanair on Wednesday called for Anu Vehviläinen (centre), the Finnish transport minister, to explain why she had ignored a proposal to "incentivise" foreign carriers to enter the Finnish market, namely Helsinki-Vantaa airport.

"Ryanair can reverse the collapse in traffic at Helsinki airport if the government incentivises airlines to grow but our proposal to the minister for transport has so far been completely ignored."

So looks like there was really some breaks from this government to truly open the market, according to Ryanair...