Sunday, 3 January 2010

2009 "Crystal Ball" Review

First Let's have a review on what I predicted beginning of 2009 but before that, one has to remember the context in Janurary 2009.

In a few words I would say that the global economy, beginning of 2009, was on free fall amid a very instable financial system. On top of that, economists were confused and disturbed: Their research and academic books did not describe such chaotic situation while their models were all failing to grasp the nature and forces that were unleashed.

More disturbing, signs of social instability started to emerge, during the first phase of the financial crisis (2008). Belgium's deep political crisis was averted by sworning Mr Van Rompuy and avoided a a very dangerous and slippery situation. In Finland, the Far right represented by the "True Fins" political party reached an historical levels in local elections.

Against the deflationnary forces that were set in motion, central bankers and governement around the world united. The Federal reserves in the forefront and The European central bank vowed to protect the financial system at whatever costs while governments started to accumulate debts and liabilities in order to support a wounded private sector.

The result was a stabilization of the financial system, sometime in the first quarter, followed by a recovery of the economy albeit from a low level, . The stock market did not any more discount a depression (or Armageddon) and recovered substantially since then.

So let's review last year prediction (1 January 2009):

Let's try to make some predictions on what we will see in 2009 in Finland.

1- The economy will probably enter into recession from 1st or 2nd quarter amid rising unemployment. Today unemployment is about 6%, it will most probably rise to 11%. Although we won't reach levels of the 1990's of 25%, for technical reason: the number of employed, the working force, will drop dramatically as the massive retirement forces start to kick in.

That was right, since the GDP contracted by 7.6%, showing the worse economical activities in Europe.

2- The Finnish Stock market will go side ways during the first half of 2009, in trying to assess the extent of the damage done to the real economy due to the credit crunch. Should a hint of recovery appear to be on the agenda from 2010, then we will see the stock market pointing it -rising- during the second half of 2009. I think we could have a growing optimism during the second half of 2009 only be watered out in the first 2010.

That was right, during second half the rise in stock market appeared globally as said previously the markets did not discount a depression. Optimism is at its peak as if the crisis was "behind us"

3- The Finnish has transformed itself, thanks to globalization, into an export economy. Relying mainly on the external demand, its strength of the past 10 years as become its weakness. The first sign of Finland recovery will be seen when Russia, Baltics and China start to recover...I do not see that until, maybe, end of 2010 at the earliest. Regarding the domestic economy, it was a factor of internal growth, partly due to an unprecedented credit growth, due to cheap credit and reckless lending. This will vanish too as consumer will start saving amid witnessing their principal source of wealth - housing- shrinking.

That's right, so far GDP is predicted to be "on par" i.e hoover around zero (0.7%? for 2010 as predicted by the Bank of Finland and echoed by the finance ministry).

4- Eastern Europe will see a major downturn that will put a very high pressures on Nordic and western exposed banks. Merging to survive could be a possible event as credit growth velocity will slow dramatically questioning the necessity of having a fragmented banking sector. The same will apply to the construction sector as well as satellite activities (real estate agents merger or disappearance could be on the agenda too)

That's almost right, Eastern Europe (Latvia, Estonia etc...) were and are in deep trouble and could drag with them quite many countries such as Sweden and Greece ... However we have not yet seen big banks merging such as Sampo and Nordea or real estate agents such as Kiintestomailma and huonestokeskus...but this could be the surprise of the next two years.

5- Housing price downward spiral had started end of 2008, and will accelerate on the first half of 2009. a 10-20% drop during 2009 cannot be ruled out. 2010 will see the same phenomenon or worse if a recovery is not at the end of the tunnel.

That's not right, Price did not budge as they are as the same level as the end of 2007. However, 2009 has been a very thin market the demand has collapsed (the same can be said to the new supply). In such market, very few players can set the tone. In any case these are just indication of an exhausted market where first time buyers are completely priced out.

6-Current politicians will still get the same support as they have enjoyed during 2008. During crisis, citizens tend to be conservative. History has shown that the same political group or figures are reelected. Matti Vanhanen could resign or be ousted from his party after failing to stop the decrease of popularity of his party.

Well almost right, pressure to see him resign were very high during 2009 however one could say that the call was right since Matti Vanhanenwill resign next summer 2010.

7-Deflation will be pointing its noise during the first half of 2009 with all asset/product prices going downward - all prices set by the market. On the contrary, prices set by government will rise, which can be seen as a form of taxation (Train tickets , Alcohol ,Electricity ....). Second half will see a pick up of inflation, although as for the first half, it will be mainly technical and short lived.

That's correct.

8- Interest rates will first stabilize at 2%, and depending if a recovery is on sight or if the deterioration is dramatic, they will fall to an unprecedented 1% or lower, clearly signaling that the deflation threat is real.

That's correct.

9- Rent will start falling from the second half, synchronizing with the unemployment growth. That will add to the deflationary threat.

I think that's correct - I need to check the rent growth or its velocity. Rent are going down since unemployment is rising and salary not rising any more.

10- This blog will slowly but surely disappear as the sole existence of it was to express the risks of a dramatic fall of housing price, something which was viewed as improbable, especially by figures such as the Bank of Finland, IMF, politicians and economists

I did not have that much time to post this year for professional reasons. However this blog will cease at the same time the bubble burst or reach a major bottom which could be sometime in 2012.


Anonymous said...

Would you please comment this:
" Tuesday, 29 December 2009 22:18
Finnish real estate agency Huoneistokeskus said in a statement Tuesday that the number of house and flat transactions had doubled year-on-year in December.

It added that an exceptionally busy month would raise the full-year transactions total beyond 64,000, or close to this decade's annual average. STT"
Thanks in advance!


Anonymous said...

Here is another crystal ball showing that of 2010 and onwards:

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