Monday, 8 November 2010

BOF

Artificial Rebound

"Domestic demand has also picked up in response to the revival of household consumption demand and housing investment. Exceptionally low interest rates and government action to support housing construction have supported the domestic market through the recession."

For several years, Finnish labour costs rose faster than the average for the euro area. Although the most recent wage settlements have been much more moderate, this will be
insufficient to correct the exaggerations of the ‘crazy years’.

The growing levels of debt have recently been a source of general concern. It is not possible to draw a firm line that would indicate in all situations what is an appropriate level of debt, and what is excessive. In the final analysis, this depends on numerous household specific factors."

"From the perspective of households themselves, the greatest risks relate to not being properly prepared for a potential rise in interest rates, a sudden drop in their income or other unexpected situations that could undermine their ability to service their debts.

With this in mind, it is very important that households conduct their own sufficiently rigorous ‘stress tests’ on themselves when considering taking out a loan.

Households need to be able to service their debts in the event of interest rates becoming considerably higher than they are at present. This is also in the interests of the banks and other lenders.

Finally, it is also important that households leave themselves sufficient room for manoeuvre in case of possible changes in their general income and expenditures."

1- Indeed, Interest rates will go higher...at some point(that is the 712 600 € question), that is the only direction it can go unless the deflation threat has not really disappear since so far there is no obvious signs suggesting otherwise.

Sudden drop of their income, interesting point. This recession could have provided an opportunitty for better Finnish competitiveness or the convergence in term of wages with the rest of Europe ... However thanks to Politicians (not excluding the finance ministry), they thought otherwise - the group of wise wild wisest started to think hard how to fight a natural readjustement and they managed it ...( even contruction workers wages are going higher, above the inflation rates -ast)

2- Mr Erkki Liikanen & Co, somehow worries me and in some extent scare me when he talks of the need of "Stress Test" on Household - isn't that the role of banks in Finland and ultimately the roles of regulators - after all that is their job. Worrying idea, highlighting the fact they have no visibility on how securely they grant loan to household.

3- In the last press conference from the ECB, there was a very interesting suggestion from Mr Jean-Claude Trichet, highlighting that non-conventional monetary operation could happen and outrule an increase of interest rates. So I read it as, if the deflation threat was overdone and the tsunami of liquidity trigger a sudden deadly rise of inflation (mostly imported that could or giver the tentation for translating into higher home inflation), then they will pull the trigger and of course the Finnish market and politicians would not be able to do anything about it. The municipalities debt would also slowly but surely look like the one experienced in California.

Monitoring closely Debt levels

"Moreover, a large debt burden weakens the ability of households – and, indeed, the economy as a whole – to adjust to disturbances of various sorts. In order to ensure stable development of the economy, it is vital to closely monitor debt levels."
When the symptom have already appeared, isn't it already too late? So BOF will become firefighters always a step behind the event....let's closely monitor their inaction and how they will act to prevent the system to break apart when it would have been simpler to request moderation and stability.

At the end we do not have central bankers but alchemists...

Source: BOF , there is more to say, but I will try to extract some other interesting info whenever I can

12 comments:

Eric said...

Interesting News from next door...

http://www.bloomberg.com/news/2010-11-08/sweden-s-money-market-disruptions-show-trichet-what-comes-after-ecb-exit.html

Eric said...

Is it the Christmas period who makes us not reacting at all to anything?
Or are we just bored to know that (i) there is a big real estate bubble ready to burst (ii) the Euro will not be around in 3 years and (iii) some European Countries will default ...
I am surprised that no one is reacting anymore ...
We are in the middle of a fantastic period where (unfortunatly for us) the power is shifting to the east and the Renminbi could be a reserve currency ...

HousingFinland said...

@Eric

I think we are at a turning point - far too many people have forgotten the start of the crisis - all the warning were all but forgotten and people think its' back to business as usual...

The problem is : the situation in Finland has seriously deteriorated compare to 2007, before the crisis started:
http://www.stat.fi/til/jali/2009/jali_2009_2010-03-01_tie_001_en.html

So the current position is bad, mass retirement is kicking in, housing has topped, stimulus around the world has topped or is being phased out...

To answer simply, this is the usual quietness before the storm.

Anonymous said...

Eric, if you think independently, you will find the wealth go nowhere but further into the pocket of the bankers. They are printing people out. Concerning $, €, and RMB, it simply too many paper notes but too few associated real wealth. So, FED is trying its best to print the € and the $ inside RMB out of the table. Maybe, FED is too smart this time, it may have a good chance to print itself out of the table instead. A clear signal is that “a worldwide high/hyper inflation is coming.”

Anonymous said...

Finnish banks have managed to reduce holdings in Greece, (427 to 71 million Euros), but they still hold 911 million euros in Irish assets.

The report does not state how much in Portugal, Spain, Italy.

http://www.yle.fi/uutiset/news/2010/11/finnish_banks_have_close_to_a_billion_euros_in_irish_assets_2143638.html

If Ireland resists the ECB loans and does a deal just on the bank levels this could get interesting.

"Island Crow"

Anonymous said...

OK 'Kauppalehti' had the missing figures.


--------31.3.2010 to 30.9.2010

Spain 1 862 to 2 059
Ireland 909 to 911
Italy 1 667 to 1 582
Greece 427 to 71
Portugal 383 to 314

Total 5 248 to 4 937

So the banks are trying to reduce overall exposure, but it is slow work, so I wonder who will be holding what when the music stops.

"Island Crow"

Eric said...

Actually, I was thinking the same regarding Ireland ...
What is really funny about this?
Well the EU and the ECB said on the 16th that there won t be any bailout ... and furthermore there won t be any talks ...
Now on the 19th ... they have started the talks ...
Are they really thinking that we are stupid? or is it just that their PR office is crap? probably both ...
I shall start fishing in reference to the book "How an Economy Grows and Why It Crashes" ok basics stuff there but so true ...
To the one talking about printing money ... this provides a good explanation towards where we are ...

@housing Finland
I agree with you, I had some talks with guys from Nordea, Handelsbanken and SEB ... all of them told me that they did not see any crisis and they were surprised when people told them that banks were suffering elsewhere ...
Au royaume des aveugles les borgnes sont rois ...

Andrew said...

On the posative side a collapsing Euro will be good for Finlands exports.

Andrew said...

US economy showing some signs it will avoid the fate of Japan

http://www.calculatedriskblog.com/2010/11/recent-improvement-in-economic-news.html

Wage growth and manufacturing are ok for example.

So maybe even euro dollar at 1:1 is ahead of us again?

Eric said...

Indeed that was the case right after the beginning of the Euro if I remember correctly ...
Wondering now if Spain will be the next one ... especially after what Zapatero said last week ... he made me think of the CEO of Lehman Brothers some weeks before it collapsed ...
There is a Spanish Bank which is buying lots of banks in Europe Santander ...they make me think of Kaupthink but on a bigger scale ... If Santander goes bust, it wil get really ugly since few of the major banks in Europe appreciate them ... there won t be any rescue from the Germans nor the French ...
Interesting time ahead ..

Andrew said...

it seems we are in permanent interesting times.

Hence the lack of interest.

The new normal is here and to be enjoyed for better or worse.

Andrew said...

US Economy a bit better. Trichet wants more money for the bailouts, where the theme so far is to protect the lenders and punish the borrowers. Some big job losses in the Finnish paper industry. High Chinese inflation and commodity prices generally. Baltic dry looking weaker and weaker. Interest rates creeping up.