Sunday, 25 September 2011

On the trend of housing price

"It is a fallacy to think that loose monetary policy can solve the large structural problems we are facing. Central banks must not become the victims of their own success and should not become overburdened. Historically, whenever policy makers tried to broaden the role of monetary policy beyond its original role as a guardian of the value of a currency, it had to compromise on its objective of price stability. For monetary policy to remain effective, its responsibilities must remain within clear limits.

Instead, we need a growth model that is different from the one during the years before the financial crisis. We need economic growth that is based on a genuine increase in productivity, and not on low interest rates and the accumulation of debt. The unlimited accumulation of private and public debt before the financial crisis has now become a burden on economic growth and should be reduced progressively. [14] To achieve this we need far-reaching structural reforms that increase competition in labour and goods markets, more financial supervision, and a stronger fiscal policy framework.
", Jurgen Stark, 24 Sept. 2011

I always liked Mr Stark, too bad he resign from the ECB executive Board.

One important thing, He is highlighting is that the crisis as show that private or public accumulation of debt as witnessed in the past 20 years is not sustainable.

It interesting, in fact, to see that the the crisis that started in 2007-2008 marked a turning point in the economical model we were accustomed. In particular, it is at that point I thought that the housing price rise driven by massive credit growth was put in question. Of course, it takes time before the trend reverse, you are dealing with "agents" that shift their behavior with a drastic lag.

Most people would not consider that price of housing will be lower than it is today in the year to come- it is not what they have been conditioned to.

Bankers still want to ride on easy-to-take profits at the expense of people, promoting all but a stable economy.

Real Estate are also accustomed to easy commission, easy sales and would not think that their industry would start to shrink in the year to come with plummeting commission and higher competition.

Wednesday, 14 September 2011

Greece About To Default

1 year government bond shot up to 140% !!, Finland has better hurry to get its collateral in place otherwise it's gonna be collateral damage.

Will Greece default this week end in the next few weeks?

Friday, 9 September 2011

9/11 - Nine eleven - We are all Greek - ...and also Italian...

On Sept 2011, nine eleven - to echo clearly what is going on, let's put few facts on the table:
  1. interest rates on 1 year government greek bond shoot to 98%, which means that if you invest in those bonds you double your money each year. Obviously, you won't do that. The market is saying that Greek is about to default on its debt.
  2. Mr Juergen Stark resigned this 9.11, following few months early the departure of Mr Axel Weber, high figures of the ECB executive board. That says a lot on the fragmentation of opinion or strategy on the direction of the ECB monetary policies. On other words, The germans totally rejects the bond buying purchasing program or the bail out initiatives launched on the Greek and Italians debts.

Disintegration or no disintegration of the euro area, that is the question on the item highlighted above. Would a break occur and if so what are the consequences? This will shape the future of the economical and political landscape in the generations to come.

Break of the euro zone is what the market is pricing and it is what the ECB has been fighting all along during this crisis. Would Greece exit the euro zone and get back to their drachma in order to regain lost competitiveness or would German exit in order to safeguard Germans against inflation, returning to their old currency the "Deutsche Mark" in order to let it appreciate?

What would be the consequence of such event on Finland - especially on the housing market?
My answer would be to paraphrase Joe Granville from his 1960 book, "If it's obvious to everyone, it's obviously wrong." As a contrarian, I feel that everybody sees housing price going higher and never retreating, I see people investing in housing and seeing it as a 100% safe investment and I see irrational exuberance around an asset that does not produce anything...then this worries me.

On the monetary front, It seems now that the ECB policy has aggravated, rather than ameliorated our basic problems because it has encouraged an unwise and debilitating buildup of debt, while also pursuing short term policies that have increased inflation, weakened economic growth, that will ultimately decreased our standard of living. As a consequence, People are defecting the ECB, and encouraging unilateral initiative as expressed by Finland in its pursue of collaterals in the Greek bailout. All in all, the mess get bigger and bigger and history is no guide as what is happening is unique.

Thursday, 8 September 2011


"Finland's Mortgage Society (Hypo) warned Thursday that the country's housing market was losing steam quickly, with prices having peaked in June.

The lender added that consumer confidence was set to revisit the late-2008 low this autumn.

Hypo said the drawn-out sovereign debt crisis was raising the spectre of a credit recession.
source : STT

I will be interesting to see if Hypo past track records were in line with reality....