Tuesday, 27 December 2011

Consumer Confidence - New York Times - Finnish Housing Price

"Helsinki’s housing market did not suffer greatly in the wake of the 2008 global economic crisis.

“First, there was no price bubble prior to 2008,” said Jukka Malila, the managing director and chief executive of the Central Federation of Finnish Real Estate Agencies.

“Secondly, Finnish people were initially frightened by collapsing banks abroad, but they realized they were not affected, as Finland is quite isolated, and went on living their lives as usual. So consumer confidence is high.”

Mr. Malila attributes Finland’s relatively levelheaded response to the downturn to the lessons learned in the early 1990s, when the collapse of its neighbor, the former Soviet Union, sent Finland’s economy into a steep recession.", NYTimes, May 2011
Interesting to see the confederation of Finnish real estate agent doing marketing on the New York page, sign of despair, sign of trying to support a housing market by trying to bring "dollar collapsing purchasing power" investors.

The housing market that has topped in the same way it did in the early 1990's but this time:
  • Nokia is collapsing while at the time it was emerging as a global player
  • The European Monetary Union is questioned while back then it was a savior (in 1996, Finland join ERM, and in 1999 the EMU)
  • Emerging market were powering off, China and India economy exponential growth started...today both are struggling with slowing economy, high inflation and property price bubble.
  • The active population is shrinking at record level due to historically high growth level of retiree population
So the situation is more dire than it was in term of future outlook.

In all cases, I wanted to highlight the timing of such article relative to the "consumer confidence" and the perfect timing of its release. It highlights somehow a knowledge of the deteriorating situation back then (in fact, we were in the mist of the Euro crisis, and a worsening of the financial crisis that started in 2008).

Now, this is what happen afterward....in December 2011, the Finnish consumer confidence has collapsed, approching its worst level made at the beginning of the financial crisis, and even worse than the IT Bubble of 2002. Here is the chart:

Friday, 23 December 2011

Trees Don't Grow to the Sky

"The country(Finland)’s debt dynamics are far from unsustainable at this point, but given the weakening in the country’s export performance and the steady unwinding of the housing boom we can now anticipate I would expect growth to be weaker than either the EU or the IMF are currently anticipating, and pressure on the country to increase fiscal spending to maintain expectations to rise, with the implication that pressure on the Finnish spread over 10 year German bunds will continue, as the country risks drifting off from being part of the core towards the growing periphery, at least in the eyes of investors.
So finally, coming back to the ECB and movements in the policy rate, it could well be the case that perceptions about rising future interest rates played their part in encouraging individuals not to leverage their balance sheets further thus weakening the housing boom, but my feeling is that in the Finnish case the catalyst for the coming property implosion may not have been the recent 50 bps interest rate rises from the ECB, but rather the ongoing impact of the sovereign debt crisis on confidence, subsequently reinforced by the inbound shock from the recessionary wave now steadily sweeping Europe.", Source : Edward Hugh

A good article, I will encourage you to read...

Sunday, 18 December 2011

On the Housing Trend...

Fitch Warns Nordic Countries Of Potential Crisis Unless Much Is Done To Bring Down Costs
Wednesday, 28 September 2011

Credit rating organisation, Fitch has warned the Nordic countries to put their acts together or face crisis in the nearest future.

In a report, Fitch described the Nordic countries of running an economy characterise by inflated housing prices, high household debt levels and over-sized banks compared to the size of their economies. These are risks in the Nordic countries, including Sweden, according to a new report from credit rating organisation, Fitch.

Among other points, Fitch analysts point that the major banks depend on short-term financing in foreign currency and a level of indebtedness among households that are among the highest in the world.

Countries specifically affected by the report are Sweden, Norway and Denmark as well as Finland which the organisation feels that they are living up to their top rating of AAA. Fitch gives these Nordic countries praised for its well-managed economies.

"Scandinavia has some of the world's most creditworthy states. However, some risk factors remain. It is especially in the housing sector and the market and banking system, "writes Douglas Renwick of Fitch in the report." Source

95% of Finland's mortgage are linked to variable rates, a very high rate compared to any country in Europe, meaning that the historically low level of interest rates has mostly impacted this little nordic country compare to the rest (in France or Germany most mortgage rate are linked to fix rates for the duration of the mortgage).

On another note, I had a discussion with an assistant secretary that was wondering how people could afford those prices, she could not understand. I told she was sane not as the people behind recents reports (Nordea etc...) and that price will go in only one direction and it is down. My arguments were based on the following:
1- interest rates cannot go lower i.e. in the future price will not be supported by lowering interest rates.
2- we are heading toward a recession in the coming year that has the potential to turn into a depression
3- 2012 will see a record number of layoff (many are on the pipeline : Nokia, NSN, and others as highlighted by some media )
4- 2008-2009 saw a record number of temporary layoff, with prospect that production will rampup after the slowdown. Today, temporary layoff seem not to be on the table as prospect are bleak.
5- China (see article), India are slowing down due to inflation threat, housing bubbles and export collapse.

Conclusion to the assistant : if you can wait one year before buying you should. If you find something that match exactly what you want and you can afford it and pay a premium on it (since price are all inflated) then you can take the risk. My last word: just wait another year at least - renting feels safer todays (see also article).
Conclusion to "The Finns": Stop consuming - keep saving - a deflationnary trend is pointing its noise, then invest since thereafter politicians and economist will unleash whatever they can to fight it which will trigger the start of a ravaging inflation...you are warned.

Wednesday, 14 December 2011

On the Political Trend...

"Nobody familiar with Europe’s history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.

Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April.

And these are rich countries whose economies have held up fairly well. Matters look even more ominous in the poorer nations of Central and Eastern Europe
.", Krugman, NY times, December 2011

Just wondering when the economy start to drastically slowdown and unemployment rising, what would be the outcome?

By the way, Mr Krugman made a mistake in this article as now we know then as "The Finns" and not as "True Finns"...

In societies, where physical borders are slowly disappearing (taken over by virtual communities i.e Facebook, internet in general ), and where societies are more mix of different nationalities and religion - it is odd to still think that we can live in silo with "True citizen"...

Also refer to this article to see the very worrying development in Eastern Europe.

Monday, 5 December 2011

Rating Downgrades: The Euro Domino...

"The US ratings agency is poised to announce later on Monday that it is putting Germany, France, the Netherlands, Austria, Finland, and Luxembourg on “credit-watch negative”, meaning there is a one-in-two chance of a downgrade within 90 days."

Well, looks like a chain reaction is about to start... Finland is part of it. Well, when you see the household debt, your hair start to rise...and start to fall knowing that most of the debt is on variable rates tied to the Euribor. Just wondering is rates were to suddenly shoot up, what will be left to the banking sector and on the side to internal consumption (albeit declining with confidence flirting with historically low levels...)

I will summarize this week, the debt level , wage growth in the past few quarters to highlight the unsustainable situation.

In the meantime, keep consuming - you might be the last hope :-)