Monday, 30 July 2012

Negative 2Y Government Bonds

Source: Bloomberg
Now the Finnish government is being paid to borrow ... that's not a joke(r)!

Looks like some investors are extremely scared on where to put their money (whether is it banks, stocks or other investments). They rather choose to lend that money to the government and pay a small interest in return of it to act as a safety box.

I could keep their money under my mattresses :-), although I suppose I don't have enough of them since there are plenty of wealthy distress savers...

For sure, they (investors, some wealthy well advised) see it coming and they invested in Gold (hence the record level), they also invested in real estate, commodities etc... now they are to scared as it could reverse faster than they will have time to recall their investment...

I suggest them, especially in Finland to continue putting their money in real estate (since bank only guarantee about 100 000 eur )...the wealthy (i.e  saving greater than 0.5 million euro) should prop up the housing price to level that can be recorded in the Guinness record book for the housing price in Finland.

Unless everybody is right, investors are foreseeing financial armageddon in the next 2 years. Wouldthe depositor be ripped off in the same manner as they did during ex-ante Germany WWII... the answer in the hand of Mr Draghi... by an unfortunate (?) combination of events, central banks holds the key to this crisis - so Draghi, Bernanke  will have to act right and fast.

Friday, 27 July 2012

Exclusivity: Housing Price Will Fall ...

Finnish Housing prices will go down, it is a certainty, but by how much and until when?

Let's try to answer those questions by looking at the behavior between wages and housing prices in the past half century and let's try to envision potential scenario.

The top chart above shows clearly that when the wage line (level) goes above the prices of dwelling lines , a correction is due. The correction is severe when the wage level stays above the house price level for a long period (e.g. 1973-1979, 1989-1993, 2008).

Scenario 1: "Crash Begins"

Wages are sticky, they follow the inflation rates - no wage deflation in sight (Unions will always negotiate wages inline with or higher than inflation). Housing prices will have to decline drastically few consecutive months or year, in order to bring new buyers and make the price rise again (usually pretty fast, when both the economy start to grow and price are relatively cheap).

Also see related link to this scenario: -22%

Scenario 2: "The Dark Night"

At first housing price correct and wages stay sticky, but union power weakens and the industry manage to reduce the rate of wage inflation to even bring it negative. Housing does not grow, or painfully decrease slowly, very slowly year after year ... the housing market go through a long and painful dark period of stagnation with no growth or below inflation for few years.

Scenario 3: "The boring bat"

No comment: Wage and housing price follow the inflation rates which hoover near record low (but not negative)

Friday, 6 July 2012

Deflation, deflation...

The ECB lowered interest rates to a level not witnessed since...maybe the big bang. In the meantime, the 2 years Finnish government bond collapses to nearly zero level, highlighting how frightened the market is, searching to secure and park their money into what appears a safe heaven.

Don't expect inflation for at least the next 2 years, we are and will be in a deflationnary mode.

So what happen to the housing price?... to be frank, it will be crazy in the current period to buy any housing, not only prices are disconnected with reality...

As someone put it, you don't need to buy the cow to drink milk in the morning.

So as renter, I frankly wake up relaxed, not having a debt hanging over my head for the next 20-30 years or having and A.....e landlord as a banker (i.e charges/interest paid to them).