Relax : Max Tax

"When I don't pay unfair tax and play poker on-line, I Body-Build"

"Matti Vanhanen (centre), the Finnish prime minister, told the Finnish Broadcasting Company (YLE) on Sunday that the public should be prepared for an increase in the overall tax rate in order to pay back foreign debt incurred during the recession.

Mr Vanhanen did not specify which taxes the government was planning raising.

"I just want to lay the groundwork so that the people accept an increase in the total tax rate," he said.

"It will be needed.""

So they bail out construction companies, banks where people at the head have received massive bonuses, stocks, options , generous pension scheme and extra-terrestrial salaries - thus Government were "forced" to reward to rescue incompetent that were not able to build their businesses without massive debt and lower risks.

On the other hand, the citizen, if he fails to pay its debt he will not be rescued but be seized its "virtual" assets by its creditors - the bankers.

On top, you hear rumours, propagated by Nordea saying gambling is a bigger issue than unemployment without mentioning that it is all a matter of time...until the benefit of the "safety "trap"" disappear...that's the reason why the government is working hard to set up a monopoly around on-line gambling (in the same line as the alcohol monopoly Alko)...of course the idea being to make huge profits on the back of the most distressed control and monitor on-line gambling addiction.

Then you hear this type of news : 1% of the Finnish population working as cleaners thanks to tax breaks:

"... tax breaks for private individuals hiring cleaners have brightened the employment picture.

Altogether, private cleaning and maintenance services employ around 50,000 people in Finland...", Source YLE - 25.05.2009

Then the industry captains have been pressurizing the politicians to pass into law the income tax cut, thus further increasing the gap between the highest wage earners (the minority, the one that thinks and operate in opera) and the lowest one (the majority, the one who do the work).

As a "captain" of industry, you earn: 300.000 Euro per year - you are an industry "captain" and you get a 10% income tax decrease... you could get as much as 30.000 Euro tax break which will allow you to rent and live in a luxury flat for free (thanks to the income tax cut) in down town Helsinki.

As a "cleaner" of the industry, you earn : 18.000 Euro per year - you might get a 1.800 Euro tax break at a maximum that will allow you to live for 3 months in an average flat in the suburb or in a 15 m2 Flat for 2 month in down town Helsinki.

- So yes, the total tax rate will rise but not for all -

Housing Permits Downward Trend Continues

As no surprise the number of building permit granted for residential contruction has deteriorated further to reach a very sharp decline of about - 40% year on year.

It consolidates futher the assumption that residential market prices have started their correction in a typical 2 to 3 years bear market (at best) and implies that this is simply not a temporary correction as witnessed in 2003.

You will notice, as well, the slump from beginning of this year of permit granted for commercial and office buidings, a further sign of an abrupt end of a once overheated construction industry in a currently declining economic environment.

Housing And Companies Loan

The housing loan growth has come to an halt sometime in 2006. From that point, the housing price growth decelerated then halted only to start reversing course and accelerate its deflationnary trend.


In the meantime, in order to put a brake to rising unemployment, money has been flowing to companies... thus delaying the problem by few months as for some company that is the only way to survive i.e piling up on more debt...but let's hope that some will take this opportunity to restructure their business model and become "sound"...otherwise you will have a very distorted market.

Magical Kid

"The government has found an extra 60 million euros that are needed to provide additional funding to deal with unemployment."

Actually I lost my wallet this morning...maybe it's mine...after all the government has "found" the money so it must belong to someone, a tax payer: well I am...unfortunately.

So 60 million euros...unemployment will be around 10% (more if retirement was not kicking in at record pace) for a population of 5 millions or around that make it 500.000 thousands unemployed. So 60 millions/500.000 gives us about 120 euro or about 10 euro per month for a year .

I agree it will definitely pay for ...the bus ticket to the training center...well at least for half of the month or less...

Pension Fund Managers, A Recap

Regarding the Pension Funds, ask them how they gamble public money and how much they lost in the past 10 years.

South African billionaire Johann Rupert said the financial crisis may lead to inflation and social unrest as savers find they’re too poor to retire, while pension-fund managers deserve to be jailed for incompetence.

Rupert, speaking at the annual presentation for Cie. Financiere Richemont SA, the luxury-goods company he controls, said he doesn’t see any “green shoots” of economic recovery. He said governments may resort to inflation to reduce the burden of increased debt from stimulus programs, such as U.S. President Barack Obama’s $787 billion package.

“If this thing carries on, my generation will have to work until they are 75,” the 58-year-old Rupert said. Governments are “going to have to find the capital in the markets, which will crowd out the private sector, or they’re going to have to tax the living hell out of consumers, or inflate their liabilities to oblivion. There are not too many other options.”

I will finish by that:

“People should be put in jail for their lack of maintenance of purchasing power in the pensions and retirement funds that they managed,” Rupert said. “People are simply not going to have the retirement funds at their disposal.”

Should we jail incompetent as Mr Rupert is highlighting...I suppose there won't be enough jail...well at least the construction industry will be stimulated...

PS: The Finnish government has changed the rules last autumn concerning Pension Fund liabilities and their solvability level. So let's allow them to lose a little more in the next 2-3 years to come as it is without doubt that real estates and stocks will deflate to level not seen in this current decade.

Disclaimer: Investments or strategies mentioned on this website may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned on this website. Before acting on information on this website , you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser. All opinions expressed by this website do not reflect real opinions. Past performance is not indicative of future results. Anything missing in this disclaimer can be added unilaterally at any time ...

Statistics Finland "Price Bubble" Revelation

Finally they published the data with a lot of new changes - what do you expect when a market is declining, you got to review the way data is published, a bit like the accounting rules for the Banking sector- yet they provide interesting data, that I will have to go through, and I will come back later on with the full analysis.

In the meantime, I wanted to highlight something that is quite astonishing as it seems that Statistics Finland knew that a bubble started to develop in 2006. Although I think they are way optimistic in their date, mainly based on futur wage development...

" During this decade buying power to get a dwelling by earned income has declined rapidly. ”The price bubble” in house market was created 2006, when, house price curve has risen above wage curve(1983=100).

House prices went down during 2008 and ”the price bubble” of house market is melted down. Decline of house prices have overhauled house market."

Troubling Trouble from Krugman to "Statistic Finland"

First "Statistic Finland" scheduled the release of the quarterly housing price on 09 of May, then pushed it to 11 May to only rescheduled to an unknown date "As soon as possible".

Finland is supposed to be a leader on the ICT front yet "statistic Finland" is unable to provide such data. Is Finland being hit by the syndrome of too much outsourcing and ending up with the technical "know how" having to be imported back?

There is as well the conspiration theory from my friend "Juha the pike", he is saying there are delaying because of infinite pressure from the construction, media and real estate agencie lobbies while at the same time the press is trying to mislead the consumer into thinking that prices are going "north" again as in 2003....which will be a fatal mistake to think in such a way.

But back to reality, lately Euphoria has grown into a dangerous bubble. People start slowly to remove their defence at a time when high vigilence should be high. It is true as I said once, the real opportunities are greater in the stock market than the housing market, and yet I think the "great" opportunities, both in housing and stock market, are still ahead and not yet fully materialized (although we were quite near with regard to the stock market, regarding the housing market we have not yet passed 1/4 of it...)...

The real impression that I have of the current economical environment is clearly summarized by the following :

"“It looks to me now as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman, 56, said at a forum in Shanghai today. “The market seems to be looking as if this is going to be an average recession, but it’s not.”"

"Krugman, who won the 2008 Nobel Prize for economics, joins New York University’s Nouriel Roubini in calling for a more cautious outlook on growth. Roubini said last week analysts expecting the U.S. economy to rebound in the third and fourth quarter were “too optimistic.” Nassim Nicholas Taleb, the author of “Black Swan,” said the current global crisis is “vastly worse” than the 1930s."

Bank Of Finland Crispy Sense of Humour

"A few years ago, the Nobel laureate, economist George Akerlof heard that his distant relative had bought a house in Trondheim for more than USD 1 million. To him, it was a lot of money anywhere, but particularly a sign of high property values in Scandinavia.

He later told this story to Robert Shiller, another well-known economist. Perhaps this was not only a Scandinavian story. They decided to look at it at greater length for the insight it offers into the patterns of booms and busts and notably the twin crises of confidence and crisis that are currently everywhere in the world.", Erkki Liikanen

Not sure if Bank Of Finland through its Super Hero aka Liikanen, Erkki Liikanen, want to send a message to the people buying property of more than half a million Euro...

Bear in mind that today, most "unware" people -first time buyer- are requesting housing loan of more than a quarter million while the "veteran" buyer are easily flirting with the half million Euro. The Rich (not so many, and not for long considering this type of investment) are then trying to buy asset of well over a million (you wonder why?) .

Never underestimate the sense of Humour of the legendary super hero of Finnish Finland, Mr Liikanen, Mr Erkki Liikanen...

Although, sometime Mr Erkki can be quite serious and raise very important question...please raise your hand if you have an answer to the following:

"The second angle is one of crisis management. At the time when the decision to join was made, Finland’s deep depression of the early 1990's was fresh in our memories. At that time, our recovery was aided by a substantial depreciation of the Finnish markka. How would the loss of exchange rate policy affect our ability to survive truly adverse economic circumstances?", Erkky Liikanen

Indeed Finland got out of the previous recession by devaluating the currency, at the time the Finnish Markka.
Today the strategy is being somehow employed by Sweden (Our Friendly enemy), by Russia (our ) and then UK and the US...

So what can Finland do? in fact nothing much...a bit like a boat in a storm..just wait for the storm to end and on the way hope that no Iceberg are on site. Regarding the Icerberg, that reminded me Mr Jurky "Di Caprio" Katainen, that was saying the economy is sound in the same way that one said that the Titanic is unsinkable...

PS: for the one that think that we are out of the wood, have a look at this chart, to really understand the kind of situation we are in.

This Is Finland , things you surely should have to understand

This article is just to have more visibility on the web - to cheat the google engine or crwalers basically.

So nothing interesting to read in this article... why are you still reading?

Well in this blog you will find information that are based on true facts and rely on strong sources (what is still reminaing of it as misinformation strenght is increasing day after day...)

Nevertheless, it will certainly give you what is really hapenning...

continue here

"Middle Age" Wage Agreement

Here is what I am reading this morning while taking my coffee and croissant...People say that caffeine make you nervous...I would contradict that but instead say that what made me nervous this morning is the piece of news concerning some bureaucrats... While finishing reading this piece of news, I didn't even noticed that I ate (or shew) my croissant.

humm, next time no news while enjoying my breakfast (the only good moment? before heading to the factory work) .

So here is the news:

Collective agreement talks between the Finnish
Federation of Technology Industries and the Metalworkers' Union and the Union of
Salaried Employees stalled over a pay row late on Thursday.

Although the
negotiations are to resume in August or September, the breakdown of the spring
talks is a blow to the centre-right government, which had hoped the key export
sector to encourage recession-quelling pay deals elsewhere on the labour market.

Riku Aalto (soc dem) of the Metalworkers' Union said the money row
proved comparatively small at the end of the day.

"We already saw eye to
eye to some extent, but unfortunately the employer side apparently lacked
sufficient negotiation authority," Mr Aalto added.

First who are those people and the power that has given to them for deciding what would be my salary level and its related increase (do they know my performance, my career, and learning investment I made, the risk I have taken this year and one I will take in the next 3 years?)

Second Are we all the same? Are those bureaucrats thinking that they are dealing with cattles uniform, similar type of employee? Should all get the same type of raise?? those slowly give the opportunity to white colars to move companies to cheap labor country with the argument that salaries are too high?

Third Let's the market decide what is the pay rise of some employee, the best and motivated will be rewarded and the one browsing the net and blogging all day won't see the same type of pay rise...

Forth Is Finland still a socialist country?, sometime you wonder...

Fith Union in Finland have been highly incompetent to solve real issue, have shown no leadership and manage to weaken the power of employee since 1992... so a message for Unions and government: "get you hand out of my salary bargaining, you can't fool me with your political, union-doggy attitude maneuvering".

humm..maybe I should drink less coffee, switch to tea?

The worst is behind, There is no bubble...

Just kidding...

We are just having an air pocket needed to reflate confidence and give the impression that we are past the worse. A stabilization , yes but to plunge or not to plunge by end year that is the question.

So today the ECB cut interest rates to historical level, yet housing price are falling and credit growth is contracting very fast. Note housing price will continue their downward trend, of course it won't be in a straight line and the media, some banks and some economists will add noise around it.

Regarding Banks, they are not tightening their lending standard, far from that - they are desperate to find people to take debt... Remember as well that the government is still keeping the old housing stimulus in place and is still guaranteeing about 85% of housing loan (no wonder why banks are not afraid to lend as it is the state i.e the tax payer that is holding most of the risks ... ).

Coming back to the tax payer...not only is under the threat of be fired but he is kindly ask to continue on piling up debt (to keep his standard of living stable while is income has barely progressed through time, when adjusted to inflation and real of life: food, rent, electricity - note that all those price are more or less controlled by the state or cartels and are not involved in a well functioning market since distorted by players that put self-interest before the people).

In some cases, the tax payer is kindly asked to review his salary down by 20% or choose the only other alternative is being lay off.

In some other cases, the tax payer is warmly asked to reduce its yearly income by not coming to work for few months in order... to save the company from past mistakes of the directors and past greed driven by outrageously high salary and unfair stock options scheme.

So do we have a recovery....don't be fool , what is currently happening is that the little future growth that was in the pipeline has been shifted by few months as the economy was clearly collapsing. It was really scary, I have to say, especially in the last quarter of 2008.

Well one will have to pay for the stimulus that governments have been engaged on. Higher tax in the future and higher inflation down the road.

Bottom line, we are stabilizing, for the moment, albeit at a low level, with no inflation threat for at least 3 years then in the next decade you will have to be used for higher inflation and higher tax...the perfect ground to make the young pay for mistakes taken in the past decade by finance ministers and greed driven bankers.

Housing Market : The Bank Of Finland Viewpoint

House price in selected cities

A- On the Housing Market:

I think it is clear for all that the housing market peaked in 2008 and started its long and slow correction since then. Statistically based on the data provided by Statistics Finland and on the two previous downturn, it takes about four years for the adjustment to end. This time won't be an exception amid the fact that we are witnessing the worst slump since the second world war.

But let's look at what Bank of Finland has to say:


"Housing and property prices started to decline in 2008. Growth in the stock of housing loans has slowed. Office property prices will also probably decline. Real estate investment trusts’ share prices fell in the second half of 2008."

"According to preliminary data from Statistics Finland, nominal prices of old flats and row houses peaked in the second quarter of 2008, after which they fell by nearly 5% by the fourth quarter of 2008."

Nominal and real housing price since 1988

"The decline in prices has so far been modest, compared to the persistent price rises of previous years. If nominal housing prices are converted to real prices, using Statistics Finland’s cost-of-living index, housing prices are approximately as high as in the housing market upswing of the late 1980s."

B- On the Rent:

"Developments in rents are mixed. According to a recent survey by the Finnish Association of Building Owners and Construction Clients, the rents on small dwellings are expected to rise further, whereas in many cities, the supply of large rented dwellings exceeds demand."

So rent for large dwelling might decrease since there is a supply glut and it could be historical... A troubling sign of the deflation at work.

In Helsinki region the supply of small dwelling are shooting up as well, as many unsold flat are coming later in 2009, and in 2010.

At the same time, the number of student in Helsinki region is declining and should the trend be confirmed next year it will certainly put further pressure on rent.

In addition, unemployment especially for the young will deteriorate further thus the internal migration toward the Helsinki region from different region should slow drastically (this point could be checked later on based on data from Statistics Finland)

On the Magical Visible Hand of the Government:

"The supplementary budget presented by the Government to Parliament includes measures that will stimulate construction.

In 2009 and 2010, loans granted for the construction of rental flats will be supported with an interest subsidy and a deficiency guarantee.

In addition, subsidies will be granted for redevelopment projects on residential buildings initiated between the start of February and end of December 2009"

On the one hand the government want to put a cap on unemployment figures by stimulating construction on the rental market but on the other hand the risk to put even more pressure on the rental market (since the supply will increase) will increase further.

C- A Technical Analysis: The tennis ball and the dolphin

I cannot produce an article about statistics without providing my own infamous technical analysis.

So let's try to figure out what is the equilibrium of the market but first let's imagine a tennis ball falling in the middle of one the millions lake in Finland. What would happen?

1-First the tennis ball cannot stay up in the air...'cause law of gravitation.
2-So the ball fall and hit the surface of the lake. The Kinetic energy or the energy of motion will push it through the surface.
3-Once inside the lake the ball will emerge up...the Archimedes law will be in action.
4-the ball will finally stabilise at the surface until another force push it up (a pike or a dolphin from the lake?)

Click to Zoom

The Eurovision of Media and Economical News

By reading the local and international press, it looks like that there has not been any financial crisis. All calling for a recovery and stating that the worse is behind us i.e now it's all fine.

Well, as usual, they think readers, the public or citizen at large, are simple fools. I suppose one can be fooled once but not twice, isn't it?

So in this flow of misinformation, distorting information, some have to sort out who is saying the truth?, who is doing "catch-the-fool" journalism? (to be polite, as I was thinking to write "rubbish economical journalism").

At least the economical oriented newspaper and website will try to lure people into thinking that we are in the same situation as in 2003 i.e stocks going north while housing price resuming their trend upward. How many can they fool?

Economist and politicians have been caught back in September, "fooling" in daylight...now they are more cautious as their credibility is at stakes (one I have in mind is the financial arm in the government lead by Katainen, and plenty of Nordic banks head...when they predicted their famous GDP of +0.5% to 1% i.e the economy will not contract...to comeback,3month after to announce a contraction of over 4%

But in this crowd of messages you can find glimpses of truth hidden under tons of nonsense news.

Here are some, and let's play the EuroVision type game and reward the one that are showing honesty and realism..:

1o points goes for China:

“We must be sober and prepare for greater difficulties over a longer period of time,” Wen said. “The deterioration of world economies is worse than expected and a global recovery may be a long and winding road.”

9 points goes for Israel:

"The report shows that we are coping relatively well with the economic crisis, but we still have not reached the end of the story," a statement from the president's office quoted Stanley Fischer, The Bank of Israel's governor, as saying.

8 points goes to the United States of America

"The damage from this turn in the credit cycle - in terms of lost wealth, lost homes, and blemished credit histories - is likely to be long-lasting,", Federal Reserve Chairman Ben Bernanke

7 points to Europe

"We are experiencing a market correction that is very large, very challenging and very turbulent. It is a process that is still under way.", 09 April 2009, Jean Claude Trichet, president of the ECB

1 point to Finland

"If you follow all the indicators, you see some stabilization, albeit at a low level," said European Central Bank Governing Council member Erkki Liikanen

Coming back to some statistics, it is interesting to note the sharp decline of student in Uusimaa (Capital region)

Uusimaa 6,023 in 2008 versus 7,683 in 2007 .

This are just year on year data, the trend need to be confirmed in 2009. If that continues, it will necessarly mean less stress for the rental of small appartment amid increadsing supply coming in 2009 and 2010. So you could easely expect a substantial drop in rent in small flat.

How long?

There was an interesting article in Bloomberg regarding the state of the Finnish construction industry:

Finland’s economic stimulus package may fail to prevent mass unemployment and cushion the collapse of the construction industry, said Tarmo Pipatti, managing director of Confederation of Finnish Construction Industries.

“We’re heading for mass unemployment in the building industry,” Pipatti said in a telephone interview out of Helsinki today. “Government demand can alleviate it, but it cannot stop the plunge, unfortunately.

“The government stimulus is probably not enough in view of how much private demand has fallen,” said Timo Vesala, an economist at Espoo-based Tapiola Asset Management Ltd. said.

“Recessions are for cutting the excess capacity that was built up during the boom,” Vesala said. “Even though construction was the first industry to start declining, it may not be the first to start recovering again. Its slump is going to be a long one.”

It does not mean as I said that the demand for housing and hunger for bigger loan is disappearing overnight. Finnish Banks, Real estate agents, government are relying on people taking more and more debt, thus they will push this system as much as they can.

The whole system is based on such foundation. At some point the system cannot take more debt and you have some sharp reversal. It clearly happenned in the U.S. , in Sweden, in the U.K. , in Eastern Europe and as usual the Fins are the last in the line.

There are clear warnings, the same condition as 1990 are being reproduced:

-Finland is running now a trade deficit, the highest since 1991.
-high indebtedness of public and private sector have sky rocketed in the past 5 years.
-unemployment is reversing the trend, from a low of 6.2% it is now steadily rising.
-unaffordable housing price calling for more and more debt especially in the younger generation.

So on the one hand you have deflationary threat where asset price are losing ground, and on the other hand so much stimulus are in the pipeline that it will undoubtedly generate a sudden "death of kiss" inflation that will instantaneously achieve what is left of the big housing debt owner (Why is that? well 98% of Finnish mortgage are based on variable rate...).