Nordea ... Lesson "Not" Learned

So Nordea is fighting deflation with its own tools - rather limited though.

Credit is faltering and consumption is sluggish...so how do deal with that? well use the bad behaviour that was the cause root of the current crisis - as if the crisis happen for nothing and give you the sense that institutions, banks do not learn a nickel out of that.

Let me be more clear...and point to what make Nordea, not an example to follow...

Make use of your home equity

"Would you like to utilise the assets tied to your home to realise your plans?

Does your home need improvement or would you like to buy a summer cottage? Is the block of flats you live in going to have pipe renovation or other repairs? Are you interested in investing? Would you like to give your children or grandchildren a nest egg to get them started in life?
Benefits of HomeFlex

* The interest you pay on your loan equals the interest the bank pays on the deposit on your account.
* You can deduct the loan interest in taxation. Read more
* You can use the loan in the way you want and the account is used as any ordinary bank account.
* The loan period is ten years. During this time you don't have to amortise your loan - you just pay the interest. After ten years we will agree with you on how to continue."

Read again the first and last sentence :
- Would you like to utilise the assets tied to your home to realise your plans
- The loan period is ten years. During this time ... you just pay the interest

I thought that this crisis was all about reforming a failing financial regulatory system...looks like nothing happen. This is the reciped that put the American financial system on it knee that ultimately had to be rescued with public fund.

Today Nordea has been hit by the "I-Dont-Get-It*I'M-Not-Listening" syndrome...and yet, regulators are still fighting the last battle , most probably analysing what went wrong and allowing in real time such development...

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Poor, Bumpy and Placebo

"Our staff told us this month that the real economy could be a little bit better, in average, in 2009 and 2010 than what had been projected three months ago – 0.5 % higher for each year.

1- But is means that 2009 will remain very negative and 2010 perhaps only very slightly positive, as an average. I don’t exclude that we could observe positive growth, quarter on quarter, at the level of the euro area as a whole, before mid 2010. But this doesn’t change our main message.

2- Namely, that we have a bumpy road ahead and that the level of uncertainty remains exceptionally high and therefore that prudence and caution are of essence.

3- Now much depend on us, on our capacity to reintroduce confidence in the financial and real economy decision making processes, in the households as well as in the corporate sector. It is what the ECB and the Eurosystem want to do: preserve confidence, inspire confidence, remain a solid anchor of confidence. "

So that was the message from the ECB president, Mr Trichet...the only person that has good track record and inspire confidence...

So the message is clear, we averted a total collapse (by firing up the whole set of measure and stimulus) in order to have a disastrous 2009 and a no growth scenario for 2010.

After that it is X, the unknown ... no possibility to launch any measures and just wait.

At the same time, cross fingers, touch wood and optionnaly read kauppalehti for subliminal messages...

Having said that...at some point there will be a price to pay for saving the financial system (that was past feed by greed)...like the Incas..one will need to be sacrificed ...the poor, the young and the ederly through a ravaging inflation/stagflation..but that is tomorrow battle..maybe in 3-5 years time...in the meantime, deflation is advancing and getting stronger day by day

So The ECB Has An Exit Strategy...

"It would be premature to declare the crisis over,” Trichet said. “Now is not the time” for the ECB to unwind its stimulus measures. “However, at some point in time an exit strategy will have to be implemented. The ECB has an exit strategy and stands ready to put it into action when the time comes."

And so here is my scenario in few "silver" bullet point in a random fashion...

• The stock market rally extend until end of the year.... to fall to an historical low within the 2010-2011
• End of 2011 the ECB exibit its exit strategy by increasing its interest rates by 8 fold within the following 12 months
• The housing market collapses and reach a low in 2012
• The Finnish parliament is dissolved at the turn of next year ...not because of election corruption but of incompetence and inability to deal with the current situation.
  

"Home Ownership Obsession"

"Ireland should end its obsession with home ownership and look at alternatives such as renting or leasing, a former housing adviser to Bill Clinton said today.

Speaking in Athlone today, Nic Retsinas, now a director at the Centre for Housing Studies at Harvard University, said in recent times homes had started to be viewed as an investment opportunity rather than a place to live and raise a family.

Mr Retsinas was addressing the biennial conference of the Irish Council for Social Housing.

“Over time a different vision crept in. There was conspicuous consumption and an environment of encouraging lending that wasn’t very prudent,” he said.

“People should not be obsessed with owning a property. Maybe the issue should not be about home ownership but about something such as making sure people live in decent homes,” he said."

A smart guy, pretty rare nowdays...and most probably he did not need any fund extorded, robbed from public funds...to come with this kind of analysis.

I keep the best for the end :

“Society almost demonised renting. You weren’t smart if you rented. But, as it turns out, those who rented could be said to be the smart ones now as property prices crash”, he said

We shall check that back in about 2-4 years time..nothing compare to a lifetime of being a borrower...

I see "corrupt" people... In your dreams?

I have been looking at some news headlines and corruption news seem to erupt everyday, and touching all levels.

Yet most of the people involved are still in power or in their position ... it is very worisome as they are in command and have in their hand power that can shape the futur of this country.

One interesting question that one could raisewill be : "is the current political landscape legitimate and reflect the Finnish population choice"...no one has a clear answer sadly?

Nevertheless it remind me a movie, I let you guess it ...

Cole Sear: I see corrupt people.
Malcolm Crowe: In your dreams?
[Cole shakes his head no]
Malcolm Crowe: While you're awake?
[Cole nods]
Malcolm Crowe: Corrupt people like, in politics? In Nuorisosäätiö?
Cole Sear: Walking around like regular people. They don't see each other. They only see what they want to see. They don't know they're corrupt.
Malcolm Crowe: How often do you see them?
Cole Sear: All the time. They're everywhere.

Baseline Scenario, Japanese style and the Kalio Pub

One see an apple that has grown bigger and bigger and yet not falling from the tree, as an interesting phenomenon and somehow is overwhelmed by the strength of this apple - still hanging hard and defying its fate. However ultimaltely it will succomb the force of nature and follow the law of gravity. The fall is unavoidable and this particular fall may open new opportunities for others (at least one fell in the head of Mr Newton and allowed major breakthrough).

So yes, house price are still hanging , helped by unnatural phenomen called politicians and policy makers. However the fall is unavoidable...bear in mind that they are not fighting to rescue the housing market but instead the whole system (see the UK and US where politicians and economist are a little bit more advanced in policy making and global economical strategy...at the moment they control the rest including the fate of Finnish Finland)

Back to reality... Observe the phenomenon that occured in 1990, as show in the picture above: a double top (I suppose created by the one who desperatly were waiting for a correction, so clearly a bear trap)...and what deceively followed by a lifetime correction.

This scenario is my baseline scenario with most probably between 30-40% correction by 2012 and probably 10-20% by end of 2010, a time where the stimulus are all but disappearing. The economy will be in such a state that it will not handle another crisis currentl ygerming that is unavoidably bound to happen: the currency crisis due to last resort measure exercised in the past year to disable the effect of the financial crisis created by about 10-20 years of policy making and regulation miscalculation assorted with uncompetence...(believe it or not I'm not writing, on the fly, after few pints in a dark pub in kalio...instead I'm surrounding by my daughter that do not understand how is it possible that there is better thing to than wathing a cartoon with her (TiTi Nalle)...)

All in all, the best case scenario for Finnish Finland, which could invalidate my baseline , is the Japanese type scenario, a slow decrease of price in the period of 20 years...losing 50-60% during that period...almost unnoticeable (3%/year). this could be a stagnation of price combined with higher inflation...

I will update soon my prediction of the current price evolution based on the latest technology (...), when I decide to become unproductif...

Erkii and The "Placebo" Economy

"Erkki Liikanen, the governor of the Bank of Finland, told the parliamentary finance committee on Thursday ...

... that a lack of confidence in the balance on the market and among the public would have an "immense" negative impact on the economy.

... that the Finnish economy was recovering from the recession at a slower rate than other EU countries were because the share of exports of Finland's gross domestic product was relatively high in general, with 80 per cent of exports made up of investment goods and raw materials"

Nothing much to add unless the fact that Erkki is stressing that the recovery is based on a virtual fundation: "the positive attitude" ... back to '68?

Tax Men : "They are coming from Venus"

"Taxation task force wants to cut back on tax deductions.

A working group set up to reform taxation in Finland has set as its goal the establishment of as wide a tax base as possible.

The group is not expected to propose that all tax deductions be eliminated. For instance, the biggest tax break, the right to live in a home that a person owns him, or herself, is unlikely to be changed.

Ordinary people do not understand the idea that living in their own home constitutes income of some kind, or that this income might be taxed, Hetemäki concedes."

How about taxing the right to breath? afterall it cost to protect the environment hence the quality of oxygene...if we follow the "tax man" logic.

Nethetheless the government seem to become innovative in order to bring some revenue into its coffer before..it declare itself bankrupt? who knows...

"It is expected that the working group will call for the taxation of profits on the sale of one’s own home. Now a home can be sold tax-free if the seller has lived in it for at least two years. The working group is also expected to propose the elimination of the tax deduction on the interest paid on housing loans."

Although, for some cases I agree, the tax break on interest rates deduction for example should be eliminated and it is the perfect time now as interest rates are almost near zero... so the tax payer won't notice a thing...in the short term.
In any case,it was one reason among many others that explain the current housing bubble.

From the Finnish Illusion to the Pragmatic ECB

Forget the Finnish Banks forecast(or Swedish or Danish since they are clearly the biggest player in the Finnish market) since it is biased, unreliable and had a very poor track record (something that people tend to forget over time).

Instead I will advise to seek an independent view, through the voice of Mr Jean-Claude Trichet, the president of the European Central Bank (ECB).

Here is what he had to say and doesn't need any further comment on my side, as it describe the current situation in a very crystal clear manner, in a non confusing way and not targetted at fooling the common pedestrian...so here it is :

“Uncertainty is very high,” Trichet said. “It’s a bumpy road we have ahead of us. Prudence and caution are still of the essence.”
The ECB today raised its economic forecasts for the 16- nation euro region to predict growth of about 0.2 in 2010 instead of a 0.3 percent contraction. In 2009, the economy will shrink about 4.1 percent, less than the 4.6 percent contraction predicted three months ago.

X

The real estate market has been hit hard by the recession. Sales fell in the first half of the year by nearly a quarter compared to the same time last year.
The amount of money spent on purchases dropped by about one third.

Buyers were also interested in much cheaper properties. The National Land Survey of Finland says that sales of small houses and lots fell dramatically.

During the first six months of the year, 27,500 real estate deals were closed, a decline of 24 percent from the same period of last year. The deals totalled 2.7 billion euros, down by 34 percent from the first half of 2008.

Sales of lots for small detached houses slumped by 35 percent, while house sales dipped by 23 percent.

The number of vacation homes sold also shrank by one quarter. In particular, Russians' interest in buying holiday properties in Finland has slumped. Last year Russians purchased 780 properties, but this year's figure is expected to be about one quarter of that.

Sales of farmland dropped by one third and of forest lands by one quarter. However prices paid for fields rose since last year.

YLE

Put as-is as extracted/pumped/copied/diluted/borrowed/shoplifting from YLE.

Nevertheless it fit my analysis of the situation in this very thin and volatile market...a reminder that the housing market follow cyclicale patterns. Pattern you said? how about a 20 years pattern: 1970 (market lost 40% from peak to bottom), 1990 (market lost 40-60% peak to bottom) 2010 (market lost X % from peak to bottom)...

NOrdea or NOidea?

"Finland’s economy will jumpstart by the end of the year, says the Nordic banking group Nordea. The bank’s economists say they’ve been recording positive signals since this spring.

Nordea is, however, not adjusting its prediction that Finland's GDP will contract by 4.5 percent this year. The bank meanwhile raised its outlook for next year, saying it believes the economy will grow by 2.5 percent in 2010.

The bank says consumer prices will remain steady this year and will rise by 1.2 percent next year due to climbing interest rates and raw material costs.

Nordea says its optimism is rooted in a generally brighter global economic outlook."

This bank, back in february went almost out of business if they had not required fund from different parties or if the ECB did not lower the rate to level not seen since the birth of this bank.

Now I'm not sure if theyh are trying to use a "placebo" strategy, in trying to make believe to the mass that the worse financial crisis is over amid worrying level of debt (that is by the way still growing) and amid massive deflationnary forces.

"The economy will grow" is a quite big sentence, at best they are trying to fool the mind, knowing that the overall economy was in complete free fall few months ago.
It is as well a dark reminder of the forecast that the intelligentsia and other economist and bankers echoed during the 1990....at the end they were completely wrong and had to be rescued.

Again how can bank forecast something that it had not understood and that is so complex and independent of the beahviour of the local economy. at best they have No IDEA of the kind of message they are propagating....

Nethertheless I wanted to mark what Nordea said so to come back in a year time and review what has effectively happenned to finnaly confirm that they clearly have no idea, no idea of the current situation...

Having said that...be productif, stop accumulating debt,pay what seems right for a rent or a house and do not overspend.

Silent Corruption...the Finnish Style?

The City of Helsinki had reserved a plot for the UPM headquarters, but the company applied for an extension for the reservation. The company was granted an extension until the end of June 2010. ”I have nothing to report on the matter”, commented Real Estate Manager Kaj-Erik Lindberg from UPM when questioned whether the forest giant plans to abandon the construction project entirely.

As far as is known the city has offered UPM the plot for a lower-than-normal price for ”industrial policy reasons”. The quoted price is approximately EUR 1,300 per square metre of permitted building volume.

Reportedly, Senate Properties intends to secure hundreds of euros more per square metre for its own plots of land.

”If the market price does not rise sufficiently high, we will not sell the plots at all”, notes Director Heikki Laitakari from Senate Properties

The last sentence make me fall off my chair...re-read it please... You can clearlu see that the current law accomodate speculation. In addition, the fact that in a very dense city as Helsinki, such beahviour is allowed is clearly outrageous. In most of developed countries land that is not used is heaveluy taxed in order to stop this type of counter productive behaviour...

Well law makers are sleeping or do not want to disturb the guys that fund them indirectly ...

Coming back to UPM, this shows you that big and old businesses (Wood, Banks, Energy, Media) are still in control of the political and economical landscape in this country...a big disapppointment.

Food for Thought...

Sometime ago I met a very wise man, most probably aged about 150 years - the type of person you can only find in the middle of a myst, he told me : "a picture, my son, is worth a thousand's politicians words." ..I was astonished....well in the meantime he faxed me the picture...

So here is the picture :

Total collapse of granted dwelling permits...to help you digest that I have extracted two major information.

First, the recovery of the housing market that seemed to have occured from 2003 has been completely invalidated thus implying that the price growth observed during that period is irrational.

Second, looking at the nose diving evolution of the trend, we are clearly in an unchartered territory, something not experienced since at least a decade ago.

Common Sense and Rationality...Help needed!

Output of the Finnish Economy...historical slump on the way

I did not know how and where to start in trying to express in few words some common sense and rationality on what is going in Finnish Finland peculiar housing and rental market.

Indeed, one has to travel around Europe in order to get enough distance for a better analysis on the situation, but if I have to put it in 2 words, it would be:
"Crap and Expensive"

Now in order to echo the words of the Finnish prime minister, the situation is bad but not as worse as the 1990's slump...I would like to extend his deep thinking by adding "NYT"...which basically mean "now" in Finnish cryptonic language. So indeed we are not as bad in the 1990's because the we are not yet there but not far. I suppose everything is deteriorating month after month, at almost all levels except in the showbiz (from Madonna to politicians corruption show).

That's it for now..switch off "the internet" and get a rest.
And those who are stress about buying...just have a rest of a year or two and relax... there is a better thing than dreaming about putting yourself between 4 walls.