"The Black Monday" : Monday 29 September 2008

Back in 1987:

"In financial markets, Black Monday is the name given to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short period"

Now on 29 September :

"The financial-rescue plan intended to restore confidence in the U.S. banking system collapsed in partisan wrangling as the House of Representatives voted down the proposal backed by the Bush administration and congressional leaders of both parties.

Markets plunged as the House rejected, by a vote of 228 to 205, the $700 billion measure to authorize the biggest government intervention in the markets since the Great Depression"

Etuovi.com or "How To Market The Downturn"

It's interesting to see that Etuovi.com, the portal for selling real estate, has introduces a new icon that indicate that price has been lowered. It is showing, in some cases, the old price and the new lowered price.

That clearly indicate a change in psychology.

Having said that, I would like to highlight the fact that this strategy is the same followed by supermarkets... Prices are inflated for a period of time and then lowered during the sales period giving the impression that there are bargains to be made.

Fortis, Bradford and Bingley, Glitnir, Hypo Real Estate...Who's Next?

"The Netherlands, Belgium and Luxembourg agreed to inject €11.2 billion ($16.37 billion) into Fortis NV on Sunday, after France's BNP Paribas SA and Dutch financial firm ING Groep NV walked away from talks to acquire the company over the weekend.

The rescue effort came after Fortis's shares came under heavy selling last week."

I suppose they look at the balance sheet and discovered massive amount of toxic assets. The CEO has been fired and replaced. So the contagion is spreading even before the real problems in Europe have even begun (i.e generalized housing slump)

"In the U.K., mortgage lender Bradford & Bingley PLC, which helped fuel a property boom in Britain, is being nationalized, in what is the second British bank to be taken under government control this year"

That is something I never understood. It was pretty clear that such institution was participating into making the housing market a speculative one. Price were pushed way out of their fundamentals, why so much institutions were blind? where was regulation?...you wonder.

Biggest U.S. Government Intervention Since The Great Depression in 1930

So the average American citizen will bail out Wall Street and this, most probably, will include the bunch of politicians, senators, law makers, that have directly or indirectly their (massive) wealth linked to it.
-So it passed-

They will want to look like Heroes.. but I can tell they will be remembered as zeroes, the one that did nothing to stop the mess from expanding, that created massive wealth for some and destroyed the American dream for the thousands of the average American...

-So they got to pay - through tax money.

Now, the architect of this plan is Hank Paulson Jr.
Who's that?
Well this guy was the CEO of ... Goldman Sachs ... from 1999 - 2006 before becoming the secretary of treasury...
-made about 37 Million dollars in 2005
-made about 16 Million dollars in 2006

-2007, hired by the U.S. government- one can say that he left at the right time, did he know?

He pretends that He is not a macroeconomist therefore didn't see his bank or the whole system heading to a wall. I suppose the profit, bonus or massive wage would blind the reason of any bankers...

Would that money, illegitimately won be paid back by this robbers... Indeed we have been taught that bank robbers are acting from outside and trying to get to the vault...in today world's, the robber are the banker themselves, engineered a system that created their astronomical wealth...

I will petition for the creation of a special committe that will prosecute all bankers that created their wealth on top on this mess...

But coming to Paulson, this Architect manage to get the best deal for him and his collegue- having multimillions of citizen work for 2 or 3 generations to pay back what they never ask for and never seen the color of...

Why do they have to pass this bail..

Well Mr Bush said that if they don't they will be a deep recession...Damn he cannot foresee a recession (he said that the economy is "sound" a few while ago) that everybody was able to see forming for about 2 year or 2 decades but now he is certain, probably at the same level he believed (tricked) that Iraq had WMD, that it's a wall or short pain if this wasn't passed...

Let's look at some facts:

AIG got rescued:

"Goldman Sachs Group Inc had as much as $20 billion at risk had the insurer American International Group Inc collapsed, the New York Times said on Sunday.

Goldman was AIG's largest trading partner, the newspaper said, citing six people close to the insurer.

A collapse of AIG threatened to leave a hole of as much as $20 billion in Goldman, the newspaper said, citing several of the people.

The Wall Street bank told the newspaper that it was never imperiled by AIG's troubles."

Let's take a break from Mr Paulson...to the fatty reverance pay that some or lots of executive have had...

"Patricia Russo, the recently ousted chief executive of loss-making Alcatel-Lucent, should hand back a 6 million euro ($8.8 million) payoff, French officials said on Sunday.

Russo received the so-called "golden parachute" after running the Franco-American telecoms equipment company for just 20 months, during which time Alcatel-Lucent shares fell by more than 60 percent."

I think she should be prosecuted...

Now, the world need to turn a chapter, Obama could not come at a better time...

The Legendary OverOptimism of Mr Erkki Liikanen

"In terms of economic growth, however, the most serious risk relates specifically to the financial market uncertainty. Finland would be unable to avoid the negative consequences if the United States and Europe were to drift into a clear recession with the consequent slowdown in growth in Russia and China.

Finland’s resistance is weakened by the level of household debt and the rise in wage-related costs in the corporate sector. Falling housing prices and the weaker employment outlook could encourage households to save, in which case consumption growth would be weaker than forecast. The negative impact on employment would start to be seen fairly soon, particularly if export demand was believed to be weakened on a long-term basis.

The general government surplus will begin to decline rapidly after the end of 2008 due to the termination of the cyclical upswing, cuts in taxation and the growth in expenditure pressures that can be expected to begin in a couple of years as a consequence of demographic ageing."

Last year while most economist were positive and confident, including Erkki Liikanen, I was not. That's exactly at that time, I created this blog, as too much wrong messages and disinformation were sent to the common people.

I decided to highlight critical informations the reader should aware of. The importance the credit crisis, the false asumption of decoupling and the fall of emerging markets and their impact on the global economy

The assumption were mainly driven by one main component: CREDIT and its related DEBT EXCESSES.

Too much debt were taken while interest rates were too low, a policy mistake that is now costing the world its stability, send oil price to the roof and overheating emerging markets.

It distorted all asset prices as too much liquidity, amid fraud and greed, were flooding the world markets.

Should the U.S. fall into a recession it will have a ripple effect on the world economies. The first hit will be China, major exporter to the US and Europe. Europe is already sharply slowing, with Spain and Ireland collapsing... And as a domino, more economies will fall into recession forcing the ECB to cut rate drastically to a point where it will create the next bubble, not in real estate, ...

The Truth About Interest Rates

I'm a little tired to hear around me this nonsense with regards to interest rates comparison to the late 80's.

Lots of economists, journalists have been saying that todays interest rates are way different than in the 80's when they were at around 9.5%.

These groups are clearly misleading people on main street, and are giving a false and dangerous sense that todays interest rates are fine.

I looked at the interest rates for the period 1982-1991, and what I want to highlight is the variation not the level of interest rates. Because what hurts is the change of level not the level itself.



So the change of interest rates between 1987 and 1991 is similar to the one from 2003 to 2008, exactely similar. Indeed the debt servicing level has been multiplied by the magical number x 2.75.



The incredible similarities goes beyond that. Let me show you:

From 1981 (13%), interest rates kept falling until 1987 (3.5%). They were divided by 3.75

From 1991 (9.5%), interest rates kept falling until 2003 (2%)- They were divided by 4.75

In reality, household overstretch themselves even more that in the late 80's, they borrowed for a much longer period and took much higher leverage.

So it's unsustainable. Whatever metrics you are taking, it shows that a change is operating, and we are currently seeing an huge inflection point- in term of debt deleveraging, in term of population ageing, in term of shift of global power.

The world has never been so vulnerable. We are not only talking about financial stability but as well societies stability if geopolitical tensions were to deteriorate (Russia, Iran, Pakistan, Venezuela, Basque Country etc...).

People will say, you are quite gloomy. It's certainly that their reference of stability were the boom years where growth speed and appreciation were just irrational...

If you have a contrarian view, please expose your arguments, I will be more than happy to investigate and publish them.

Super K?

"Finnish regional daily Aamulehti on Sunday quoted the majority of the economists it had interviewed as saying that they saw Finland's jobless rate rising over the course of the next two years.

The finance ministry had said in its latest outlook it expected the country´s unemployment rate to fall.

Aamulehti interviewed economists from the Central Chamber of Commerce, the Confederation of Finnish Industries (EK), the Labour Institute for Economic Research, the Research Institute of the Finnish Economy.

The paper added that Jouko Kangasniemi, the EK economist, was alone in backing the finance ministry's jobless rate forecast."

Mr Jyrky "Uusimaa" Katainen, is predicting that unemployment is going to fall - please read the "Alice in the wonderland syndrome" if you have not -

So the forest industry is shedding job at light speed, the banking sectors will have to change it's business model - coming back to pre-credit Euphoria sanity check i.e 1996 - while other are not yet been ready to shed job as their backward looking indicator is telling them that it's hard to find people on the job market - they will have to wake up to a new reality that the global economy is falling of a cliff.

I bet that export will shrink to record next year, as people around the world are holding consumption amid a deterioration of the future expectation of their economy. They will start saving, and fast...

Goshh, it could look as ugly as 1990. 2009 will wipe out any budget surplus that the government optimistically planned making pocket of vulnerability going into 2010. Just hope that 2010 is not the eye of the storm... Remember in 1929 the crisis started, 1933 was the worse year. In 1989, the crisis started, 1991 was the worst time. A crisis started in 2001, the worse was 2003...

A "Resolution Mortgage Corporation" ?

- 1989 Creation of the Resolution Trust Corporation:

"In the late 1980s, Washington created the Resolution Trust Corp. to restructure the mortgages held by 750 insolvent savings and loans. By selling off assets over time rather than in a fire sale, the RTC lessened the cost of the crisis to taxpayers."

- 2008 -2009 Creation of a kind ot Resolution Mortgage Corporation?

"U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution.

Congressional leaders who met with Paulson and Bernanke late yesterday in Washington said they aim to pass legislation soon. The initiative, which may also insure money-market funds, is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression."

The US Government plan to deal with banking industry "toxic assets" is clearly a positive move, and welcome by the market.

One has to understand, that this is more complex than the 1989 U.S. rescue operation. It will not solve the problem overnight. As matter of fact, in the last crisis, the RTC was dissolved in 1996.

So you will see a temporalry rise in stock market, which I think will soon fade. The reason is that banks need to deleverage. When I say banks it's all over the world, they have taken far too much risks and need to rebuild their capital base.

Is it a good time to invest in stock market? well it's your decision not mine ;->, but personnaly I will rather wait until the economy pick up gain, sometime in late 2009, 2010. The stock market will react earlier so let's say mid 2009. Although it doesn't mean that some stocks were not hammered by the prospect of the U.S. depression. So if you want to trade short term, it could be an opportunity.

Now what about the housing market? well even with this action, the U.S. real estate price will continue to fall for another 12-18 month.

What about Finland housing market? well you know you got to make housing price affordable to first time buyer, so you will see as well a correction as said previously. Price will drop from next quarter amid a falling transaction volume and a declining housing starts.

In order to find a quick floor to this housing decline. Few factors can help. Lower interest rates and readjustment of housing price. Both will happen from 2009.

In the past in order to make housing affordable, wages were rising faster than inflation. Today it's an utopie to think such event will happen and that's the reason why the ECB has not cut interest rates.

Think about it - Finnair decided to cut wage by 5% or lay off people. Union finally decided no to go for a cut. So job will be lost and wage won't rise.
Union have lost their power. They were, finally, the collateral damage of the globalization.

Shadow Deal: Delocalising Interest Rates

"Minister of Finance Jyrki Katainen is calling on banks to alleviate fears that private individuals could be hit with higher interest rates on housing loans.

At a press conference on Thursday, Katainen criticised banking institutions and the Finnish Financial Supervision Authority for not calming fears about banks increasing interest on home loans."

"The uproar began after the newspaper Turun Sanomat revealed banks negotiated a deal with quasi-governmental agencies to allow greater flexibility in loan arrangements for private individuals."

"The procedure was drawn up by the Federation of Finnish Financial Services. It was approved by the Finnish Financial Supervision Authority and the Consumer Agency. These agencies are affiliated with the Bank of Finland and the Ministry of Employment and the Economy respectively."

"So far Nordea, the nation's biggest lender, is the only Finnish bank to include the clause in housing loan contracts. It has been doing so since the beginning of July. However the bank is not allowed to crank up interest rates for at least three years after a loan agreement is signed -- and then only in case of a crisis that threatens the lender's very existence."
Source: YLE

I understand why Bank of Finland, the FSA and the consumer Agency (aren't they suppose to help the consumers???) have acted that way. At the end of the day, in Bank Of Finland, there is the word "bank". Bank on it that will put the banking system - the financial system - before people. Indeed in the long term, people benefits from financial stability.

If something of the scale of 1990 were to happen, (didn't say it will happen), they won't be able to apply the same recipe as the global economy is dire compare to 1992 period. The US is fighting with an amazingly complex and disastrous financial crisis that is putting in doubt the U.S. way of applying "free market" i.e little regulation.

I hope that they will not forget as well to put a clause that says to take back from the CEO, shareholders fatty dividend or generous salaries that they have amassed during good time.

PS: regarding the photo...I just like it. Or maybe it is what a banker sees when a new customer come?

Russia Economical War

"Russia poured $44 billion into its three biggest banks and halted stock trading for a second day in a bid to halt the biggest financial crisis since its devaluation and debt default a decade ago."

It seems that a new cold war has started or should I call it a eWar.

The foreign exchange, the stock market and the bond market are all under heavy pressure.

In fact "pressure" is a pretty weak word to describe what is currently happening in those front.

The stock market has lost about 60% in 3 months. It is currently in free fall. The trading has been halted two days in a row as the panic is holding.

So that was one of the risk I highlighted for the Finnish economy. Should the Baltics and Russia falters, then economical tsunami will abate whatever actions some politicans will do.

The US might enter into depression while the UK and Germany are entering a recession. China is cutting rate in order to cool, not the market, but the social tension that will rise in the quarter to come.

I will be positive...at some point...but to be positive now, it's like playing Russian roulette, you might be fine or might not be, for the moment it's luck.

But I promise you will be the first to hear when time become more positive - it's a deal.

"Alice In Wonderland" Syndrome

Have you ever heard about the "Alice In Wonderland" syndrome? so here is the strict definition :
"It is a disorienting neurological condition which affects human perception"

So who's got it?

1 - "Addressing Parliament during the budget debate on Tuesday, Finance Minister Jyrki Katainen says the Finnish economy is in excellent shape and able to withstand difficult times."

...I go to the right ("so it can...")

2 - "The finance minister predicted however that the instability on the global financial markets will drag the Finnish economy downward."

and oops the syndrome is hitting , I go to the left ("so it cannot"..)...

We could call that the "Politician Syndrome" too, just tell at the same time two opposite view in order to make happy any audience - the one that need positive message and the one that need negative one-

Should I use the same technique? 'The stock market will crash but only to rebound stronger and healthier.'

Nevertheless, i have heard a bunch of media disinformation in the past 48 hours that's hard not to intervene and say something about the Lehman and AIG issues.

Any banks in the world has and will have an impact on lehman demise and even more with a possible fall of AIG. -due to indirect links- which are falling stock market, rising credit cost and deteriorating global economy. Full point.

Risks and The Macro-economy

So here is what I think is a very important and interesting speech given by the European Central Bank - ECB - president, Jean-Claude Trichet .

"A long phase of heightened risk tolerance in our economies has come to an end. To the extent that the more recent turns in the markets correct past excesses, this is a welcome – if painful – process that we had anticipated and asked market participants to prepare for in past interventions."

Market participants have been warned, and I do hope that they don't forget to warn the locomotive of the economy - the citizen. It is true by having high interest rates, it gives the message that now borrowing is not a good idea, but if you do, so you will pay a high price for it.


"To the extent that this interpretation has some merit, a less fortunate string of shocks could always bring more ample swings in economic conditions – looking forward – than we have grown accustomed to from past experience. And this could entail repercussions for the valuation of investment risk in various financial markets. In this case a return to historical valuations for risk would imply large negative returns for a possibly extended period of time"

He makes very interesting point, saying that "we have grown accustomed to from past experience" i.e stock and housing just go one direction: UP. Ask that to the japanese, they grew accustomed that housing go only one direction: DOWN. Although it's unfair to compare Europe or the US to the Japan experience....

What could be seen as worrying is what he says after, "In this case a return to historical valuations for risk would imply large negative returns for a possibly extended period of time"

I'm not sure about what he means that an "Extended period of time", is that 2 years or two decades?

What about the view of the CEO of Royal Bank of Canada?

"Gordon Nixon, CEO at Royal Bank of Canada, the nation's biggest bank by assets, called conditions the worst since the Great Depression and said lack of liquidity, rather than credit quality, is a bigger issue.

Bank of Nova Scotia CEO Richard Waugh said the global credit crunch is 'the worst we've ever seen' and that liquidity had been mispriced for years without enough regard for risk.

A multi-decade era of relatively easy credit is 'over' and borrowing will be tougher, Nixon said, forcing lenders and companies that borrow to adjust their business models accordingly."

Indeed Stocks and Housing hase been growing steadely, even if bumps were on the road. In the past 3 years it seems that this environment has changed. As usual, the U.S. is ahead in term of business cycle and adjustement - they saw their housing and stock readjusting.

The process of delevering, how can it be better said by the bigger Bond investor and GURU, PIMCO's Bill Gross.

"PIMCO's Bill Gross explains why the markets for houses, stocks, and bonds are all crashing at once--and why they all have much farther to go. In a sentence? The global economy is in the process of delevering (reducing debt by selling assets)"

How about Mr Greenspan (ex- 18 years - Fed Chairman of the American Federal reserve) view about the current situation - come on try to be positive - ...

"Let's recognize that this is a once-in- a-half-century, probably once-in-a-century type of event" — the worst "by far" in his career, Greenspan said.

"There's no question that this is in the process of outstripping anything I've seen, and it is still not resolved," Greenspan said in an interview today on ABC's

I don't even talk or mention Lehman brothers, should they fall, like a domino, it's the whole shadow banking system that will collapse (Merril Lynch, Morgan Stanley, Goldman Sachs etc...). Unstable? you said...not sure where is the floor...I just hope that the American fed will use the American public money (socialize the losses) in order to rescue the rest - the world.

Update: Well, lehman this morning has gone bust. World wide stock market are slumping. In fact, it looks like we are slowly seeing the end of the current crisis as the weakest player are disapearing while the stronger will manage to survive: it's a painful but healthy happening.

Sources:

-ECB by Jean-Claude Trichet: "Risk and the Macro-economy" , quite big article worth to read (put in comments some other points which I could have missed (the positive one ;->))

-Royal Bank Of Canada

-PIMCO

Housing: The Beginning of The Beginning?

"In the Helsinki region, prices fell by 2.8% during the second quarter of this year. Elsewhere in the country, prices were up by 1.9% over the same period of 2007.

The halt to the upswing in prices came quickly. Last year prices of single-family dwellings shot up by 6.4%. In the capital area, the reversal was even more dramatic. Prices there rose by 12.7% last year.

Nationwide, the average price per square metre for a single-family dwelling during the second quarter of this year was 1348 euros and in the Helsinki region, 2394 euros. Compared to the first three months of the year, the prices of lots for new houses were down nationwide by 5.8%."

I understand why politicians, media, policy makers and banks have tried to reassure the market and citizens that no "bubble" or excess were to be seen, and argued that prices won't readjust. I hear again Erkki liikanen, Bank of Finland Governor, saying last year, that price will still grow by 3%. I didn't believe that...

In fact, what they are targetting is an orderly market correction, not a panic...They still want people to buy and support the market (but who will support the late buyers?). They still don't want the market to freeze, but why big construction builders have already cut the amount of housing to be build?

So they still want people to consume, the same way they did in the past 5 years- in euphoric behaviour - (but at what price? heavy debt burden?).

Today, it's different. The economy need structural change and got to move from a consumption economy to an export led economy... The transition will happen and could be painfull.

Stocks: The Beginning of The Beginning?

Pohjola has launched a scheme to buy some stocks.
Indeed you got to put a floor to the current stock market crash.

The question is, are we just normalizing i.e correcting to lower price reflecting future lower profit?

Here is the pohjola press statement:
"The equity basket index includes the following 12 companies with the same weightings, selected by Pohjola Research:
-Neste Oil Corporation,
-Rautaruukki Corporation,
-Outokumpu Corporation,
-Fortum Corporation,
-Nokia Corporation,
-Konecranes Corporation,
-Outotec Corporation,
-Sampo plc,
-SanomaWSOY Corporation,
-TeliaSonera AB,
-Wärtsilä Corporation
-YIT Corporation (what????!???, are they crazy? or are they just bailing out some friends?)."

You can clearly see (see image above) at the opening this morning that they are in action. Most probably they rose enought money to start the bail-out.

To my opinion, there is still way to go before you see some stable ground. Although not all cmpany should be put an equal weight - as Pojhola is doing, I think it's a mistake - The Rautaruuki, outokumou, outotec and YIT benefited to extreme and unusual market condition in the past five years due to enormous liquidity and leverage build up (due in part to low interest rates, investors complacency, carry trade, deterioration of credit standard).

The market need to clean up, not at a local level but at a global one. Indeed our policy makers have sold us the idea of globalization - mostly adding the use of cheap and abundant labors in the workforce - Now following this idea, only companies that have strong business model and resources should take the biggest share of the global market, the others should go - no government bail out can stop that, the free market forces unleashed are too great to fight. Trying to oppose them will result in greater losses than benefits.

How do you become competitive and gain market share? innovation, cost control and right strategies. You need competent work force, ambitious and motivated. You need also great leaders, not blind or short looking visionnary (e.g minicipality heads)

Have You heard or See Something Interesting?

if you think that an "article" should be on the spotlight or if you have some pieces of evidence showing an exuberant housing market where fundamentals are out of touch... just put it as a comment...

Normalizing Huoneistokeskus

"Finnish estate agency Huoneistokeskus said in a market review on Tuesday that the Finnish housing market was not in recession but undergoing a process of normalisation after a dozen years of boom"

So what is normalization? a -30-50% correction in order to make housing affordable for first time buyers and young couple?

Huoneitokeskus, as all the other Finnish "dinosaurs" estate agents are facing extinction. Indeed the market has frozen. And this time, it's not the "baby boomers", the 1945 crude, that will come to the rescue as they will all retire in mass, in the years to come, becoming this time a drain on the country finances...

At the same time, the population is ageing and immigration anemique while emigration could rise as economic prospect are darkening...not a good combination for the future of the residential market....

Indeed the world is normalizing , but not in the sense of huoneistokeskus. There is a clear shift of power, and the forces in action are great to fight...

What next for Huoneistokeskus? well to survive, they will have to go to the painfull cost cutting. They will have to fire to let go some real estate agents. The best one, will try a career in politics, as they were good in fooling people, maybe potential recruits for the National Coalition Party. The non performing real estate agents, will work in the public sector, maybe bus or tram drivers or at worse as municipality head...

To conclude, I will advise Huoneistokeskus to rename itself to Huonokeskus, I think that will reflect better their businessmodel for the next two decades or so...So not only the housing will normalize but so will huonokeskus...

USSRA : United Socialist State Republic of America?

"Senator Jim Bunning said Treasury Secretary Henry Paulson, by rescuing Fannie Mae and Freddie Mac, is acting like China's finance minister and both Paulson and Federal Reserve Chairman Ben S. Bernanke should step down.

'I sincerely believe that Henry Paulson and Ben Bernanke should resign,' said Bunning, a Republican from Kentucky on the Senate Banking Committee. 'They have taken the free market out of the free market.'

Paulson and the federal regulator for Fannie and Freddie placed the two largest U.S. mortgage-finance companies in a government-operated conservatorship on Sept. 7, ousting their chief executives and eliminating their dividends. Treasury also may purchase up to $200 billion of stock in the firms to keep them solvent."

..Couldn't resist. I suppose everybody knows that the U.S. treasury has kind of rescued the two biggest mortgage buyers amid a catastrophic decline of their housing market.

As some say "privatize the profits but socialize the losses", this has never been so true... If I'm correct, Finland during the beginning of the 90's did the same thing, rescued the banking system, (I wonder what happened to the CEO's and the one who filled their pockets full of Markka...)

Anyway, They (the U.S.) didn't have any choice, it was that or the collapse of the whole financial system- systemic risks- , that would have certainly ravaged the global economy. Indeed, you heard the decoupling theory from most competent economists and politicians (..the "sound" thing...)...well that was/is bloeuf, nothing else. Everything is ongoing and nobody knows yet the outcome. people are delevering (getting out of debt) as fast as they can (stocks on free fall all around the world)...

I don't say that the global economy will collapse next year, far from that, I'm just highlighting that there are very big risks or threat around. Should they materialize, then indeed 1990 will be replayed...otherwise you will have anemic growth for few years to come...well at least no inflation ahead - that is guaranted.

YIT: Profit Warning

"Finnish builder YIT on Monday warned its full-year profit would be lower than that seen last year, blaming further drops in Finnish housing demand and construction in the Baltic countries."

Last year, when the YIT share price was over 20 euro, I made a bold call by saying that the share price will slump to around 3 euro. (here is a link (in the older blog), where I compare YIT (construction bubble) to NASDAQ, the last technologie bubble)

This was based on technical analysis and in the fundamental assumption that the housing market will start to correct from 2008 onward (I can't put a date how long house price will fall, between 4,5 year or two decades).

Scary....What A Move!

I have been following the Helsinki stock Exchange in the past 10 years, quite a few time you have a rare massive and disordely move. Today was one them.


"Nokia Corporation
Stock exchange release
September 5, 2008 at 15.00 (CET+1)

Nokia lowers its third quarter 2008 mobile device market share outlook"

No further comments on that, but it was worth highlighting it as it might have an impact on the psychology that seem to play a bigger role than fundamentals...things are clearly not sound.

Worth noting as well that Russian stock market and currency, the ruble, are collapsing. The Russian central bank are to intervene in order to protect the currency for falling further as investors are pulling their fund.

"Russian stocks plunged and the cost to protect government bonds jumped to the highest in almost four years as the central bank shored up its currency pummeled by the conflict in Georgia and tumbling commodity prices."

So the Baltic countries are on the brink of collapsing with Estonia leading the way, Sweden and Norway economies are all but nose diving and the only support that was left was Russia and Asia who are currently decelerating and fast. ...Looks to me that a repeat of a 1990 scenario cannot be ruled out ...

Nordea: housing market more stable in the Nordic countries

"Overall, we estimate that economic expansion in Finland will slow to well below the average level as early as the second half of 2008, and a recovery cannot be expected until 2010," Nordea said in a statement.

"Still, the Finnish outlook is fairly reasonable compared to many other countries. Overall, the macroeconomic balance is in good shape and the housing market has been more stable than elsewhere in the Nordic countries."

I agree, once with Nordea, correction have already begun in Sweden, Denmark and Norway. Finland, like in the 1990's, has always lagged. I don't know why and the reason, maybe due to the media, or common belief that "this time it's different".

But Now, like an apple being thrown in the air, it's ultimately being stopped by the "affordability" gravitational forces. Thinking that it can stay magically in suspension, is like telling that finns don't drink...I don't believe that, do you?

Assault and Housing Bust

The number of assaults recorded by police over the period from 1950 through 2007

"Police report number of assaults peaked last year Violent crimes becoming increasingly brutal, while Helsinki sees reductions in police staffing

According to police statistics, a total of nearly 35,000 assaults were recorded last year, which is apparently more than ever before.

The number of recorded assaults has been growing for several years, while an exceptionally large surge took place between 2006 and 2007."


Each time you had aggressive credit expansion, a housing boom and an increase of "aggressive" assault is followed. (Wonder why?)

Suprisingly, when the number of assault peak and start to decline, so do the credit expansion. It is, as well, followed by a housing bust as observed in 70's and 90's. Twenty years seem to be the maximum length before a credit downturn starts so here we go 2010 will see the same phenomenon occur. At least you will be able to walk without the fear of being assaulted or at least a lower probability.

Next time I will study the number of "Red lipstick" being sold, usually lower volume shows either that we enter a recession or that the population is ageing...

Spanish Housing Disaster: "my gosh!"

"Spanish car sales fell 41.3 percent in August from the same month a year earlier, marking the fourth straight month of decline and the biggest drop this year amid a severe economic slowdown, data showed on Monday"

You know what? the housing price there are gonna fall by over 80% if the ECB doesn't intervene and quickly... On one hand you have the english "expat" or other speculators that are fleeing the market and on the other about 80% of the population owning a house, with 97% of people being on adjustable rate mortgage (similar as in Finland though), this housing seem to have no floor to fall to.

If you had plan to retire in costa del sol, wait another 2-4 years and buy back property for about 80% - 90% discount.

Indeed Greed, is severely punished over there.

Do I feel investing in Finland while massive opportunities are being created abroad in the next 5 years. My answer is straight: NO. Nor, I'm going to work my whole life for a Nordic bank that have behaved irresponsably (reckless lending and speculating through its real estate branches) . Neither would i participate into bailing out construction builders such as YIT that have been selling "knigthmare trap" to young household or first time buyers.

Do They Know What they are talking About?

... that's worrying, they (the politicians) have shown lack of vision and competence...

"The fundamental point is that the British economy is strong..." -U.K. Chancellor of the Exchequer, Alistair Darling, 05 Nov. 2007

"The British economy is facing the worst slowdown in 60 years and will not recover as quickly as originally forecast",- U.K. Chancellor of the Exchequer- Alistair Darling- 30 Aug.2008

In the mean time, while U.S. housing slump is ongoing, the U.K. is showing an even worse outlook. (let's put aside the Irish ad Spanish market that will see a correction not seen since 1st BC...)

"U.K. house prices fell by the most since at least 2001 in August as economic growth stagnated, and an end to the property slump is 'still some way off,' according to Hometrack Ltd"

"Nationwide Building Society and HBOS Plc reports show that the U.K. has entered its steepest property market slump since the early 1990s"

"Luxury-home prices in central London, the world's most expensive location for prime real estate, had their first annual decline in five years as buyers were deterred by the prospect of a recession"

...I heard as well Katainen saying that the economy is sound, just hope that his nose is not growing too fast...