I have been asked to update my views on where to buy property in this incredibly awkward, and ridiculous world.
I’d like to suggest that nowhere would be the best idea. On the other hand, my friend Julie says “You’ve always made money out of property, go and buy some more.”
Not exactly. I have not made money in Portugal. That was a mistake. It’s the only mistake I’ve made, but, in all honesty, I did highlight the possibility of a Portuguese default in my book on property investment. I think that version originally came out in 2005. I said the possibility of default maybe remote but the possibility is there.
Let’s have a quick look round. Unfortunately the news is bad wherever you look.
Let’s start with the good old US of A which is a complete disaster zone. Dont touch it with a barge pole. Property prices are still falling. You should never buy a falling market. The dollar is also in a tail spin. It has lost value every year this century. Real unemployment in the US is still hovering just above 22%. That’s seriously bad. 45 million people are on food stamps. Yikes. There are street battles in several cities. Too many cities are no-go areas. On top of that the banks have been foreclosing on properties they no longer hold mortgages for. They sold the mortgages on in packages to investment groups, and there is a frightful muddle as to who owns what. That mess is going to haunt the property market for years. Dont buy bank repossessions in the US, you wont be sure you have good title.
I did cover this fiasco in an earlier blog: The US Mortgage Farce. Here is a link to the article, a copy of which is on the Unique Newsletters section:
Leave the US for at least the next decade. If you were thinking of buying in Florida, dont!
The euro is falling apart. Politics versus banks. It’s a right royal mess. The politicians are up to their usual tricks: supporting the unsupportable. Political Europe is a train wreck. Financial Europe is following fast. The ECB (European Central Bank) is a smidgeon this side of solvency. A 4% slide in its balance sheet will put it into bankruptcy. That is not allowed, so they will have to print money.
Greece: Greece is being supported. It represented 3% of the Euro economy. Political gerrymandering has made the whole of Europe unstable just to save that 3%. Half-witted! Not only that, but if the country cant pay back existing loans, how in heaven is it going to pay back even bigger loans? A child of five could work it out. Europe’s politicians cant.
Of course, this mess will also affect Cyprus. Prices will drop drastically in the Southern part of the island. Any sales pitch for properties here will be cries of desperation. Avoid buying in Cyprus at all costs.
Ireland: The last time I checked out house prices in Ireland (18 months ago) I reckoned they had a further 50% to fall. I’m not up to date, but heck, it’s obvious. House prices there are too high. They have to fall. Ireland’s banking system is totally up the spout. I’m sorry for those of you from Ireland who are trying to sell, but you simply have to face reality. The housing market is a disaster area. It wont recover in the foreseeable future.
Spain: Spain is still struggling along. The tourist market is just so large I think it may well win through. I dont know. It is sorely tempting to buy some of the cut-price deals. However, I am waiting. We have further to fall. Things are beginning to look interesting, but rules are there to save us from ourselves. Dont buy a falling market.
I still think there are areas worth looking at. I will do a follow-up article to this one, highlighting where I think you should buy in Spain, and it isn’t where the best deals supposedly are.
France: France is a fiercely socialist country. Socialism is about to get seriously demoted in the West. No apologies for quoting once again Mrs Thatcher. “Socialism is fine until you run out of other people’s money”. I dont know many countries that can afford socialism at the moment. Scandinavia perhaps. Singapore. Ummm….. cant think of anywhere else.
France also has a major tourist industry. It is still top of the tree by a very long way. It isn’t about to go bust. But, there is the euro mess.
What I haven’t mentioned is the bank cross lending. That is what is at the root of the problem. Italy’s banks (which are bust) owe 1.8 trillion. Every banking system in western Europe is tied into a web of cross lending and no-one can afford to pay off the debts. It’s a mess of epic proportions. The only way out is a concatenation of defaults. The politicians are trying to avoid that at all costs. That is what may make this slow motion train wreck take years to collapse.
I recently read Charles Hugh Smith’s blog on the subject. This is a rather neat analysis of the current situation:
I shall be writing an article specifically on Portugal which I will load probably within the next ten days.
The rest of Europe:
There is a shadow hanging over Europe, it is the euro. As a currency it isn’t working. It is secured on nothing, and 90% of those using it have no control over it. That is a stupid situation. I cant see how it can survive in its current format.
However, any country leaving the monetary union is likely to see an immediate devaluation of its currency. In Greece expect a 60% devaluation. In Portugal and Ireland expect a 50% devaluation. That will hit any house value like a bomb. And what does that mean in real terms for today? It means houses in those countries are over-valued by that percentage. Beware!
I dont expect fierce inflation any time soon in Europe as any money printing will be to fill holes in balance sheets, rather than flooding into the market place. But the whole economic scenario is surreal.
The problem here is what the US does. The Feds are keen on pumping money into the banking system there, and that money is being used to hedge commodities. That is causing the price of basic materials to ramp up artificially. The banks borrow from the Fed at 0% and instead of lending to businesses, they invest in commodities, and boost their reserves.
China is also in the midst of a housing bubble which is likely to burst any time. When that happens there will be more trouble, and we may well have a lurch down in commodity prices which will hit the Australian market. I wouldn’t buy there either.
As you can see we have forces pushing one way, and counter forces pushing the other way. Place your bets now on which side wins. Either way it is going to be a mess.
Many people have invested in Argentina. Sorry; my mother was a history buff and she gave me chapter and verse of all their political idiocies which managed to turn a wealthy country into a basket case time and time again. Argentina has been a political mess for 100 years. It is still a political mess. They have a wonderful knack of turning success into monumental failure. Argentina can be summed up in three simple words: Invest and lose!
Egypt, and the Gulf? I have long avoided the middle east. It is a tinder box. It will blow sky high one of these days. Once again, I dont know when, but I like to sleep at nights.
Sunni -v- Shia? That’s the stuff of civil war. Count me out.
Islam -v- Israel? That’s another fight that has quite a few more chapters to run. Again, leave me out of it.
That means I dont rate Turkey that much. You will probably make money there. It is a big economy and it’s doing well, but it is just too close for comfort to the powder keg just to the south. Just look at that frontier with Iraq. Not for me. If you fancy the place, stick to Istanbul. It’s a prosperous city and it’s a long way from any possible conflict.
That does leave a few places. Let me talk about them next week.