Greece: After the Euro

I have been saying for some time that it is impossible to second guess the way the eurozone mess is going to go because of the continued idiotic interference of politicians. I have also said that the euro is a currency that survives purely on confidence. Well, I think we have just had a serious change in perceptions.

Confidence in Greece using the euro is evaporating fast. Once that mood gets enough traction it will be impossible to stop, and the country will be forced out of the eurozone simply because it will become a monetary wasteland.

Those of you who read the New York Times (probably not a lot) will have noticed some interesting articles recently about Greece, Italy and Spain.

The news is that large corporations in the US and other countries are preparing for a Greek exit from the euro. Several companies, including Visa, say they can cope with a Greek exit within 24 hours, and they have contingency plans for a new currency. It looks as though politicians are going to be side-lined on this issue at last.

The problem is one of confidence. All fiat currencies rely solely on confidence. Hard currencies are backed by something else, usually gold, maybe oil. Fiat currencies are backed by consensus. If you look at a euro note you would be hard put to work out what it really is, who printed it, who guarantees it, and what it’s supposed to be worth. It might have a 20 written on it, but what that 20 is worth is another matter.

The fact that more and more international companies are questioning Greece’s ability to survive within the eurozone (which is really so obvious only a politician cant see it) means that confidence is going. With that gone, the currency is effectively gone too. It’s no good a politician saying we can paper it over. If no-one believes the politician, that statement is worthless. International businesses have simply stopped believing the politicians.

The question is, who is going to pay workers, and with what. Greek companies will have to do what they have to do, but what about international businesses? What about trade? Most firms dealing with Greece are already demanding money up front. Banks are already organising transport mechanisms to get bags of cash over the border to pay workers. Obviously with a currency change all banking will come to a halt.

This also means that companies have emptied their Greek bank accounts. All this worsens the situation, and it is clear the euro in Greece already has no international value. There could still be a proper rescue but the effectiveness of that rescue would have to be believed. Unfortunately no-one believes there can be any effective rescue. One of the major political problems is the stark reality that Greece has not put in place a single reform demanded as part of the previous bailouts.

If you look at the fundamentals, Greece is in a far worse position now than it was three years ago. It long ago went beyond the point of no return. Businessmen are realists. I would say it’s over.

The real question then is, what happens about Spain and Italy? I note the airlines are making contingency plans for a Spanish exit. I think that might well be good for Spain, but it will put enormous pressure on Portugal if Spain does decamp. I’m not convinced at this stage, but I think it’s all over for Greece. If the politicians hang it out much longer they will do enormous damage to the whole european economy.

There are interesting times ahead. Let’s just hope we can get the Greek thing over and concentrate on the next problem.

A massive devaluation is on the cards for the new currency. That will make property cheap. But it wont solve the dead-beat state of the economy or the various restrictive practises which are still in place, and look likely to remain, or the massive government subsidy situation, which presumably is about to recoil from a serious shock after the bailouts stop.

One other interesting fact. Forgers have stopped bothering to forge euro notes. That is significant. If the forgers dont think the currency is worth forging what the heck are the rest of us to think?

Now might be the time to start looking at nice tourist spots with a view to buying after the crash. But do wait for that crash, it’s coming.

john

House Prices in Europe

House Prices in Europe

Madness in euroland. How does it affect house prices in Europe, and where do we go from here?

In this long running saga we have all the makings of a fantasy movie series more fantastical than Harry Potter, and probably with more episodes and retakes. I’m sure Stan Laurel could have turned it into an hilarious movie.

First, may I remind you that Iceland told the banks to go to hell when their system collapsed. Iceland is now recovering quite nicely, and they didn’t suffer a meltdown.

Secondly, may I tactfully suggest that as usual politicians have everything upside-down, and that capitalism is supposed to fund socialism, not the other way round.

You cant have socialism without money to fund it. The money comes from capitalism. My view is that Nature has had a pretty good run over four thousand million years. It has functioned on the basis of the survival of the fittest. That’s how capitalism works. Socialism has been tried by man for a hundred years and we cant point to a single success. Maybe we’ll get the hang of it, but somehow I doubt it. What has worked briefly (for about fifty years) is a kind of socialism which has been funded from the taxation of capitalism. If capitalism fails then socialism comes down with it as the money runs out.

The past three years have seen a curious experiment, started by the USA, and followed by the EU whereby governments have attempted to prop up the capitalist system using socialist principles. Capitalism depends on the survival of the fittest. For the past three years governments have been at pains to support the weak with massive injections of funding. This means money has gone to support those who should go to the wall, and therefore has not been available to those who should replace those weaker companies. There can be no recovery until funding gets to the start-ups which will gradually grow and provide for our future.

The current experiment stands zero chance of success. It is in fact failing before our very eyes. It stands to bring the whole fabric of our society down with it. Hopefully, circumstances, and common sense, will prevail before too much more damage is done. The first hopeful sign is that the Greek government is saying, let the people who have to pay for all this, vote on it. Let’s hope they do. And let’s hope they vote for common sense, and let the banks who have made serious mistakes pay for those mistakes. If it screws the European economies for the next eighteen months, tough shit. That’s better than screwing them for the next decade with bailouts made with invented money, and the consequent inflation that goes with that, and the decimation of savings and pensions.

So, we are about to see a decade of chaos, or a change of tack. But this is a property website, and a property blog. What does all this mean for people considering buying homes in euroland? And what does it mean for house prices?

If your usual currency is already the euro, then buying in euro territory makes no difference. If your usual currency is sterling I would hang on to it. The euro is about to enter a period of serious turmoil, and will probably lose substantial value. The only reason it is still where it is, is precisely because it is an international currency, not just in Europe, but throughout the world. It is also still a strong currency because the US dollar is inherently weak, so is sterling, while the yen appears to have a rationality all its own.

Interesting times are coming. I’d rather get a good seat and watch. When things get about as dark as they can get I shall start looking for bargains. Who knows, maybe in a year or two it will be time to start looking at cheap properties on the Greek islands. Already Italy is beginning to look interesting, and it can only get better.

On the other hand, what about the poor souls trying to sell, especially in Spain? I still think that selling an apartment in tourist land is a waste of time. Forget it. If I had a villa, and lived away from the tourist brouhaha I think I would take a realistic view and stay put. I would as an alternative angle my sales literature towards euro-using countries in the north.

Your best selling point is that you live in a place where the winters are kind, and daylight runs from eight in the morning till six in the evening, and if there is a frost, then it will be gone by the time you’ve finished breakfast, taken with a glass of freshly pressed orange juice. In Finland it’s dark until ten, and starts getting dark again just after lunch, and the snow levels make parking your car a geo-positioning art. I know, I’ve lived in Stockholm, and I remember taking coordinates to make sure I knew which hump in the snow represented my parked vehicle. Parking in mid winter by the lake at Arcos brings a satisfied smile to the complexion by comparison.

I am considering how I can best angle the Unique site to catch potential Snow Birds from Northern Europe. I am convinced they will be your salvation. In the meantime, Hang On!

john

What’s Next?

I’ve just deleted this week’s blog on the housing market. It’s a waste of time.

The strongest currency in the world appears to be the Norwegian Krone. The weakest? God knows. The euro? The yen? The US dollar? Sterling?

It’s all become a joke. The US is bankrupt, half of Europe is bankrupt, and yet life goes on. The euro isn’t worth a lot, so they print some more. Greece cant pay its debts, so Greece just takes on more debt. It’s just surreal.

I still think that somewhere along the line common sense has to poke it’s head up through the idiocy. Perhaps not. I still think interest rates in Europe are going to have to go sky-high or several countries are going to have to go bust, which will bring down half the continent’s banking system. Perhaps not.

It is quite possible that sometime soon those holding properties with a high level of debt are going to be squeezed. It is also quite possible that those buying any property in the eurozone with foreign currency are going to see a big loss. Anyone buying in Greece now has to be a lunatic. Probably the same is true of Ireland and maybe Portugal.

Italy’s largest bank is bust. Things will probably get worse in Italy, and maybe in five or six years time, maybe in ten years, then will be a great time to buy. I can wait.

I have always said that now is not the time to make investments in Europe. If you have euros, by all means put them in property, but dont convert into euros and then buy. As Shakespeare once said: “Something nasty this way comes.”

Real estate: what to do with it? Live in it, that’s all.

john

Investing in France

Hello Shirley, and everyone else…… but Shirley asked for this one. But several of you have an interest in France, so here goes.

“What do you think about France?” she asks. Hey, that’s a difficult one. France is a bit of an enigma. In a sense the French run an unsupportable economic model. Socialism works when there is spare cash about. It goes down the pan rather fast when the money runs out. As the dreadful Mrs T used to say: “socialism is fine until you run out of other people’s money”. France has run out of other people’s money, so what’s next?

French banks are on the hook for rather a lot of Greek debt ($75 billion). They are on the hook for even more Italian debt ($511 billion). And how much is owed by Spain? $220 billion. And Portugal, that other disaster zone, owes $45 billion. In short, you have a French banking crisis.

The French were particularly keen on a Greek bailout. If they hadn’t been so insistent I dont think there would have been a bailout. Why were they so keen? I suspect they are looking at a possible hitch further down the line with Italy. Contain Greece, and maybe Italy will survive. I, like most commentators, dont see any possibility of containment. This is going to spread. Pull down one pin, and it knocks over the rest.

It’s all a terrible mess, and very complicated. Things will be better with a lower euro. Europe was getting very expensive. France is a tourist country. It needs a lower currency. That will be good. It unfortunately means that in international terms any assets you have in France will be worth less, but then you’d be hard put to have assets anywhere that aren’t losing value at the moment.

You need to be quick on your feet to make money these days. Houses are slow moving objects.

One thing now has to be considered. Is the euro going to survive in its present form? A lot of commentators take the view that the currency is deeply flawed. As I mentioned in another blog, the notes are just pieces of paper. There is not even the pretense that they are issued by any competent authority or backed by anything. The currency is held up by political will. In today’s kill or be killed markets that is not worth much.

I cant see the euro going out of existence. Too many people use it and need to use it. But it is heading for very hard times. I would not invest in anything euro based until we can see a bottom.

So, what’s the question?

I am already invested in France, should I do a runner?

No, stay put. France will survive. Anyway, where would you run to?

I’m thinking of investing in France instead of some other euro-zone country.

I wouldn’t invest in any euro-zone country while things are this shaky. I dont know what I’d invest in. I still like Brazil, but I certainly dont like what happened last week, when two Brazilian bond auctions failed. You could do worse than invest in solid Indian companies. India always seems to survive disasters. I dont have the knowledge to suggest what to buy, but I suspect it could be the safest place to put your money.

I’m currently invested in the UK, would France be a better option?

I can think of a dozen reasons to say ‘yes’, and a dozen reasons to say ‘no’. Ha ha. That’s a lot of help! One thing does keep nagging at the back of my mind. The French have had three different currencies in my lifetime. They default rather a lot, even if one of the most spectacular defaults was partly due to someone from north of the Channel. (If you are interested in these things, look up John Law when you have a moment to spare and fancy a good read.)

I am not aware that the British government has defaulted since reliable historical records have existed. That has to count for something. There have been a couple of close calls. But sterling as an adjective still applies to the currency. I suspect the British economy is too large and too well organised for a government to completely destroy. It’s the British government that is broke, not the British economy.

I hope that helps. If it doesn’t, and you have a specific question, try me.

john

Sell Detroit, Buy Brazil

See you in Brazil.

It’s interesting that the property markets in the the USA are dominated to a great extent by the drive to sell cheap stuff in Detroit and Florida.

I dont want to talk about Florida, which is a confusing enough place without me adding to the background noise, but Detroit is an interesting case study.

We are being told that Detroit is cheap. Detroit is going to be saved by the government. Detroit is going to get zillions in aid. Detroit is about to be regenerated.

It’s odd, but haven’t I heard all this before? I vaguely remember going to Detroit forty years ago. It was in the throes of being saved by the government, getting zillions in aid, and was in the process of being regenerated.

Hands up those who remember President Johnson’s Model Cities Program? Hmm, not many. It was supposed to be a great experiment in urban planning aimed at improving the lot of black folks in the city.

About half a trillion dollars was poured into the city. Over the next two years a quarter of a million folk moved out, and Detroit started its long decline. Over the last forty odd years Detroit has lost about half its population.

Over a thirtyfive year period it seems the Model City area lost 63% of its population and 45% of its housing units. The place is in fact a model disaster area.

There is a little saying about learning from one’s mistakes. However, no-one mentions what it is that one learns from one’s mistakes. I vividly remember my cousin’s mistakes. I dont want to slag off poor Jeremy. He’s a nice guy, and his mistakes were thoroughly understandable, but his kind of mistake is just what we are all up against at the moment.

Jen was a radio ham. He was seriously into short wave radio, and had masses of gear. He used to subscribe to the right magazines, and used their instructions to build his own radio equipment. Invariably the machines didn’t work. However, he learned from his mistakes. He built bigger machines. They didn’t work either.

One day the penny dropped, and he actually admitted to me that his machines never worked because he just kept trying to make them bigger. I have never come across a politician who admitted a similar mistake.

Central planning didn’t work in Detroit. Okay, tough shit. We’ll make it work this time by spending more money and making everything bigger.

Okay, so it doesn’t work this time, so next time we’ll have to try even harder and spend even more money. No-one seems to get the message that the schemes simply dont work. Making them bigger only makes a bigger mess.

Welcome to the latest spend-out in Detroit. My guess is things are about to get a lot lot worse.

There seems to be a lot of it about. We have similar problems in Europe. There is a problem with little old Greece. The Greeks are bust. Now, let’s count, how many times have they gone bust since independence? Is it ten times, twelve times? I dont know. I forget. They are so regularly bust one cant keep up.

Economically they represent 3% of the eurozone. However, the governments of the eurozone are there to help. They have just pulled out a stupendous amount of money to save 3% of the zone, and in the process, put the whole zone in jeopardy, and so the euro tanks at an alarming rate as more and more businessmen lose trust in the currency, and decide to sell their goods by using alternative currencies. After all, who wants to be paid in three months time an amount which is now 5% less than it was when you signed the contract?

More to the point, who wants to use a currency which supports a country which has been on the fiddle for the past decade. All fiat currencies are paper based. Paper is not worth a lot. The value of paper money is based on trust. Support those who fiddle, and trust goes out the window.

There is a promise on sterling notes. “I promise to pay the bearer the sum of…..” and that promise is signed by the governor of the Bank of England. I dont reckon that promise is worth too much, but it is there, and there is a Bank of England, and a governor. And despite the idiocy of Gordon Brown the UK does still have a few gold bars somewhere in the vaults.

On the other hand, if you get out a euro note you’ll find there’s nothing there. It’s just a bit of paper which is worth what people think it’s worth. In times of crisis, that isn’t going to be much. After all, we dont even know who issued the note. It is a piece of paper backed by a dream.

So, once again, we have a small problem which has been turned into a huge problem by government trying to make things better.

If the wise man does learn by his mistakes, the question is: where is a wise person to be found?

The next question is: will there be a eurozone in five years’ time, and if so, what will it look like?

The third, and most alarming question is: what will there be in those countries where there is no longer a euro? What will their puny little currencies be worth? And what will the local houses then be worth?

See you in Brazil.
john clare

The Death of the Euro

Beware Greeks Taking Gifts

Watching bankers and politicians is better than going to the movies.

How about the ECB (European Central Bank) playing games with the euro? How about that well-known music hall act Pressy Sarkozy? Didn’t he put on a great show? Wow, what a buffoon, maybe the best clown in the business. I wonder what he charges.

So, how can I sum up what happened at the euro summit? Let’s tell it like it really is.

Once upon a time there was a bunch of well-dressed, nicely spoken gents, and a few girls as well. They all went down to the pub, and drank themselves silly. “Put it on the slate” shouted one. As they all looked well dressed and respectable, the barman duly put it on the slate.

Come closing time the barman asked for the bill to be settled. Somewhat startled (the Greek was even enraged at being asked for money) the folks emptied out their pockets, but their pockets were bare. Now the barman was enraged, and he threatened to call the police.

So what did our bunch of down-and-outs do? They sat down at a table, called for pen and paper, and each of them wrote the others an IOU. They then tried to pay the bill with their nice new IOUs.

The barman was still enraged, so the reluctant lady in the band turned to her mate and after a hurried whisper, he went out to the loo. He sat on the bog, and got out his Happy Fritz Printing Outfit, and started frantically printing 500 euro notes.

Sometime later he emerged looking a bit haggard. By now the barman had lost all hope of ever being paid, and had drowned his sorrows in Special Brew. In that state he stupidly accepted all these new wet bank notes, even smiled, and waved the party good night.

Everybody slept soundly. Some even smiled in their sleep. However, as the days went by the barman paid his wages and the brewery in these new smudgy notes. Imagine his surprise when the brewery didn’t like the notes and threatened not to do any more business with the pub. Then the waiters, and kitchen staff found no-one would accept their hastily printed notes either, so they got a job elsewhere.

Now the nicely spoken gents and a lady are not so welcome when they go out drinking. Now the pub is bankrupt, and the electricity has been cut off.

Welcome to the new Europe and its dodgy currency.

john