Looking Ahead to 2018 -- Part 3
I was going to start by looking at the property markets in the
major countries but I donít think that will help anyone. Letís
look at things in a different way.
First, do remember, investing in real estate in a country is
equivalent to investing in the country itself. Would you invest
in a bankrupt company? Of course you wouldnít, so why invest in
a bankrupt country?
Admittedly there is a strong argument for claiming that the UK
is also bankrupt, but if you take that view, then perhaps you
should invest in a country that is less bankrupt than the UK,
not one that is more bankrupt.
Using that metric, anyone who invests in Portugal, Spain,
France, Italy, Greece, and maybe a couple of other countries is
investing in a country that is financially worse off than the
UK. Leave all those countries well alone.
Let me add to that generality. Have you checked out Euro Junk
Bonds recently? A junk bond is one that is invested in companies
which are below investment grade. In short, they are
speculative, and they are not the kind of bonds you should
invest in for your pension. More practically, the companies that
such bonds are invested in have a good chance of going bust
within the short term. In usual times these bonds carry high
value coupons, meaning you get a high rate of interest in return
for your investment. That high rate is supposed to compensate
you for the risk you are taking in investing in low grade
companies. Now look at the chart below. Low grade EU company
bonds are paying less than US Treasury Bonds, which are supposed
to be the safest on the planet. As the Americans like to say ďGo
The EU economic system is held up by pure insanity. We already
know that the EUís share of world trade has dropped ferociously
over the lifetime of the EU political system, and is still
tanking. But letís home in on a couple of individual countries.
I will try and find an updated map of the cross landings and
therefore the contingent damage that hang on the various major
EU banks. My one is five years old, and the situation has
worsened considerably since then. (Unfortunately I cant find an
updated chart.) One of the most heavily indebted in terms of
contingent damage is the French banking system. They have lent
considerable sums to Greek and Italian banks which are unlikely
to ever be paid back. That makes the French banking system
liable to collapse. That makes the lending situation in France a
dangerous one. That will of itself impact upon any private
lending and therefore upon house prices.
There is also the problem of political tension in Greece and
Italy, but Iíll come back to the politics later.
Greece has been financially castrated. Just look at this chart
to show how the Greek economy has benefited from the EU. This is
hardly what might be called a success story. Anyone who invests
in Greece is a mug.
Spainís economic figures are still not good. Portugal is in the
same category. Both these countries have several problems in
common. Neither country can balance its budget, and both
countries are falling behind in the economic ratings. I
understand that when Britain leaves the EU that will tear in big
hole in the unionís bank balance. It is estimated that Spain
will be roughly Ä39 billion out of pocket as a result. There
will be worse to come if there is no agreement about
cross-border travel, as this will impact quite seriously on the
tourist trade for both countries. Both have a large
preponderance of UK citizens resident in the south of these
countries. There is a strong likelihood that many pensioners
will be forced to return to the UK simply because of health care
Of course, I don't know what the final deal will look like, and
I strongly suspect most of the talk at present is mere
posturing, and common sense will prevail at the last minute
simply for plain economic necessity, but we are talking about
politicians, and none of them seem very bright. It is a risk.
We currently have half of the continent in political turmoil.
The UK has a hung parliament, so does Germany. France's latest
president has had his popularity cut, Austria is making rude
noises about the currency union, so is the Czech Republic, and
the Italian elections are due shortly, with the outcome there
looking as though it will lead to more chaos.
With the EU in such turmoil I think the best way forward is to
stay put, or invest in the east. The call used to be "Go West,
young man." Nowadays, the best deals look to be in the east.
I don't expect many of my readers to be interested in investing
in South-East Asia, but I shall be heading in that direction to
see what things are like. Unfortunately, at the moment I am
housebound due to a silly accident in a neighbour's swimming
pool as a result of which I have one leg in a cast and one hand
bandaged. I shant be going anywhere until I get my limbs back.
When I do I will, of course, report back. In the meantime I
still think the EU is a no-go area.
Next week I will have a brief look at conditions in the UK.