January 2009
I wish you all a happy and
prosperous new year. But will it be happy and prosperous? Honestly I
cant see how it can possibly be anything other than difficult. But it
wont be so bad if you know what's coming and you act accordingly.
There are many people here in
Portugal who are still building. There are acres of apartments going up
all over the Algarve. I sincerely hope that all these builders go bust.
They are behaving in a thoroughly anti-social and stupid way. A fool
and his money are soon parted, but by building more apartments to sit
alongside the already thousands of empty ones they are wrecking the
market for the rest of us. Go bust guys, the sooner the better.
At least in Spain they have
stopped building, but in both countries the massive overhang of empty
properties means prices will go down this year and next year. Only
fools will be buying in Spain and Portugal. Rent if you want to live
out here, and save your money till we hit bottom. Dont ever buy on the
way down. There will always be a better deal later.
How much further have we to
go? I dont know, but there are certain things I do know. While there is
a year's supply of property for sale, even if things turned round
tomorrow it would take a year to clear out the old stuff before you get
to any new stuff. That means it will take at the very least a year
before prices rise if conditions start improving tomorrow. Conditions
aren't going to improve in the foreseeable future. For the record, I
certainly cant see further than about six months. Anything beyond that
is a pure guess.
So, what is going to happen
tomorrow? In the US house prices are falling at a very fast rate. The
banking system is completely locked up. Confidence is on the floor.
Home builders are going bust. Land and property portfolios are being
sold at a 50% discount to last year's values.
There are more mortgage rate
re-sets due this year, which will put more people under pressure with
their mortgages.
With the recession starting
to bite more commercial enterprises are going under, and the commercial
real estate falls are only just beginning. I cant see how this
situation can end before the end of 2010.
I then believe people will
generally be too nervous to bid up real estate for another 2/3 years at
the earliest.
The situation will be
different in Europe because the banking system wasn't so rash in the
first place, and prices, although they have risen a lot, have not got
too out of line with other prices except in a few countries. That means
most of Europe will see real estate price falls this year, but in all
probability stability will arrive sometime in 2010. Where to after that
is anybody's guess. I am not in the business of doing predictions.
The overblown markets (Spain,
Ireland, and the UK) will take longer to recover simply because they
were further out of line with reality. How long the adjustment will
take is an unknown. Anyone who makes a prediction is an idiot, but
there is no shortage of them about.
The real estate price
increases in tourist areas across Europe were driven first by the
Brits, and then the Irish. They are both off the scene, probably for at
least the next three years, and maybe longer. That should tell you what
will happen on the Spanish costas, Morocco, Portugal's Silver Coast,
Eastern Europe, and the rest.
The latest entrant to the
tourist market was Russia, and for a couple of years they helped drive
prices up in Montenegro, Cyprus and some other spots. With a crash in
the value of the rouble, and a 75% drop in the value of the Russian
stock market, those guys will be out of action for the foreseeable
future. Expect Cyprus and Montenegro to drift or drop.
We are entering the worst
financial scenario for 75 years, and maybe the worst since the
eighteenth century. It will not be sorted out in five minutes. If
things are back to normal within 2/3 years I shall be very surprised.
If our financial markets are functioning within 2/3 years they will not
look like they did before. Already the financial establishment in the
US, that erstwhile bastion of the free market, has been nationalised.
Half the banks, most of the auto industry, most of of the mortgage
industry, and other institutions are lining up begging to be
nationalised, even the porn industry! It's really rather freaky. Where
will it all end? If you think you know, then good luck to you.
In the UK, half the banking
system has been nationalised. The country's finances are in a parlous
state, courtesy of massive government mis-spending over the past decade.
Many European countries are
on the verge of financial collapse. What that will do to the euro
goodness only knows.
We are in the midst of a big
deflationary spiral. How long that goes down before inflation starts to
kick in as a result of so many governments printing masses of money is
again an unknown, but when inflation does kick in that will cause even
more confusion and financial pain.
The latest piece of
information that came my way on that front was that the latest auction
of Government Bonds in Germany went rather badly. Out of €90 billion
worth of bonds offered only €4 billion were subscribed. The central
bank had to print money to cover the rest of the debt. That will
devalue the euro just that little bit more. And how much more money
will need to be printed during the next couple of years?
According to Jim Rogers
(investment freaks will know who he is, and just how good he is) "this
is the worst credit bubble we've ever had in American history......
It's going to take a long time to work its way out. You don't cure a
bubble in five or six months... It takes five or six years."
Four economies will start to
rebuild before any of the others: India, Brazil (probably first), then
China, and finally Russia. That's a guess, not a prediction.
I think I will invest a
little in India via their stock market indices. I will invest a little
in South-East Asian land to position myself for the eventual
re-emergence of the Chinese tourist, and continue to seek out income
producing deals that are rock solid. I just need to find a good
definition of what is rock solid.
best wishes
john
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