See the Irish Property Bust: Ghost Estates and 1 Million Empty Homes

Thursday, March 31, 2011

While waiting on the results of the Irish bank stress test, sniff out Ireland on the ground. Join our virtual tour of the collapsing Republic of Ireland and see its widespread eyesore called 'ghost estates'. In the world's economic disaster zones Ireland weighs in with roughly one million excess homes, the result of a decade of low interest rates and banks willing to sponsor any and every building project that will leave a final tab of anywhere north of €300 billion.
Forget the statistics, this economy is definitely dead.

VIDEO: Ghost estates are defined as building projects of 10 or more units where more than half are empty or unfinished.
By now all Irish banks have been nationalized, leaving taxpayers to foot the bill of the country's financial and economic crisis. So far banks have received a whopping €208 billion or 154% of Ireland's GDP in aid from the ECB and the Irish central bank, another €67 billion come in state guarantees and IMF loans. Ireland is wrecked and this is only the first Euro member to crush under its debts.
Maybe it would have helped if YouTube had been around earlier. Check this Irishman who knew how it would all end - 13 years ago.

See the Spanish Property Bust: Ciudad Fantasma

Wednesday, March 30, 2011

Readers of this blog have known it since 2007: The Spanish property bust was only a matter of when, not if.
Our virtual adhoc tour of economic disaster zones brings us to Spain today.
Watch this video of a Spanish ghost town (h/t @izakaminska), ironically named "Ciudad Fantasma". It is definitely a good indicator for the challenges Spain faces. This is the result of a decade of low interest rates and banks willing to finance every building project without many questions asked. According to Spanish realtor Tinsa prices fell 4.5% in the last 12 months to February and there is no end of the decline in view.

VIDEO: Ciudad Fantasma is only one of countless ghost communities that litter Spain and will become the ruins of modern times.
The video above is from 2009.
Here is one from September 2010.

Austrian Banks Get Dressed Up, Slash Loss Provisions (And More News from the Alpenrepublik)

Tuesday, March 29, 2011

Balance sheet alchemy has bloated the bottom line of the Austrian banking industry which is expected to report operating group profits of €4.58 (2009: €1.53) billion in 2010. The rosy figure is spiked with thorns though, shows a (German only) release from Austria's central bank, Oesterreichische Nationalbank (OeNB). With overall business growing in the 1% range, banks resorted to slashing their loan loss provisions by €3.25 billion, or €200 million more than the net change of €3.05 billion at the banks' bottom lines.

See the China Property Bust: An Empty City For 12 Million People

Are you long the China stock market? Better reconsider your position! This video (h/t @izakaminska) about a Chinese town for 12 million people that has been standing empty for 6 years will shatter any illusions that China's property slump may be short term.
Forget all statistics, business is definitely dead here.

Millions and millions of empty apartments may lead to massive social unrest. It cannot be ruled out that inflation-hit Chinese peasants could one day take over these apartments. Such a redistribution of property may also be called civil war.

The ESM Will Be Just Another Failed Attempt Of Fighting Debt With More Debt

Friday, March 25, 2011

After 5 months of political haggling the European Union has finally agreed on the next rescue package for the Euro. But the so called European Stability Mechanism (ESM) is just another debt issuing vehicle that cannot make up for the fact that all Eurozone members are trundling along in an anemic economy that faces more pressure from runaway commodity prices and rising interest rates.
While the ESM agreement talks of a €700 billion fund, it is actually only an empty shell. Strained Eurozone nations will only inject €80 billion in five annual tranches, a sign that even Germany is not exactly a strongman among Europe's weak. Germany will inject €22 billion between 2013 and 2017.
Chancellor Angela Merkel Thursday said she would seek to secure an agreement for Germany to spread its contributions to the euro zone's permanent bailout fund over five years instead of the three- to four-year timeline European Union leaders had been discussing, the WSJ reported.
The other €620 billion are only guarantees from the Euro countries and who believes anymore into such promises of battered European politicians?
Altogether the ESM is just a dressed-up version of the 'temporary' €440 billion European Financial Stability Facility (EFSF) which it will replace in 2013 as a permanent bailout instrument for profligate governments.
Hopes for a cheap way out of the European debt crisis will probably be futile. Only six Eurozone countries still brandish a AAA rating (Austria, Finland, France, Germany, Luxembourg, Netherlands). It will be difficult to gain a AAA rating for ESM debt issues as the other Eurozone members are basically nothing else than the subprime borrowers were in the US housing bubble.
The rating agencies will want to avoid a repeat of their debacle, when they rated subprime with AAA and started the biggest financial crisis in history.
The timing for the new debt facility may come a bit late too. While bare cash needs of banks have subsided in the recent past, banks and governments still face a near term future of higher funding costs that will punch their bottom lines or the budget hard.
Exploding CDS spreads for Greece, Ireland and Portugal are a strong indication that funding the weak Euro members - as if there would be a strong member - via the EMS facility with a probably inflated rating may not become as easy as EU politicians are wishing for.
Portugal needs €75 billion now and not in a distant 2013.
The current ESFS vehicle has not been seen in capital markets after it issued a €5 billion benchmark issue at 6 basis points over Germany in last January.
Over 2011 and 2012 the EFSF will in total raise up to €26.5 billion in the capital markets as part of the Irish support programme which will include two further benchmark bonds of €3-5 billion per transaction in the current year. In 2011 the EU under the EFSM will raise up to €17.6 billion and in 2012 up to €4.9 billion.
I highly doubt this is anywhere near the actual demands of troubled Eurozone countries in the running year.
As the debt comes hand in hand with a slew of austerity measures, Europe's left takes to the streets.
Belgian trade unions staged a mass protest in Brussels at the opening of the EU summit that turned violent.

VIDEO: Belgian trade unions took to the streets in Brussels, saying that the public does not accept the cuts in social budgets.
The ESM is not off to a good start. After a principal agreement reached on Thursday, politicians weighed in again on Friday.
Bloomberg has the details:

The Dollar Must Be In Deep Trouble: Uncle Ben Needs To Talk To You

Thursday, March 24, 2011

It's been a while since the Fed has gone into repetitive mode since the introduction of zero interest rate policy, with FOMC statements only changing in nuances while real inflation hits home hard.
As this may not be enough of a shield in a future of inevitable higher inflation - who would have called 70.37€ oil 'good news' once - Federal Reserve Chairman Ben Bernanke now creates a new platform to table the Fed's view.
According to a stunning Fed press release, Bernanke will make good on his almost decade old vision: to transmit FOMC meetings live, adding more spice to traders' lives. Bernanke's step is not the whole nine yards but a move in the right direction. For the first time in history the Fed will enter into a regular Q&A session, following the ECB which has held press conferences after rate decisions since its inception.
From the Fed release: 
Chairman Ben S. Bernanke will hold press briefings four times per year to present the Federal Open Market Committee's current economic projections and to provide additional context for the FOMC's policy decisions.
In 2011, the Chairman's press briefings will be held at 2:15 p.m. following FOMC decisions scheduled on April 27, June 22 and November 2. The briefings will be broadcast live on the Federal Reserve's website. For these meetings, the FOMC statement is expected to be released at around 12:30 p.m., one hour and forty-five minutes earlier than for other FOMC meetings.
The introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication. The Federal Reserve will continue to review its communications practices in the interest of ensuring accountability and increasing public understanding.
As this is a remarkable development one wonders, why?

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