The coming worldwide credit crunch

Thanks TJ and Justin. So informative.

What would your advice be for those holding Euro currency in Spanish Banks. Would you only leave a bare minimum in account and transfer from the UK only when required? Do you envisage there will be problems ahead on this score or is that an over-reaction?

TJ 222 STOP BLOWING YOUR OWN TRUMPET WE ALL CANNOT BE AS CLEVER OR AS SMUG AS YOU

JUSTIN ISNT BOTHERED IF HIS HOUSE IS WORTH TWO PENCE ITS HIS HOME NOW THATS WHAT MATTERS

 Costa Chris

I wish you every sucess and hapiness in Spain. Its is not all doom and gloom I agree, a few people will probably benefit from this calamity. In this very thread I never said do not come to Spain and I have always agreed that the lifestyle is probably one of the best in Europe. What I did say is to enjoy everything that Spain has to offer, RENT don't buy. Let the stress and cost of owning a house be someone else's problem. Its not like there is lack of choice in renting and the costs are superb.

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If you look through history, one thing that you can guarantee is that there will be no warning of a currency devaluation. What generally happens is there is a long Bank holiday at the banks with no warning and when they finanly open up again, voila you have funny money in your account. The authorities have to continue reassuring you that all is ok, right up to the last minute, otherwise there would be a run on the banks before they could close. When the Greek crisis first broke, there were hundreds of millions of euros leaving the banks for Germany, as the rich and smart money got out. This is a real problem for the authorities. Watch out for especially attractive deals on lump sums for savings lol!

Apparently about the same time is was almost impossible to rent a safety deposit box in a German bank, they were all apparently full of gold.

Stanley

I am posting on this thread for other people's benefit. But if you would like me to stop just say and I will post no more.

stanleymiguel,

TJ222 is one of the few people (the only person?) on this forum to call the Spanish property market and Spanish economy correctly.  It would be a shame if he decided not to post any more as he is a real asset to EOS.

And the property Justin was talking about is not his home.  As he mentioned in the article, it's his office.

TJ, please don't stop posting, the vast majority of us here I'm sure appreciate your contribution. I certainly do. Stanley, if you don't like it, get off the thread, no one is forcing you to read it.

At the risk of sounding a bit thick (as is my wont), can you just clarify, do you predict (and nobody will hold you to it by the way) that Spain will have to revert to pesetas, and devalue? If so, would it be best to transfer any euro savings into sterling asap? Or is sterling screwed too? Seems to me everything everywhere is bad. Although I suppose you will suggest gold? (still hanging on to my bracelet!!)

 Roberto

I can't tell you because I don't know exactly what will happen, but I am as near as certain as I can be that the Euro area will have to restructure. The one size fits all policy cannot and will not work with economies as diverse as Portugal to Germany. Did the average Spanish man or Greek man ever want to be like the average German? What about the social and economic and educational differences. What about the weather lol. I dare say that if I had to live in Germany I would have a different outlook on life and what to do with my time? Did anyone ever ask the man in the street if they wanted to be IN. If my memory serves me correctly the few time there was a referendum, they voted NO and had to be asked to vote again until tey gave the right answer.

If you watch the Farage youtube clip its clear that the reason the EMU is being held together at any cost, is lets say not for the good of the people. However history shows markets to be stronger than any politicians and markets always win in the end.

If I had to guess what will happen then I think the euro will break up in stages. There is muted talk of a Northern and Southern Euro, to get the PIGS off the backs of the Germans. You can bet that the major creditors will want time to postion themselves so they lose least and the patsy tax payer takes the bill. My guess is that sooner or later Spain will go back to the Peseta. The longer its all held together, the bigger the bill will be and the higher the risk of social unrest and a currency crisis. Some form of default is now inevitable, you can;t have austerity AND repay all the debts, its not mathematically possible. You certainly can't fix a problem of too much debt, with more debt, which is what the eurocrats are prescribing.

As you pointed out I am not too keen on any currencies, you need a bit for bills and other transactions, but not to store your wealth. I would rather have GBP than Euros, but rather have hard assets than GBP. Inflation is now officially 4% plus in the UK, so if you belive that figure and are getting say 1% nett on your pounds, then your real rate of return on paper money is minus 3%. I suspect the real cost of living is going up at more like twice that rate in the UK. 

 http://www.youtube.com/watch?v=yGeWssOF2OM

From the Telegraph today

 "We should default and return to the Drachma to punish foreign loan sharks who have bled us dry," saidAvriani, a paper linked to the ruling PASOK party.

 "The EU will do too little, too late: the markets will dictate the solution," said Louis Gargour from LNG Capital, speaking at a Euromoney bond forum. He said Greece is already in the grip of an unstoppable debt spiral, spending 14.3pc of tax revenue on interest costs. He expects 50pc 'haircuts' on the debt, perhaps along the lines of the Brady Plan following Latin America's debt crisis.

The Greek crisis is going to from bad to worse. Ten-year yields spiked to 12.78pc yesterday and unemployment jumped sharply to 14.8pc in December, a reminder that the social trauma of austerity has yet to hit.

Greece is undergoing the harshest fiscal squeeze ever tried by a modern Western economy, yet public debt will end above 150pc of GDP by 2013 even if it complies with EU-IMF terms. "We should default and return to the Drachma to punish foreign loan sharks who have bled us dry," saidAvriani, a paper linked to the ruling PASOK party.

There was similar anger in Ireland yesterday where Socialist MP Joe Higgins denounced "the poisonous cocktail of austerity concocted by the witchdoctors in Brussels and in Frankfurt".

Premier Enda Kenny said Ireland was at "the darkest hour before the dawn." He has so far played down talk of a clash with Germany over the terms if Ireland's bail-out, but Irish politics may force him to default on senior bank debt if the EU refuses to yield.

George Magnus from UBS said EU leaders are living in a "parallel universe", unable see that the festering EU debt crisis cannot be resolved without going to the root cause and recapitalising the banks.

Peripheral EMU will remain trapped in deep slump without debt forgiveness but the EU cannot do this until lenders are strong enough to absorb the losses. "The sequencing of this has to start with the banks, otherwise there will be fears of another Lehman. The EU and IMF are in denial about everything we have learned over history."

"The US banks raised $200bn of common equity in six weeks and that proved to be a turning point. If the EU does that, the crisis goes away," he said.

Olli Rehn, the EU economics commissioner, has been pleading for a policy shift to lessen the burden on debt-stricken states, including a cut in the punitive interest cost imposed on Ireland.

However, EU leaders have the final say on the terms of the rescue machinery, and they are answering to their own angry electorates. The eurozone remains a collection of sovereign states. That is the nub of the matter.

If you live in a PIG (!!) and depend on a pension coming from the UK, perhaps you would be hoping for a break up of the euro and a devaluation? If your savings are in GBP but you live here (Spain), how relevant is UK inflation to you? On the other hand (or trotter), if you live in a PIG and your wealth is all in euros, but think you may return to the UK, it could be disastrous? If all your assets are in one of the two (UK or PIG) and you live there too, and you have no connection with the other, does it make any difference to you what happens to the euro? 

Some interesting opinions, from WSJ. The Future of the Euro: http://tinyurl.com/68r77ba

Edited: hope that link works; when I went back a second time to the site, I found I had to be registered to read the articles. Maybe need to clear my cache to view it again.
 

This message was last edited by Roberto on 10/03/2011.

 My head is going around like your monkey!!!

I think that some people may do well out of this crisis. One example might be those people that have an income in a hard currency or in hard assets and live in Spain. For them many aspects of the cost of living might go down, ie rent and local services. 

I am not keen on the GBP, because I think austerity will cause a double dip recession if they push it too hard. If they bow to popular opinion and backtrack there will be a currency crisis caused by inflation. The UK is in a no win situation, its either pain now, or more later. Thats what you get when you allow Labour 15 years of systematic destruction of the productive part of the economy whilst swathes of the population get fat courtesy of the long suffering tax payer.

If I had to have income in a paper currency it would be the CAD. You can currently buy oil companies and other resource outfits in Canada that yield 6 to 10% in canadian dollars. Pull up a chart of CAD/GBP and you will see what I mean. An income of 6% plus, rising capital values (20% plus last year ) and a risning value of income and capital against the GBP. Oh and rising dividends as well.

I think that some people may do well out of this crisis. - I agree. Also some people who have overstreched themselves will end up ruined. For the majority though there is pain in 1 form or another - we have to trim our costs and live within our means. I and, I imagine, many people on this forum have a vested interest both in the prosperity of Spain and the UK (or another country). Nobody actually knows what is going to happen and it is nice to be able to voice an opinion which has as much validity as anyone else's.

I don't subscribe to the armageddon theory. I think the Euro will survive (there will be a few fudges, crises and compromises along the way). I am not sure about Greece but I think the rest of the PIIGS will, with a little bit of help, stay in.

My personal view is that if you can don't panic, batton down the hatches and wait for the storm to pass. I'm not sure how long it will take but if there is 1 universal rule with economics it is that everything is cyclical - what goes up will also come down but what goes down will also come up

Hi TJ222,

Out of interest, which Canadian oil stocks are yielding between 6 and 10%?  Sterling are the only Canadian oil/gas company that I have any real knowledge of, but they aren't in a position to pay dividends yet.

Sorry to go off topic.

Cheers

 Sanchez1

There are lots of Canadian and US oil and gas stocks on the NYSE and TSX exchanges. My favourites are the Canadian Energy Trusts and the MLPs. To give you one example try

http://finance.yahoo.com/q?s=ERF.TO&ql=0

It has a market cap of 5.5bn USD so its a very established business. It yields 7% at current prices and pays a monthly dividend.

Lets say you bought a 1000 shares a year ago at $23. Over the last year you would have collected dividends of around 2,200$ and a capital gain of around 7000$ giving you a total return of around 50%. Over the last 2 years the CAD has appreciated by 15% against the GBP, so there is another 15% gain in GBP terms.

To me oil is one of the ultimate hard assets. The world cannot do without out it even for a day. There are an ever growing number of users pitching their straws into an ever decreasing pot of it. As an extra 2billion Asians come on line over the next decade or so, someone is going to have to do without. The situation would be bad enough without money printing, but we in the west have that as well. Limited supply plus money printing is a recipe for continued price rises, thats the most basic economics of all. 

......And if the Euro survives we are going to drown in money printing as a direct result of desperate measures to stick it all together, anyone who drives a car or buys food and energy is going to wish they just let it fold.

Hope this is of some help.

Hi TJ222

Your point about dividends from some companies beating bank interest rates is well made and they do tend to be pretty reliable (unless they have a BP style disaster). However capital gains are much less reliable. For example if you had made your 1000 share purchase 4 years ago when shares were 50$ a share you would have been in a loss making position ever since. Exchange rates are affected by so many factors and investing in a currency you will ultimately have to change back out of adds to the risk.

This type of investment is not for the faint hearted and should only be made using money you can afford to loose.  

TJ222,

Thanks for that infor about Canadian stocks/trusts.  Do the Canadian Energy Trusts invest in other oil companies, similar to an Investment Trust in the UK?

I've had a large chunk of my money in small and mid cap UK oil stocks (Dana, Soco, Encore, Aminex etc) since 2004.  With Dana gone now and Encore and Soco likely to be taken over this year, I'd like to keep some exposure to the sector, so will definitely look at Canada.

Cheers

 Hi Dave

Yes thats true if you happened to make your first purchase all at the same time ( something unwise in any market, property too!) four years ago at the very top. However its also true that you could have bought 5 years ago at 15 or 18 months ago at 15 and now have an investment that has doubled in value is now paying a 15% yield and has paid you 5 years worth of dividends without a break someting like an additional 10,000 Canadian dollars. You can always go wrong if you try hard enough, but with this sort of investment you have to try very hard. I will wager that this trust is back to 50 in the near future, and in that case you will have done very well, even if you bought at the very top, something quite hard to do. With a little skill you could even have bought at 15 sold at 50 and bought back at 15, but imho you buy these type of investments for income and not worry too much at what the market values them at. If you want capital gains then I talked about that earlier in the thread around three years ago, I think Roberto knows what I am talking about.

But my point really is that to do better than the average, you have to think a bit outside the box. Although I do not buy these type of companies for the capital gains, I have done very well with cap gains. However I buy them for the income stream and to diversify away from paper money. If for example you want no risk, you can put all your money on deposit and be guaranteed to lose around 3% a year, real interest rates currently being minus three percent.

If you want real risk unlike anything else you buy a certain investment using 95% leverage, so that say a deposit of 5,000 euros, leads to an additional loss of 45,000 euros, wipeing out your entire investment AND and additional loss of 9 times your investment,  something a Wall street bank would be proud of. Perhaps thats why we are in the mess we are in.

Sorry to go off topic slightly, but I just saw an ad on the TV for this outfit: http://www.quickquid.co.uk/ Scroll down to the bottom of the homepage and check out the typical APR.

We're all doomed.

 Pah!  Penny ante stuff.  Go to Wonga.com and their typical APR is 4714%.  Yep, no full stops in there.  Four Thousand Seven Hundred and Fourteen percent!

Anyone want to borrow a few euros for a week or two?  Might start up my own business.

Good idea. And like all good ideas.............http://uk.zopa.com/ZopaWeb/public/lending/lending-at-zopa.html

Dear All,

many thanks TJ, please keep it coming it is invaluable and Roberto is right, ignore the idiots.

there are many out there who may not post but do need the wisdom.

Regards

Norman

 From what I can see as a very brief summary, the situation with the Euro is as follows.

Things come to a head on the 24/25 of this month when European leaders meet and try and fudge a deal to stem the crisis. make no mistake what matters here is not what is or is not agreed, but wether the outcome satisfies financial markets. As should have been obvious to the politicians before and if not, certainlt is now, is that they can huff and puff all they like, but markets are in control.

If the buffoonary that goes on that w/e is judged by markets on monday as just what it is, empty promises of more debt to add to already unpayable debt, then I think things will rapidly get out of hand as bond spreads make international borrowing of any duration impossibly expensive, not just for Greece and Portugal, but for Spain too. This is what they are really worried about. Then the only route will be for more and more bailouts from the ECB courtesy of the taxpayer, the taxpayer being the only entity dum enough to lend money into a balck hole.

And here in lies the problem. The poor old taxpayer, be he German or British is sick to the back teeth of bailing out periphery nations, who they deem to have enjoyed the boom, but now are unwilling or more likely unable to pay what is due. The Greeks budget deficit is not just not getting smaller its getting bigger.

So to cut the crap and boil it all down, it comes down finaly to an uneasy standoff between how much the northern european taxpayer is willing to be bled dry to save the doomed project and how much austerity the peripheral nations can take.

My take is either the tax payer says no more and politicians like Merkel are booted out at the pols, OR the Greek and Portugese realise that this debt can never be paid back , austerity or no austerity and revolt and default.

Both the above seem only months away. Merkel has been punished in local elections and is under no illusion that she can cough up any more cash on behalf of tax payers.

Ireland who recently ended 60 years of power for the ruling party have elected a new leader on the back of revulsion at the austerity being placed upon them and the promise of renegotiating the gruesome burdens. Kenny now has imho an impossible tighrope to walk with a revolting population on one side and the EU with a gun to his head on the other.

Anyone who thinks a green shoot recovery is just around the corner is on another planet.

So it comes down to how long and how much damage do the EU want to do by holding this impossible alliance together. An awfull realisation is dawning that we are not just talking about financial damage either. As Farage said in his speech when people feel like their democracy is being taken away they have nothing left to lose with violence.