It has taken roughly a century of socialism
to bankrupt the western world. How much longer will it last?
When I was a kid I used to rail at the wasteful cost of
defence, but these days in almost every western country it is
the cost of the social services which has bankrupted the
system. How long a civilisation can function on funny money is
a question I can't answer, but we are well into that
particular fantasy zone.
The latest disaster is
France. The government can no
longer sustain the French welfare state. When president Macron
tried to increase taxes (they are already the highest in
Europe) to cover the shortfall there were riots in the
streets, and the tax hikes have been shelved. Instead the
government intends to follow Italy into more debt, and the
possibility of bankruptcy.
This is going to put more pressure on Germany, where the
population takes the view that they are supporting a whole
raft of profligate states. This situation cannot last.
The Brits are unhappy, the Italians are unhappy, the French
are unhappy, and the Germans are unhappy. I live partially in
Spain and partially in Portugal, and I can confirm that both
nations are also unhappy. The recent move by France to breach
the EU financial rules is going to put more strain on the
agreements that underpin the system, and the love affair
between Germany and France looks as if it is at risk. This is
not a recipe for good times. It is certainly not a recipe for
safety, and easy ways to either make or keep your investments.
In fact, what appears to be happening at the moment is exactly
the opposite of what was intended from the creation of a
united Europe. The very rules that have been put in place to
keep the various countries together are precisely what is
causing them to start bitching.
In such times you need somewhere to live, but you also may
need quick access to funds. If you need to sell a holiday home
you can guarantee that won't be possible when the whole
financial edifice collapses. When that will be no-one knows,
but the EU is most certainly at serious risk at the moment.
What are the next problem points?
Italy going bust? Target 2 transfers being capped?
France
erupting into political chaos? A complete change in the
political landscape in May when there are the next EU
elections?
This is a blog about real estate, so what's the
outlook
for property prices?
Quite frankly, the answer is: a bloody mess.
I am not going to predict anything. What I will say is that I
am not investing a penny in anything in the eurozone.
I did make some comments about the Turkish property market
back in the spring. You will have noticed that the market has
crashed. The last time I looked the Turkish lira had lost 70%
of its value. I haven't bothered to check whether there has
been any recovery because investing in emerging economies when
interest rates are rising is a foolhardy venture. Do not under
any circumstances invest in Turkey, there is a lot more stuff
to hit the fan, in fact it has only just started. We have a
way to go. And don't touch any other emerging market.
Long time readers of my blogs will know that I have always
said, invest in real estate when interest rates are high but
dropping. That way you buy when prices are cheap and costs are
falling. If you buy when prices are high and interest rates
are rising, you can expect prices to drop and mortgage costs
to rise, which is a recipe for bankruptcy.
We have recently seen
uprisings across France against
tax hikes. France has for some time been one of the highest
tax regimes in the world. I am surrounded by French people who
have escaped to a more reasonable tax regime. If you really do
want to retire to France, then so be it, but don't under any
circumstances buy a second home there. If the French are
moving out, that should tell you that moving in is not
necessarily the best move at the moment.
For some time there has been a financial division in France.
It is often expressed in the following terms. There comes a
point when you find you are working too much for other people,
and at some point you stop, and leave the makers and join the
takers. For some time there has been this class division in
France. A third of the population works for the government, a
third is on some form of pension scheme, while the last third,
the mugs, are paying for the other two classes. There is
social disruption built into the system.
It does not help that Italy is going bust while France holds
by far the largest share of
Italian debt.
The country is in a mess. If Italy is going to the dogs can
France be far behind?
France and Italy are in the top ten of industrialised nations
of the world. If they are heading for destruction, that has to
be a big deal.
Want to move to France? You will be investing in a failing
country. I'd like to move there, but I'm waiting till there's
blood in the streets, then I will walk in and pick up a few
bargains. We certainly aren't there yet. In fact we may be
some time away from that point, but at the moment the omens do
not look good.
However, are we looking in the right place for a meltdown?
I did mention the disaster zone that was Australia a few
months back. Things have gotten worse since I last looked in
that direction.
Australia seems a long way away. How could the Aussie property
market affect us here in the UK?
To answer that question I will merely point to the American
mortgage market collapse back in 2008 to the tune of $1.3
trillion. When that market crashed it took down every major
stock market in the world, and trillions of dollars worth of
value were wiped off investments and real estate worldwide.
With that in mind Australia has just been through a Royal
Commission to look at mortgage malpractices, and the estimated
mortgage scams top $1.7 trillion. Yes, in outright value, we
are awaiting a crash bigger than the US mortgage crash. That
crash will undoubtedly affect every market on the planet as so
many markets are these days interconnected. We'll have a look
at just what has been going on next week.
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Looking Forward to 2019 -- Part One