Thanks to proposed ECB negative deposit rates Euro may go through a massive drop - what should expats do?

Austerity obsessed ECB lowered its main interest rate this week from 0.75% to 0.5% but along with this cut caused a stir about whether the bank might also cut the deposit rate, taking it into negative territory (which would mean banks having to pay for leaving money in the facility and would ostensibly push banks to lend more rather than hoard cash). ECB dropped hints on the negative deposit rates to express their frustration with banks that are hoarding cash and not lending. Clearly at the ECB, the money printing carrot does not seem to be enough to revive the moribund European economy so now this stick has been added to the equation. The unintended consequence of these negative deposit rates would be to put enormous downward pressure on the Euro jeopardizing the value of Euro denominated assets. Expats should look at reducing this risk by diversifying their portfolio through exposure to US dollar denominated assets. The most suitable vehicle for this type of optimal diversification would be an offshore bond.

Mass evictions and a new mortgage crisis in Europe - another warning sign for expats

A new austerity driven mortgage crisis may be on the horizon in Europe. The Financial Times reports today that Ireland faces a new mortgage crisis that could trigger mass evictions and jeopardise the stability of the country's recovering economy. The FT reports that the struggling mortgage holders in Ireland face the threat of eviction following Dublin’s decision to lift a ban on house repossessions. "The contentious change of policy on repossessions was sought by the troika of international lenders – the EU, European Central Bank and the International Monetary Fund – which had warned that the escalating mortgage crisis was jeopardising Ireland’s fragile economic recovery."  A couple of weeks ago, the Mirror had reported that the UK Government’s welfare cuts will suck £19 billion a year out of the UK economy citing a study by the Sheffield Hallam University. According to the study Northern families in Blackpool, Middlesbrough, Liverpool and Glasgow will be hit hardest – and wealthy southern areas such as Surrey will see the smallest financial loss further exacerbating the North South divide. This serves as an advance warning of the shape of things to come (see video) and expats are urged to make investments in assets denominated in the right currencies and to have investments in the right locations and to have the right assets in their portfolios.

Robert Prechter, Socionomics expert fears a historic sentiment so extreme it happens "only once in centuries"

Robert Prechter did not invent the Elliott Wave principle, a technical tool for analysing markets  but he certainly has made it famous in Socionomics and through its use in making his market calls which he gets right occasionally. He also writes books and publishes a periodical called the Elliott Wave theorist. An article in the latest (April 2013) issue of the Elliott Wave theorist had me sitting up and taking notice because of a claim it makes that is so outrageous it at least deserves mention, well, in a blog piece anyway. In this article, Mr. Prechter argues, that not a single investment market – be it bonds, stocks, real estate, commodities or precious metals – stands anywhere near a major bottom today, this claim is ok so far, I agree with this part. Its the next statement that is jarring "Every one of them continues to show characteristics of being on the left or right side of a historic top of sentiment so extreme as to occur on average only once in centuries". Mr. Prechter has cited the example of Cyprus when the debt pyramid imploded: "the only valuable asset is cash; if you have it, you are king; if you don’t, you could starve." Either this is fear-mongering designed to sell more of Mr. Prechters' books and periodicals or perhaps there is a genuine warning about an impending implosion in all the investment markets in the near future. Mr. Prechter himself readily admits that he mistimed this call three years in a row but now seems fairly convinced that this "once in centuries" implosion is lurking around the corner.

State of the European Union - enough to make you cry!

Spain's unemployment hit a new record of 27.2% (over 6 million unemployed) with the unemployment rate for the under 25 a staggering 57%. France followed suit with a new record unemployment rate of 10.2% (over 3.2 million unemployed). Even though the UK managed to avoid a triple dip recession with a modest growth in GDP in 1Q2013 of 0.3%, as Ed Balls descries it, the UK economy is essentially flat lining with no new job growth. Inflation figures are massaged by all the EU nations. The citizens of the Eurozone have to sponsor the banks without knowing whether there will ever be return on investment, not to mention return of investment. It’s become increasingly hard to conclude whether the mainstream media is bringing us ‘independent news’.Child hunger in Greece is exploding. Some families are trying to survive on pasta and ketchup. People in Cyprus are being robbed of their savings. Even the Cypriot children who became orphans after their parents died in the 2005 plane crash and who have been paid damages, ensuring them a security for their future and education, have been confiscated a very large portion of their money with the closure of Laiki. Former customers of Irish IBRC (former Anglo Irish) have been informed that their retirement savings had no cover.

Pensions schemes and retirement funds are excluded from the deposit guarantee scheme. Goodbye retirement savings ! And you want us to have confidence in you ? No one is sure whether contributions towards pensions are secure. Those of us who have a job, will need to work until they have the two feet in the grave. - Poverty rates are soaring and the middle-class is disappearing. - The financial sector is moving away from Europe to Dubai, Hong Kong, SingaporeTo add to this gloom, German Chancellor Angela Merkel said on Monday that euro zone members must be prepared to cede control over certain policy domains to European institutions if the bloc is truly to overcome its debt crisis and win back foreign investors. Where have we seen this scenario before? Way back in the 1930s during the great depression ofcourse. History is repeating itself  and we are perhaps a few meals away from a social revolution (see video).

Retreat of Austerity from Europe may bring more opportunities for British expats working in Europe

For the last three years or more, Austerity has been the mantra in Europe blindly adopted by the governments of almost all the EU 27 nations. This policy has prolonged recession in Europe and especially in the UK which is showing signs of going through a triple dip recession. As the video shows, the calculations behind the Austerity programs are now more suspect and may be the result of something as mundane as an excel coding error. Gavin Hewitt, European editor of the BBC writes today that the austerity believers are in retreat since Europe's leaders and officials fear more now is unemployment, recession, and growing disillusionment with the eurozone that seems unable to deliver. Reducing debt is no longer the priority. This turning point is probably the beginning of the creation of a great jobs boom by next year as Governments ease on austerity and target unemployment. British expats, already well placed in Europe will now see their horizons open up as more job opportunities start to appear. Time to revisit plans for setting up a QROPS or QNUPS or an offshore bond.

Austerity in divided Britain makes the South richer and the North poorer

The Economist magazine gave a breakdown recently of the political divide between the north and the south in Britain. With the unfortunate passing away of Margaret Thatcher, this divide has resurfaced largely due to the harsh underlying economic connotations (see video). An independent study, carried out for the Resolution Foundation last year by the Institute for Fiscal Studies and the Institute for Employment Research, has highlighted this deep divide of a nation increasingly polarised between a poorer half whose incomes are set to fall (largely in the north) and a top half whose living standards will continue to rise (largely in the south). Entitled Who Gains from Growth? (full report available here), the study makes clear that future prosperity for the bottom half of earners depends on a policy revolution on several fronts: increasing the number of women in work, boosting training and skills, and raising wages for the lowest paid. Without this, the report finds, a typical low-income family will see its net income fall in real terms by 15% by 2020 – down from £10,600 (at 2009 prices) to just £9,000 at the end of the decade (again at 2009 prices). A typical household close to middle income could expect to see an income of £22,100 in 2020 – a 3% fall from £22,900 in 2009. Overall, by 2020 families who depend on benefits could expect to see an annual decline in income of 1.7%. Meanwhile, the top 50% of households can expect their living standards to grow by 0.2% a year to 2020; and faster for the most affluent. A typical middle income for a working-age couple is roughly £30,000 before tax, rising to £42,000 for a couple with two children. Austerity seems to benefit the wealthy south while making the impoverished north poorer. Question is - how long can this continue without casing significant social consequences?

In austerity hit Britain, Yes Minister provides clues of things to come

The Irish Times opined last month that Britain should come to grips with the fact that "if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started" - I couldn't agree more with this. As the US experience across the pond shows, avoiding excessive austerity may have its merits. Perhaps then Britain needs its own version of the "sequester" and as Bernard Woolly explains to minister Jim Hacker from the "Yes Minister" series, having a scaffolding around hospitals and other welfare institutions and keeping up the illusion that things are "under construction" are a perfect way to introduce social cuts and implement austerity.Would your pension really be around by the time you retire?