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.

British Baby boomers need to plan for loss of entitlements as they age

YC45W73DVK8Z Fareed Zakaria, who has his own syndicated show on Sundays on CNN had an interesting take on changing population demographics in the US and their political effects a couple of weeks ago (see video). Last year, Mr. Zakaria wrote a similar article in Time magazine, on the works of Mr. Pete Peterson, a banker and private equity billionaire. In that article Mr. Zakaria presented Mr. Petersons' overriding concern that the long-term outlook for the US economy in the form of massive structural deficits as the baby boomers start retiring in large numbers should be tackled by massive austerity and debt reduction programs. Mr. Peterson apparently confided to Mr. Zakaria, "I want to strengthen the safety net for the poor. But to do so, we have to reform entitlements, because they are simply not sustainable in their current form," Peterson says. "The elderly population is doubling, and health care costs are rising rapidly." His foundation is making the control of health care costs its No. 1 priority. "But we need to start making changes soon, because the longer we wait, the more painful will be the eventual changes".

The exact same arguments apply in equal measure to aging Britons looking for safety nets in their advancing years. Given the current debt load of the UK, it is inevitable that pensions and entitlements will take a hit in the coming years. All the more reason to have QROPS, QNUPS or offshore bonds to plan for a more secure retirement in the face of  eroding state benefits.

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.

Geopolitical stress points to upcoming war events - what should expats do?

From the nuclear missile laden saber rattling from North Korea to the French Embassy bombing in Libya today to an Iran linked terror plot in Canada to potential conflict between China and Japan (see video) or between China and Vietnam or between China and India, not to mention everyday bad news from Syria, Pakistan and Afghanistan, geopolitical stress seems to be climbing to new heights globally. A great article in Salon.com today summarizes the basis of all this geopolitical stress as being resource shortage driven. According to the article, "although the global supply of most basic commodities has grown enormously since the end of World War II, analysts see the persistence of resource-related conflict in areas where materials remain scarce or there is anxiety about the future reliability of supplies".

The question for expats and other investors is how should they hedge themselves against such an event. It is highly recommended that expats should have exposure in their portfolio to resource based funds such as water resources funds, food commodities, oil and gas, forestry as well as precious metals. These are exactly the resources that shoot up when geopolitical conflicts escalate.

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?

France Germany shoot down PMs idea for a new treaty for Britain

As The Guardian reports, British PM Cameron's idea for a new EU treaty for Britain is under fire from both France and Germany. The article further reported that "Berlin and Paris, in a further sign of irritation at the UK's approach, have snubbed an offer to take part in an exchange of views with the Foreign Office on whether some EU powers should be returned to member states as part of a "review of competences", it emerged last week. Charles Grant, the director of the politically independent Centre for European Reform, who has held talks with senior officials in Berlin and Paris in recent weeks, said there was "no chance" of a new EU treaty in time for Cameron to hold a referendum in 2017, even if he was still in No 10." Perhaps, it is time for the PM to have another idea. As the video from the Yes Minister series suggests, Sir Arnold remarks to Sir Humphrey that ministers think they have achieved something when they have an idea and that he could not recall a time when a minister had two ideas.

When will the current market bubble in stocks and bonds end?

David Stockman, former budget director in the Ronald Reagan administration wrote an article in the New York Times on Easter Sunday entitled "Sundown in America" where he has given a brief history of the various market bubbles since the 1970s when the big Wall Street banks essentially turned the US economy into a giant casino driving booms and busts. He ends the article on a very ominous note reproduced here "there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is."
This view has been challenged by the pollyannish talking heads at Bloomberg citing assorted University professors challenging Stockman's view (see video). I personally am inclined to agree with Stockman about the bubble - it will be rather curious to see when this on will burst.

As British expats look for opportunities outside UK, Britain looks set to be deluged by immigrants

As reported by the Telegraph today, Britain's ministers have no idea how many new Eastern European immigrants will come to the UK next year. According to the Telegraph (which I am now reproducing here verbatim), "a specially-commissioned study by a research group suggested that Britain is woefully unprepared for the ending of migration restrictions later this year suggesting that any influx of Romanians and Bulgarians could put a strain on schools and be made worse by the economic crisis in Italy and Spain. The National Institute of Economic and Social Research was asked by the Foreign Office to examine the “potential impact” of migration from Romania and Bulgaria, who joined the European Union on 1 January 2007. According to a British Labour Force sample survey, there are currently 26,000 Bulgarians and 80,000 Romanians living in the UK, but the actual numbers could be larger. The Niesr report also warned of the impact on the UK and the likely “pull” factors which could drive them to the UK, including:
• continuing economic problems in southern EU countries like Spain and Italy could mean that more Romanians and Bulgarians migrate to UK next year;
• Romanians and Bulgarians might be tempted to come here because they earn 40 per cent less than people in Britain and other European countries;
• Romanians and Bulgarians are most likely to settle in the south east of England – rather than fan out across the country as the Poles and others did after 2004;
• pressure on public services is most likely to be felt in primary schools – where there is already a severe forecast shortage of spaces. Figures show more than 800,000 extra places will be needed in state-funded nursery and primary schools by the end of the decade.
Earlier this month Professor John Howson, senior research fellow at Oxford University, said the shortage of places for five-year-olds was the “biggest problem” facing schools in England."

Who reads the Financial Times? - The people who own Britain

Where do you get your financial news from? Do you consider the Financial Times to be the main source of your financial information? If Jim Hacker who plays PM in the Yes Prime Minister series is to be believed, the Financial Times is read by people who own Britain!

For whom the Euro tolls - Martin Feldstein and Bernard Connolly's old predictions playing out today

Seventeen years ago, Bernard Connolly who was running the European Commission's Monetary Affairs Unit, the Brussels bureaucracy charged with ushering the euro into being and publicly expressed his doubts and the misery that awaited the European Union in a book called "The Rotten Heart of Europe," he was promptly fired. According to Mr. Connolly, the European political believes that the crisis "hit its high point last summer in 2012 because that was when there was an imminent danger, from their point of view, that their wonderful dream would disappear." But from the perspective "of real live people, and families and firms and economies," he says, the situation "is just getting worse and worse." Similarly Harvard professor Martin Feldstein who expressed doubts about the Euro fifteen years ago (see BBC news clip above) is seeing his predictions play out today. For all their faults, the US dollar and the pound sterling still provide a modicum of safety, however small, while gold may be a holder of monetary value in the short term.

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?