Mish's Global Economic Trend Analysis

---

Sweden Housing Crash Coming Up; Average Swede to Repay Mortgage in 140 Years; Swedish Central Bank Ponders New Rules Posted: 01 Jun 2013 10:01 PM PDT Average Swede to Repay Mortgage in 140 Years Swedish repay their mortgages so slowly that it will take 140 years on average, according to the IMF. The International Monetary Fund lamented Friday that Swedish households pay their mortgages so slowly that they are planning to do an average of 140 years. "Financial stability is [...] reinforced by a steady reduction in repayment schedules - that exceed an average of 140 years," the IMF said in a statement after a mission in Sweden. This statistic was revealed in March by a government agency, the inspection of the financial sector. It covers loans considered relatively safe, those where the real estate buyer had an initial contribution equal to or greater than 25% of the value of the property and pay the higher monthly interest alone. According to the Washington-based institution, the Swedish real estate market is a major risk to the economy, along with the eurozone crisis. "With household debt rising beyond 1.7 times disposable income, a sudden and significant drop in property prices could have an effect on consumption and banks, raising unemployment and further reduce the inflation, and increased the number of non-performing loans and financing costs for banks, "said the IMF. Why bother paying anything at all? Yet think of the consequences of underwater mortgages on the banking system when an estate does not have enough money to repay loans. A housing bust will have enormous consequences in such a setup. Swedish Central Bank Ponders New Rules Sweden is in the midst of a property bubble and a debt bubble, so much so that the risk mentioned above was noticed by the Swedish central bank. And central banks are always at the tail end of noticing risks of the policies they sponsor. Please consider Swedes' high debts spark housing bubble fears. Martin Andersson, the head of Sweden's Financial Supervisory Authority (Finansinspektionen), expressed his concern about Swedes' mounting debts. "Swedish households today are among the most indebted in Europe and we cannot have household lending that spirals out of control," Andersson said. One tool already in place to dampen the growth of Swedish household debt is a mortgage lending ceiling introduced in 2010 which caps the amount home buyers can borrow at 85 percent of the value of the property. Riksbank head Stefan Ingves has also suggested new rules that would require Swedes to pay down the principal on their mortgages, although Andersson refused to say whether his agency would consider such a rule. Last year, Swedes' household debt hit a record 173 percent of disposable income, well above the 135 percent level during the height of Sweden's banking crisis in the early 1990s. Sweden Housing Crash Coming Up By the time central banks notice bubbles and begin to discuss ways to alleviate them, it is far, far too late to do anything about them. A housing crash with huge consequences is 100% certain. The longer it takes before the crash begins, the worse the crash. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Lowest Core PCE in History; "Flation" Perspective Posted: 01 Jun 2013 09:53 AM PDT Doug Short at Advisor Perspectives has a pair of interesting reports on price inflation as measured by the PCE and PCI. Please consider PCE Price Index Update: Sorry Fed, The Disinflationary Trend Continues. The latest Headline PCE price index year-over-year (YoY) rate of 0.74% is a decrease from last month's adjusted 1.01%. The Core PCE index of 1.05% is decrease from the previous month's adjusted 1.17%. It is the lowest Core PCE ever recorded; the previous all-time low was 1.06% in March 1963, fifty years ago. The continuing disinflationary trend in core PCE (the blue line in the charts below) must be troubling to the Fed. After years of ZIRP and waves of QE, this closely watched indicator has been consistently moving in the wrong direction for over a year. It has contracted month-over-month for ten of the last 13 months since its interim high of 1.96% in March of 2012 and is now approaching half that YoY rate. The first chart shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. I've highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. click on chart for sharper image For a long-term perspective, here are the same two metrics spanning five decades. click on chart for sharper image Inquiring minds may also wish to consider Two Measures of Inflation: Core PCE at Its All-Time Low "Flation" Perspective Inflation, deflation, and disinflation are all in the eyes of the beholder, and all depend on the definition. Still I expect another round of deflation possibly with prices but more importantly with credit, my preferred measure of "flation". Regardless of how one measures "flation", the hyperinflationists missed the boat by a mile. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610