Case Study on the Housing Market of Belgium and The Netherlands

With the newly discovered correlation between building permits and housing prices, I wanted to put this correlation into practice more at home. Let's see how The Netherlands is doing. On Chart 1 we see that since 2006, the amount of building permits has dropped and is continuing to drop.

Chart 1: Building Permits in The Netherlands

A similar case is found in Belgium, where we see that the amount of building permits dropped since the top of 2006 (Chart 2). But the decline isn't as bad as in The Netherlands. 

Chart 2: Building Permits Belgium

If we then look at the housing prices in Belgium and The Netherlands we do see a lag. 2006 marked the top in building permits, while 2008 marked the top in the housing market index in The Netherlands. This suggests that the correlation is true. 

In Belgium though, the housing market is still rising, while building permits are declining. So something is not right here. Considering that building permits are dropping in Belgium, I expect that the Belgium housing market will go lower in the future.

Chart 3: Housing market in Belgium and The Netherlands

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Belgium the next country to fall

As I said before here and here, Belgium is the next domino to fall after Greece.

If you don't believe me, believe Zerohedge. As you can see on chart 1, the countries on the left have the least equity/capital reserves as a percent of deposits.

So to avert insolvency of Belgian banks, depositors need to be thrown into the fire eventually. But luckily, Greece will be first...

Prepare yourself.

Chart 1: % bad debt that can be impaired before deposit haircuts

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Bank Reserve Requirements in the Eurozone

Following the crisis in Cyprus of which I talked about here, there has been a question on how much stress the banks can have during a bank run, before their liquidity is at stake.

A typical bank balance sheet looks like this (Figure 1). If the deposits get drained on the right side, the cash gets drained on the left side. The question is, how high is the limit of a drain on deposits?

Figure 1: Balance Sheet

Let's analyze the bank reserve requirements first. 

Chart 1: Reserve Requirements

Then we look at the capital and reserves of the banks. The capital and reserves are given in the last column (Table 1).

Table 1: Bank Statistics

Chart 2: Capital and Reserves to Deposit Ratio

Go here to read more.

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Belgium deposits are not safe

I happen to live in Belgium and there are some people there arguing with me about gold. I keep telling them to buy gold but they insist not to buy it.

What they don't take in account is that Belgium is the next in line of the PIIGS. Belgium has one of the largest  debts in the Eurozone and has the highest taxes. As a result I don't think that higher taxes will be an option.

So the only other option is to take your deposits like in Cyprus. Belgium happens to have a lot of uninsured deposits ready for the taking (Chart 1).

With this chart I will have another argument up my sleeve. Of course I already prepared myself by taking all my money out of the bank.

Chart 1: Large deposits and uninsured deposits

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Belgium Restricts Gold Buying

There is a proposal in the parliament of the kingdom of Belgium to make buying gold with cash illegal above 5000 euro. All transactions above 5000 euro in gold should be made electronically (so the government can trace you).

This is of course a first step to make gold illegal and to confiscate your physical gold holdings. It is an attack on our privacy and I don't approve it. The more debt and the more government in a certain country, the higher the chance of repression by that government.

Of course there is an option out. I'll just buy my gold in the Netherlands...

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Investors Competition Belgium

In Belgium we have the yearly investors competition called: "Beleggerscompetitie". Of course I'm participating too as "katchum". You can search me if you want and view my "virtual' holdings. My standing is currently at position 8752 of 19000 so I'm above average... I'm currently in emerging markets, China, Russia, gold, agriculture, oil and base metals.

Not that I'm a good trader, but what's interesting about this competition is that you can view the holdings of everyone, including the top 10. And you can win a car (Ford).

I will list the top 10 participants' holdings here:

1) Vanlooy: Gold, Short Europe, Short CAC
2) Rover45: Gold, RHJ International, Short Europe, Short CAC, Long Oil
3) ik short dus ik ford: Gold, Short Europe
4) nicolas 812: Gold, Arcelormittal, Gold Fields, Harmony, Short Europe
5) harpy: Short Europe, Long Oil
6) 902314nd: Gold, Bekaert, KPN Koninklijke, Short Europe
7) astevens: Gold, Short Europe
8) eulsonced: Short Europe
9) Fidelski: Adidas, Barco, BASF, RTL Group, Solvac, STmicroelectronics
10) Houtten: GDF Suez, Harmony, K+S, Royal Imtech, RWE

It's obvious what they all have in common: Long Gold and Short Europe. Harmony Gold is a possible play here. And surprisingly, people are getting long oil!

I say follow the professional investors here. I will keep you updated each week.

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Belgium: Real Estate Starts Falling

I live in Belgium and follow the real estate market closely. I said previously that Belgium's housing is in a housing bubble. Now that prediction starts to come true. We already knew that in the first quarter, real estate was dropping. Today we have new numbers and we see that Flanders is continuing with its drop in apartment prices. Also construction site costs are falling.

Goldman Sachs is saying Belgium real estate is 60% overvalued. That means prices are still to fall 40% in the future.

We already see how the sales are doing, not good (Chart 1).

Chart 1: Home Sales in Belgium

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Belgium Gets Negative Borrowing Cost

And finally, Belgium also started to earn money by borrowing from others.

Investors actually pay us to put their money in our government bonds. The 3 month Belgium bond yield has gone negative on 19 July 2012. I thank you very much for this free money!

Chart 1: Belgium 3 Month Bond Yield

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How to calculate profit on government bonds? Case Study on Belgian Bonds

A couple months ago, Belgium sold government bonds to the public. For example 10 year bonds at 5%. I'm living in Belgium, so I took this example. I've never really looked at how profits are being made by selling/buying government bonds. So let's analyze this a bit. This is just a note to myself.

Let's take a 10 year Belgian government bond at 5% (Chart 1). Suppose I bought an amount of 1000 euro of these bonds. This means that after 10 years I get paid with: 1000 + 10*5%*1000 = 1500 euro.

Indeed, after 10 years I made 50% profit on the principal. 1000 euro became 1500 euro.

Chart 1: Belgium 10 Year Government Bonds

What happens when 7 months later, bond yields go down to 2.65%, like today is the case (Chart 2).

Chart 2:  Belgium 10 Year Government Bonds

Let's reperform the calculation. If I buy an amount of 1000 euro of these 10 year Belgian bonds. I get repaid with: 1000 + 10*2.65%*1000 = 1265 euro.

So after ten years my 1000 euro becomes 1265 euro. That's a 26.5% profit in 10 years.

Now comes the clue. If I sell my 10 year Belgian bonds (with 5% interest) on the market, as compared to the current rate of 10 year Belgian bonds today (with 2.65% interest), I will make profit.

That profit is: 1500 - 1265 euro = 235 euro. 

How much percent profit is that? 235/1000 = 23.5%

That's a pretty high profit if you ask me. Gold has been doing worse in those 7 months, it went up only 5% in euro terms.

Now let's go a bit further. If the interest would be cut in half again from 2.65% to 1.25%, what will be my profit?

1265 - 1125 euro = 140 euro
My percentage profit = 140/1000 = 14%

And when it gets cut in half again from 1.25% to 0.625%.
1125 - 1062.5 = 62.5 euro
My percentage profit = 62.5/1000 = 6.2%

And when it gets cut in half again from 0.625% to 0.312%.
1062.5 - 1031.2 = 31.3 euro
My percentage profit = 31.3/1000 = 3.1%

You see, the lower the interest rate is, the less profit you can make in proportion to the yield cut. I can't understand how people still want to buy these government bonds at these low yields.

Talking about a bond bubble... it's staring right in your face. U.S. 10 year government bonds are now at 1.5%. If that yield would go to 0%, you could make only 15% profit. Gold will ultimately go much higher than this 15%.


Edit:
I still haven't figured out how to calculate the yield-price bond curve the correct way. But instead I'll just use the Nomura curve here, much easier:

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The Rich People of France are Leaving... for Belgium

I talked about the "Hollande Effect" in a previous article. One of the biggest fears of rich people is the 75% tax on their income once Hollande became president. So what happened the day Hollande became president? A record of 1500 applicants came to Belgium to store their wealth exactly after the French election day, as reported by Dekeyser & Associés. One of those super rich was Gérard Mulliez, boss of Auchan super mart.

This comes to a surprise to me, because Belgium isn't the country with the lowest taxes in Europe..., but rather the highest.

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