Foreign Perspectives

Archive for the ‘Business’ Category

That’s question that many in the travel trade would dearly like to know the answer to but, as always with such questions, it’s not possible to get a really definitive answer to it in advance.

Holidays and vacations are discretionary expenses which means that they’re among the first to be cut back on when times get tough and this seems to be one of those particular times. However, many people don’t want to skip a vacation so what you could see in this area are people taking shorter vacations, downgrading the accommodation that they stay in, and probably using local or short-haul trips rather than heading for long haul destinations.  We’ve already noticed that this year with the poor exchange rate encouraging Americans to book via a hostel site rather than via a hotel booking site and that will likely become much more common in the coming year.

Added to the problem of getting the money saved or available on credit is the exchange rate problem for overseas holidays. We’ve seen the pound/euro rate moving from around 1.30 to more like 1.00 in a very short period of time ie a holiday from the UK to Europe has risen in price by around 30% even if the base price remained the same (which, of course, it rarely does). Throw in hikes in price from the airlines and that means a substantial rise in the cost of your holiday.

So what will the outcome be? Well, on our listing sites we’ve seen the traffic drop around 80% compared to the same period last year which implies a very substantial drop in bookings in 2009 for many people. Notable too is the increase in the number of adverts we’re taking onboard which implies that the owners are ramping up their advertising early presumably because they’ve had fewer than usual booking enquiries. However, even if both those indications are pointing towards much lower bookings in the year to come it could be that people are simply postponing their bookings until the economic picture clears up.

In reality I suspect that there will be a lot of last-minute bookings in 2009 but that overall there will be a lot fewer people going on holiday which could mean some great discounts on the more expensive holidays if you’re prepared to wait. Unfortunately, it’ll also mean that your choice will be much more limited in 2010 as many travel related businesses will be closing up in the coming year.

I came across a rather comprehensive take on how bad things are in the Spanish economy which makes for some interesting, if long, reading.

Spain is one of those places that hasn’t, yet, featured on the news in terms of problems with their banks which is surprising in some ways as it’s not a country that one would ordinarily consider as having strong banks. However, that’s misleading as the countries with the supposedly strong banks have nearly all run into trouble by now but largely because that strength enabled them to start operating on the international stage and thereby pick up problems that they’d not have gotten had they stuck to their domestic market.

Spain is different in that, for the most part, the banks seem to have acted to pull money into the country but that has created something of a problem since, as the article points out, it has created a climate where there’s been a little too much money knocking around. The problem in Spains case is that the developers have used that money to build far too many houses and now find themselves with a rapidly increasing stock of unsold houses.

The solution? Well, the developers would like more money to build even more houses but that glut of houses means that prices are falling rapidly in reality although that doesn’t show up in official statistics as those are based on estimates of the value of the houses rather than what they’re actually selling for. As elsewhere, the list prices of those houses bears little reality to the price at which they are really selling for and therefore it’s very difficult to get a clear picture of what’s really happening. Despite that, it appears that the fall of 50% or so the previous year will be followed by yet more falls to come.

That continued falling of prices spells trouble for the builders. In accounting terms, they’re presently holding them as trading stock but the falls are forcing them to reconsider them as assets for sale. That might satisfy the accountants but unperforming assets are no good to anyone and, of course, they can’t sell them. Nor can they reduce the prices by as much as normal people could because they’d then be into potentially serious losses.

In fact the solution seems to be to let a significant proportion of the developers go bankrupt and reduce building to more normal levels thus letting the stock of unsold homes find buyers. Not an easy solution but then if, as seems likely, we’re heading into a depression rather than a recession then no solution is going to be an easy one… last time around it took WW2 to get us out of it.

When we talk of recessions, by and large the only ones that anyone really knows about are the puny little ones that we’ve been getting in recent decades. You know the type: house prices stop going up as fast as they’d been rising or perhaps fall a little bit, interest rates go down and like magic we’re back on track in a couple of years.

This one seems somewhat different. Interest rates haven’t just dropped a little bit, they’ve actually been yanked down right around the world. House prices haven’t really fallen much if you look at the estate agent windows but they’re not selling at the current prices ie they should be a lot lower than the advertised price (hence the mild panic in many estate agents re job security at the moment).

Banks are even being told to ease up on their customers in terms of interest rates and repossessions. Actually, that’s something that they probably don’t need to be told as they genuinely don’t want to be lumbered with a whole lot of houses that they can’t sell: much better that people pay what they can of the mortgage than that the bank takes over the house and then gets stuck with something that they need to pay taxes on and maintain while getting no income from it.

However, it will get worse if this becomes the first real recession since the 1930s. That would mean not only falling house prices but falling prices generally which in turn means widespread unemployment. Back in the 1930s they tackled that unemployment through massive public works programmes but things have moved on a ways since then and I can’t really see people accepting make-work digging up roads and the like.

Depressing, isn’t it? It’s actually worse because of the unwinding of the government loans/investments in the banks around the world which will need to happen at some point as that means higher taxes all round which obviously wouldn’t help what could be a very fragile economy when they kick in.

Not so long ago I was joking that either Citibank or HSBC going bankrupt would be a really spectacular event as both are based in one country yet have the bulk of their interests overseas, so who would support them?

Well, it’s happened to Citibank now and it turns out that the American government figured that if they were allowed to go to the wall it would be just that little bit too spectacular to happen so they’ve bailed them out. One wonders how long it can be before we see if the UK government have a similar view of HSBC although that might be quite a while from now as HSBC management dumped the problem HFC quite some time ago and that’s where a lot of their high risk loans lay.

But when you’ve the situation of the largest banks in the world at risk like this it sounds to me that it’ll be quite some time before we get ourselves out of this particular financial mess.

If you’re selling property outside your home country it’s easy to fall into the trap of pricing it in the local currency and then forgetting about it.

That usually works fine if property sales in the foreign country move at a fairly brisk pace but often they move at a much more sedate pace than you are accustomed to. Whilst exchange rates between the major currencies rarely move quickly they do move and over a period of many months the price translated back into your home currency can change quite substantially.

For example, take a property that you wanted to sell for £60,000 at the start of 2007 and you therefore priced it at EUR 90,000 (£60,641). By the start of 2008 you could sell that property for EUR 85,000 and pick up £62,553. You might think that a year is a long time to have a property on sale but in many European markets property sales proceed at a very sedate pace and it’s not unusual to have a house for sale for quite an extended period before you find a buyer.

If you are counting in your home currency it can often pay to check whether or not you can lower the local price but still collect the same amount of money as obviously it can speed up the sale of the property.