Saturday, Nov 18, 2006
A picture is worth a thousand words.
Safe Haven: The Coming Collapse in Housing
"The housing bubble is gigantic and will burst before long with massive implications here and abroad. In fact, it's the key to the global economic outlook." Graph-heavy blog to aid post Sunday lunch digestion - a picture is worth a thousand words.
Posted by harold @ 11:15 PM (382 views) Add Comment
8 Comments
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1. paolo88888 said...
I was rather shocked by the conclusion of this article. Normally we have seen the house price crash occurring in the face of rising interest rates and rising inflation. But this article forecasts:
... will probably usher in the chronic deflation we've been forecasting.
Crude oil and other commodity prices will nosedive ...
... the 30-year Treasury bond will enjoy a total return of about 50% as its yield falls from the current 4.8% to 3.0%.
If bond yields are falling in this way won't this keep mortgage yields down? And isn't gold part of "other commodities" which is supposed to go up? Of course this is encouraging if you don't have a mortgage because that is not something you want if there is chronic deflation. However the idea of chronic deflation is very much at odds with the recent scare stories on the 33-year cycle which took us back to 1973 and the start of rising interest rates and rising inflation.
2. Nohpc said...
Usual overly bearish rubbish. This is the bear equivalent of saying that house prices are going to rise 20% per annum forever.
3. Nohpc said...
And I would like to have a mortgage in chronic deflation. Interest rates would be very low as would my repayments so a lot cheaper than rent. You could pay most of your mortgage off before the next inflationary cycle and house price boom.
4. sold 2 rent 1 said...
paolo88888,
I had the same thoughts after reading the article too.
In a previous thread harold posted this:-
http://www.ciovaccocapital.com/sys-tmpl/fedspeak/
Key points are:
"As a result, I expect all interest rate cycles (both up and down) to be shorter in duration than the previous cycles."
We have seen this in the UK already - look at how a 0.25 rate cut 15 months ago caused house prices to fire up again
"That does not mean we will not have periods of deflation (we may be entering one now) in the secular inflationary trend"
If this secular trend matches the secular trends in stocks, commodities, and property then it has at least 15 years to run.
The "perfect" way out of this mess would be to have inflation at say 4-5% for 15 years.
Economies don’t work like that so we will have wild swings from deflation to hyperinflation over the next 15 years instead.
All this fits in with my expectations of 3 recessions in the next 18 years
My plan for the next 15 years:-
Stocks: select opportunities during the cyclical bull phases but overall this is a secular bear
Property: Good buying opportunities but expect to be punished with each recession
Commodities: A safe haven when inflation kicks in and when world growth is strong
Gold/silver: Good with inflation and currency crises with the dollar/euro
Cash: Good if real IR is high
5. japanese uncle said...
As I mentioned before, economic/societal aspects of this nation at this moment shows uncanny similarity to those of Japan circa 1990, followed by unprecedented 10 year deflationary period caused by with clibming unemployment ratio associated with recession along with 'China factor'. This article is presumably written by an unknown economist, but an extremely candid and unreserved account of what is really going on in the Anglo-American economies. Main stream media can hardly be trusted in this regard, as well as in many other regards actually, as fewer number of powerful investors who control those media, make money at the cost of those millions kept in the dark.
6. sold 2 rent 1 said...
There are 7 articles in the series of which only 3 have been published
Part 1: The Current Investment Landscape
http://www.ciovaccocapital.com/sys-tmpl/partone/
Part 2: Inflation vs. Deflation: To Be Successful You Must Decide
http://www.ciovaccocapital.com/sys-tmpl/parttwo/
Part 3: The U.S. Dollar vs. Gold: You Should Care
http://www.ciovaccocapital.com/sys-tmpl/dollarvsgold/
I guess governments will try to keep inflation under control at first.
If this tightening causes a deep recession and deflation then they will print as much money as it takes to get inflation back.
The UK has a lot more reasons to keep inflation under control that the US
It is difficult to decide on the inflation/deflation timescales that lay ahead.
It seems that gold is the only asset that can do well in a deflationary period (1930’s) and an inflationary period (1970’s)
7. Oracle said...
this is the whole point of china/india accelerating the way they are.
between them they contain 1/3 of the entire planet's population,all hungry for cars,tv etc...the stuff we take for granted.
IMHO the scenario we face is extremely INflationary.....but the likes of US/UK consumers will suffer horribly if they have taken on too much debt.
..part of the reason for allowing so many immigrants in is it depresses wages....and therefore contains inflation....the end result will be stagflation,years of subtrend growth with better opportunities to make money elsewhere.
I think the bond guys have it wrong....they have had a field day for 15 years,along with property speculators....so I suspect there is a little overhang from this.I am convinced the trend has changed.
8. George Monsoon said...
NoHPC, are you suggesting that the mean average price for a home which since the year dot has curved up at a very gentle pace in line with wages should now be changed, so it looks more like a cross section of beachy head?
I do agree however that this article pushes the boundaries of reality over the edge. Interesting how we are seening an increasing number of these articles in mainstream news just recently though isn't it. Looks like the Bulls are nearly ready for the slaughter..