Sunday, Feb 04, 2007
The arbitrageurs got it wrong twice!!!
Sunday Times: Top EA faces £950m bid
And yet, maybe they got it right but you can't legislate for abject stupidity.
If you want a prime example of the madness markets and the stupidity of private equity investors, an American fund wants to buy Countrywide for nearly a billion pounds.
Its OK, they say, because on a P/E basis its s sound investment. Interesting. Repos in the US up 42%, in the UK up 65% (from a low base). So, the future is obviously dodgy. Yet they want to do this. It will serve them all right when this whole craziness goes and bites their bums.
Posted by financial planner @ 11:43 AM (152 views) Add Comment
16 Comments
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1. paolo88888 said...
financial planner,
Your comments surprise me. Reposessed houses need to be sold, and quickly. Typically they will be advertised by several agents, on higher cost multi-agent agreements. It has been predicted on this site that if there is a crash, BTL's will flood the market. The prices they get may be poor, but this is not a real concern to estate agents who just need volume of sales. And many of the borrowers will end up buying again, perhaps in cheaper property. Perhaps an EA is an ideal two-way bet on the housing market. And if the PE looks reasonable, then I don't think 'abject stupidity' can be levelled at the buyers.
2. inbreda said...
Don't agree paolo88888
Admittedly in a crash an EA would have to replace high prices with high volumes. However, nobody wants to catch a falling knife and if it does all go tits up, there will be LARGE numbers of people with such bad credit histories (having defaulted on their huge mortgage and still with large amounts owing to the lender) that there will be few people able to buy.
Not all EAs do auctions, and it's not so good having huge numbers of properties on the books and nothing selling for weeks at a time. Even if they do auctions, it's not great to do 10 times as much 'work' for less pay.
3. sovietuk said...
In between doing the sunday family bit I was reading through a newspaper today and was looking at the property prices (south east). There is nothing underpinning these prices other than BofE printing presses and the overvalued small pieces of paper they produce. It's only a matter of time before these small pieces of paper loose their value and the whole lot comes tumbling down. The trade deficit is simply too high here for the currency to maintain its value long term. The final days will proabably be accompanied by a desperate attempt by the the BofE trying to protect the currency by raising interest rates to about 16%. A meltdown has to happen and for people exposed to a huge debt - Goodnight Vienna.
4. Tother said...
"Even if they do auctions, it's not great to do 10 times as much 'work' for less pay."
well EA's have been reaping the rewards recently - is it not time for them do some 'proper' work ? ;)
5. financial planner said...
EA valuations in the last crash went thru' the floor. Countrywide would go to £1 if the market let it.
6. bidin'matime said...
This is exactly what happened last time - I met one EA in the late 90's who had sold out in the late eighties for a small fortune to one of the banks who were all piling in, then bought it back again for a fraction of what he'd been paid 5 years or so earlier!
7. financial planner said...
I think bidin he sold in the late 80s and bought back in the mid 90s.
8. japanese uncle said...
The trade deficit is simply too high here for the currency to maintain its value long term. The final days will proabably be accompanied by a desperate attempt by the the BofE trying to protect the currency by raising interest rates to about 16%
-------------------------------
A very convincing and plausible scenario, isn't it? And the UK economy has a poor track record in this. 16% IR, I'll drink to that (with Claret).
9. Nohpc said...
Ummm... you guys are such a bunch of drama faries. For some reason reading this board occasionally reminds me of an episode of southpark where the kids see what is actually happening whilst the adults blow it all out of proportion in hilarious ways.
Guys... a house price crash will not happen. There are many reasons why it should or shouldn't but the main reason this time why it should't is because if the BoE allows it to by increasing interest rates too high they country till plunge into a huge recession with mass unemployement etc etc. Many of you will lose your jobs and not even be able to afford houses if they were top drop by 90%. I think it is possible there will be a correction in areas which have boomed over the last few years but I definately do not see a crash in the areas which matter (ie the bits where you would want to love).
Personally I think merv has done a great job and I believe he will steer in the right direction. Interest rates back at 4.75% by the years end is my prediction. If you want you can paste it for prosperity and shove it in my face jan 08 if I am wrong but I do not think I will be.
10. george monsoon said...
Nohpc I agree that there is a high risk of unemployment in the advent of a crash, but the economy is facing a huge challenge over the next decade and unless we stop spending money we don't have, we are all in dire straights. Merv would be doing the country a big favour by putting the interest rates up again this month. Mark my words Nohpc, as one of the children on here (no financial/economic qualifications) I can see what is happening and although I don't understand the mechanics, there has to be a correction, because as my dad says "you can't spend what you don't have".
11. dohousescrashinthewoods said...
George, spot on. I have to say for someone who is so modest about their understanding you are rather astute.
"You can't spend what you don't have"
It really doesn't take much more than basic wisdom and a touch of maths to do economics. In fact, making it more complicated leads to trouble.
We are living in an elastic reality, but it *is* real and it *will* return to fundamentals.
12. Davros said...
Nohpc,
4.75%
You should tell the city they're all wrong. They've got 5.87% at the year end. Still, what do they know?
13. C'mon Correction said...
Nohpc - I don't think interest rates will drop below 5% for a decade at least (bar huge terrorist attack / bird flu etc). And we are much more likely to see 6+ % than 4.75% by Jan 08.
I guess we'll wait and see...
14. Chilli said...
16% - very unlikely I think. The reason China has such a large trade deficit with America is that China wants a low exchange rate. That's what is fueling their boom. If they were to dump all those dollars on the market, their exports would suffer and would result in massive unemployment. Its the same story for the pound. The world wants a strong pound.
Besides, we can always do what the Americans do and gradually let inflation devalue our national debt. That's if we can manage to stop increasing it at a faster rate. Which seems unlikely....
Good time to have investments elsewhere at any rate.
15. Nohpc said...
Well the city is usually wrong so it would seem wise to bet against them with regards to rates. Also, you can spend money you don't have, People have been doing it for years and it is the way of the world now. The problem comes when people borrow more than they can repay but as long as you can then you can borrow till the cows come home. I do not practice what I preach and I am a saver rather than a spender but people like me are very bad for the economy.
Although all may not all be well at the moment things can change for the better without a crash. I see Britain somehow riding out the up coming global correction quite well. I do not think house prices will continue to rise as they probably are at the ceiling of affordability except in London where there seems to be unlimited cash flow. But I also do not think they will drop unless we hit a huge recession and people are forced to sell.
If there was a drop in prices I would ride it out for how ever many years it took to rise again and there are many more like me out there who would not sell for significant loss. The only caveat to that is if I accidently knocked my girlfriend up 3 or 4 times and needed to buy a big house in which case a crash would benefit me as I would be buying a more expensive property.
16. dohousescrashinthewoods said...
I disagree about debt only being a problem if you have too much. I took on debts as a student and afterwards and have almost finished clearing the decks and it was not pleasant.
I was never had any "serious" borrowing, but it sucks away your disposable income and you spend yor time working just to pay "bank tax". Not to mention the psychological cost that no-one has yet economically quantified. (as far as I know)
I think the economy wants disposable income so that people can spend. Debt is a short-sighted hook because people end up servicing it. The FS sector gets good bonuses and the rest of the economy suffers. As your "bank tax" increases, so everything else gets squeezed.