Saturday, Apr 07, 2007
Next US IR move could be up
The Telegraph: US jobless decline knocks hopes of interest rate cut
Normally the markets sell off when US IR peak - as they expect a slowdown.
The Telegraph was predicting last October that the stock markets would fall 20%
This didn't happen - why - because maybe IR haven't peaked yet
Posted by sold 2 rent 1 @ 07:26 AM (152 views) Add Comment
5 Comments
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1. sold 2 rent 1 said...
IMHO, UK HP will peak in Q1 (and no later than Q2 2008). Why?
1. The CEPS (posted yesterday) report shows over 30 years, HP in Europe lag US by 2 years
2. The LSR housing affordability index is rapidly moving through the danger zone and will hit 80 points by Q1 next year.
3. Fred Harrison's book has been spot on (even predicting this mini boom)
4. US, Ireland and France HP now falling
I think we should move the debate on and assume we have peak prices in 2008
What happens next?
Do we have a rapid decline over 2-3 years?
Do we have falling prices (4% a year) but in real terms (8% a year) for a decade
For me both are possible, with the latter more likely. Why?
1. There will be no sky high interest rates to cause a rapid crash
2. There is no huge excess in supply (like in US, Spain and France)
3. Unemployment will rise - but not enough to cause a rapid crash???
For me stocks are similarly positioned, overpriced but not enough for a crash of 1987 or 1929 style
A long drawn out secular bear over the next decade is more likely with stocks no higher in 10 years time than today.
How will all this affect our purchasing plans?
For me, buying a house in a falling market may not be a problem if my business fairs well and cash is rolling in. My business will probably suffer so this option will be a problem.
If rents rise, like they are doing in Dublin, renting as an alternative may not be that great.
Even a 500K house will fall 25K a year in actual terms (at 5%). This is a lot of money.
Renting for 10 years is a disaster. But owning could be a bigger disaster
2. harold said...
I just don't see an orderly drawing down of stocks , housing and liquidity as reflecting human nature. Things give suddenly, often with unforseen effects, people panic and markets collapse despite the cest efforts of central banks to deflate asset bubbles slowly.
3. sold 2 rent 1 said...
Harold,
Let me clarify my position on stocks,
Initially I see a fast decline of 15-30%.
This will happen when the US recession looks clearer and may combine with the carry trade imploding.
After this decline, say after 2009 the bulls and beers will fight it out but stocks will be no higher in 2017 than today. The low point of stocks could be as low as 50-60% off today’s prices.
Remember the debt taken on by households in this economic cycle will have an affect for a decade and a half.
It’s going to be ugly with all these people hitting retirement with houses and pensions falling in value.
4. This comment has been removed as it was found to be in breach of our Blog Policies.
5. Rimmer said...
Harold
I am in the US at the moment, just reading a reliable US economic report that says the US is saving the least it ever has and less that any other western nation head per head, it also says that for the US working population they are spending $100.60 for every $100 earnt.
The worry is naturally that cant continue but being the worlds largest consumer how do you correct it?
The answer is not without pain <<<<< We all know it has to happen, happy hour can only last so long !