Monday, Oct 26, 2009
Blanchflower says share and housing markets are bubbles.
The Economic Voice: Blanchflower says share and housing markets are bubbles.
David Blanchflower, once of the Bank of England (BoE) Monetary Policy Committee (MPC), has poured a very large, unwelcome bucket of icy cold water on the current UK house price and share market recovery in a TV interview with Bloomberg.
Posted by titaniccaptain @ 05:18 PM (1718 views) Add Comment
27 Comments
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1. inbreda said...
He should know - he inflated them
2. chrisa said...
'David Blanchflower, once of the Bank of England (BoE) Monetary Policy Committee (MPC), has poured a very large, unwelcome bucket of icy cold water on the current UK house price and share market recovery in a TV interview with Bloomberg.'
Are we being prepared for the second crash using people like Roubini and Blanchflower? Or is Blanchflower just laying the ground for yet more QE? Why does this guy get so much coverage? Something very fishy.......
3. tudorian said...
Of course they are are yet more bubbles. We knew that didn't we. These are bubbles resulting from the BoE's QE.
The question I want answered is:-
when they pop, as surely they will, what will the government do then?
4. chrisa said...
If they are bubbles then the BoE must now act quickly to prevent further bubble growth by raising interest rates and stopping QE. What's that you say BoE? You're not going to? Now why is that BoE? Did I hear you say BoE that you have been told to deliberately create the bubbles? Was the guy who said this Scottish by any chance?
5. smugdog said...
Perfectly reasonable question; can one of the clever ones please provide a graph of the "bubbles on bubbles" scenario that you paint above? I thought that we had predicted that we would be well into the capitulation phase of the now defunct old graph by now, or am I stupid and missing some detail. Polite request; please advise, in your own time that is.
6. wiltshire said...
Smugdog, that's not a "perfectly reasonable" question. Not the way you ask it.
We've had people like you on here before (David 90210 and Greenbay for example) suggesting that people here who don't follow the VI spin have got it all wrong, have missed the boat, are bitter etc. I don't agree. The easiest thing in the world would be to join in the housing-is-a-one-way-bet free-for-all and simply hide behind VI spin everytime you feel the need to post a comment. Choosing the opposite path isn't as easy but not everyone is prepared to follow the fools who lead us.
There were many who visited this site and claimed all was well with the financial world and claimed housing was a one-way bet. Some were still making those claims months AFTER Northern Rock collapsed. I think a lot of people don't understand the enormity of the financial crisis we are still in. People prefer to pretend all in the garden is rosy. Good luck to those people and good luck to you because you seem very comfortable in your opinion. I prefer to be renting at the moment because I think we're in for some extremely hard times and I want to flexibility to my situation. I don't trust Labour for a single second with the economy because they are incompetent at best and criminal at worst.
Only time will tell as to how this situation will play out. Part of me hopes you're right that we're over the worst because that would be good for the country as a whole (if people could just understand exactly what a 5 x salary, interest only mortgage actually means) but I cannot believe that it is possible we are through the worst. You cannot pursue the sort of economic policies that Labour have recently without causing problems further down the line. The only reason no-one has any idea of what the true cost will be is because we've never been this deep in the **** before.
I would be interested to know how long you remain smug but you'll stop posting here once things start to get uncomfortable again.
7. clockslinger said...
Without any doubt this is Blanchflower as the fluffer to get us ready for another big fistful of quantitive easing we are not able to take....Go on Danny, inflate it right up again...oooh, professor, you make my currency wilt!
8. mander said...
He also said that the BoE should have included the housing market in it’s 2% annual inflation target during the good times. He was a member in good times and argued for a rate cut to inflate house prices.
9. Estrader said...
@5 smugdog, I'd say we were or may still be at the "return to normal phase". The graph is almost a blueprint of what is going on at the moment. I find it asonishing that anyone could disagree.
10. estrader said...
@5 smugdog, I am a gambling man and I would put money on us being on the "return to normal" phase of the curve. I would be astonished if anyone would disagree.
11. inbreda said...
smugdog - I don't recall anyone predicting that we were (or would be by now) in the capitulation phase. The "return to normal phase", yes. And then there needs to be another downturn before we get into capitulation. We are some months away from it yet, but there is no reason to think it is not coming.
12. monty032 said...
Well done Wiltshire for giving it to Smugdog with both barrels. It is annoying when we get people on here who trot out the optimistic orthodoxy without bothering to provide any facts to back up their opinions. We had a ten-year bubble during which house prices tripled, and a two-year 20% adjustment cannot be the end of it by any means. That's not the way bubbles burst, especially one as huge as that. Gordon Brown is borrowing this year £3,000 for every man, woman and child in the country, so assuming gilt yields stay at 4%, that's £120 extra every inhabitant will have to pay in taxes for the next few decades just to service the debt for one year's excess spending, plus eventually pay off the principal. Figures like this cannot be good for the housing market or the economy as a whole in the long run.
13. crunchy said...
More bulls to date have committed suicide than bears and the numbers will keep rolling in I feel.
14. growler said...
The UK is prey at the moment. For 100%. Sterling is VERY cheap. Any UK asset is a target - especially central London property, UK held Art. Just look at the auctions. It's skewing the data so much, that our HP curves are lifting. The B of E will have to raise interest rates sooner - but "soon" means spring next year. Imagine that say France had it's own currency and that currency is called the Franco-Euro. Imagine that sterling buys you 2 franco-euros. People would be pouring in from OUTSIDE to snatch up what silverware there was - in the process pouring in more Franco-euros to pay for it all. It would happen regardless if the locals thought the prices were too high - since only for them would they perceive the high prices. Eventually, unless there is state intervention to stop the rot, the currency would inflate so that you had real asset flight. This point is what BofE needs to intercept, and to do this it will increase interest rates. The question isn't if, but when. And when - smugdog - is when you'll see another big downslip on asset values in the UK.
15. techieman said...
Smug - a couple of things to say really. A while back when we were in the depth of the downmove, alot of posters here were saying that we would have a straight line fall, there would be no bounce etc etc. At that time the bulls on this site had disappeared. I then postulated that it was possible we could have a dead cat bounce (partly in truth because the bulls had disappeared), and IF (i didnt say there would definitely be publicly although i thought privately about a 50/50 chance) that took hold it would take longer and go up more than most expected.
Co-incidentally that was about the same time i thought there would be a bottom in the stock markets. I disagreed with Financial Planner (Jonathan Davies) who said "time to buy" about a week (and a few hundred points before) the low. Fell free to take a look at the archive if you think im making that up. And is that relevant? Yes it is because there seems to be a correlation.
Anyway the point is that although people disagreed with me (re the DCB) on here, no-one told me i was a loser / bitter / [unfounded] optimist /f*cking idiot, which is the tone most of the bulls adopt when you put forward an opposite view to thier's. We also discussed on here the fact that i, along with Jack C thought that A&L and B&B [ME] would basically go under as well as NR but that i thought "that would be it" - which is arguable re the "real" banks i suppose.
To be fair to you Smug, your posts are not so aggressive, although from time to time there seems to be an underlying bit of p1ss taking going on. As i have said i welcome Bulls because the capitulation will be when the bulls are at their most bullish and are convinced the falls are behind us. Are we there yet?
Hmmmm of course thats the $64 trillion question - as yet i take my own council on that - i.e. im not sure we have one more bite before the rotten core is reached and we have to spit out the golden delicious or throw it up!
You could say that the only reason that we have not had further falls is because of the QE - but changing the rules is part of the game, so they clearly had to do something when the string pushing (zero base) didnt work. As a technician you assess the probabilities of the direction and extent of moves, not what makes em move. The question is have they really saved "the world" or just bought time? Of course to a man on here we think probably the latter, but there is - i for one concede - the possibility that you may be right that its the former. To say we KNOW its the latter is dogmatic to the point of arrogance, but then again so is KNOWING the opposite view.
Personally i have had a go at some of the bulls in the past because they have accused people on this site of having traits that are negative (at best). I dont agree. Some posters - i must say - have as much of a VI in falling prices as the bulls have in upward moves. Some have STR and some havent. Personally i dont think its right that any generation should be involved in transferring their (lack of) wealth to the previous, just to perpetuate some holy grail that HPs only ever rise. .
Thats just not right.
As Wiltshire says its very easy to go with the herd and be labelled some kind of "doomster" if you take an opposite view. Also its difficult to be right because most of the time the bulls are right.
Smug do keep posting though - if only because your posts allow the counter-arguments to be put in one thread.
16. smugdog said...
I’m so glad that we communicate at a distance. I seem to remember in the not so distant past, many an honest view was eventually met with a struggle on a dark night and the contributor ending up providing support for the latest autobahn.
However, I don’t believe that your little velvet lined gentleman’s club packs such a punch.
Wiltshire, chill a little, don’t let the complexities of modern living get you down.
Your window of opportunity came and went in the spring of 2009, and in my opinion, will not be repeated. We may well now have a stagnant market for a few years to come, but that gives many an opportunity to make a sensible and logical decision on how they choose to live. Your one way bet to Armageddon is at best fantasy, but thankfully, enough still believe that a positive and healthy attitude will make this land smile once more. You Wiltshire, may well remain twitching you net curtains for many more moons to come.
The Writer Sidonie Colette once so charmingly said,
"What a wonderful life I've had! I only wish I'd realized it sooner".
17. smugdog said...
Techie, I listen to your excellent views because they are put across so well. A gentleman I'm sure.
18. growler said...
Smugdog: I like your writing style...
I'm looking at it from peoples infinite capability to be stupid - as the Einstein quote. I'd add to this self-interest, "The grass is always greener".
I see it as this. Many discuss that the glass is half empty, some the glass is half full. An either or - and thus battle of evidence.
To use a horribly over-used analogy - we have an elephant in the room: I see it as we have too much glass for the amount of water.
It will take time to realise this - as you say this means stagnation "for a few years".
But because people are ultimately interested in Number 1, not number 10, the downward path will be unstable and subject to change. It only needs less-damaged countries to start increasing interest rates or these countries to present better income potential than the (historically unsustainably cheap) UK for large investment (that is causing a present boom in the UK) to move to better investment opportunities out of the UK. This will reveal "fair value" in the UK - which I think will be lower than it is now.
19. mountain goat said...
Smugdog you remind me of the vacuous best man's speech I heard this weekend, saying nothing about the groom but full of witty banter and playful character assassination gleaned from the internet. What's with all this "twitching the net curtains" wind up? Some times your writing suggests you have intelligence but mostly your posts smack of someone "with a great future behind him" who once had hope but now preferring to be cynical sniping at people from your keyboard in fear of being thumped down at the pub. Put some honest views across you are prepared to defend and you may get a bit of respect on here. No one benefits if we all think the same, but no one benefits from the petty provocation you sink to either.
20. techieman said...
Smug "enough still believe that a positive and healthy attitude will make this land smile once more". As i said i really dont think this site is frequented by people that are totally negative.
I think really thats ar5e about face.To want to live in a land where reasonable housing is affordable for all of its citizens, and doesnt become the focus of a life of blood and sweat should surely be the ideal. That wish doesnt make one negative. Sure it depends on a definition of "reasonable" which allows for differentiation between income classes (yes i am a capitalist!! - i cant be that much of a hypocryite).
I can sit here and smile personally because I have no axe to grind but find the subject quite interesting. Thinking prices will fall doesnt equate to being negative, it can be just an academic exercise. At the end of the day you pays your money and takes your choice.
If someone wants to buy a house because they dont care about it as an investment, can afford the repayments and it has a utility value beyond its financial cost then fair enough. Does that give that person a positive attitude? If i chose not to do that because the utility for me is not worth the cost does that make me a negative person? I would argue that i just have a different opinion, i can still enjoy the fruits of my labour and have a good time with friends and family without being dominated by rises and falls in markets - in actual fact i very rarely talk about this stuff outside here. This is my "fix" if you like!
I have to disagree with you there smug - as for your analysis that a window has gone - each "dog" has its day. Whose day is it / will it be though?
21. smugdog said...
I’m not a person of fanciful graphs and technical analysis, so I apologise for that Growler. But with 5 refurbishments sold to Oh so happy buyers this month, in a very healthy area of the market, I only see what my eyes tell me, for now.
I don’t “make” these people buy, but offer a lifestyle that they wish to believe in.
Once I’m done, and before the market stagnates once more (as I’m sure it will), I may be in a position to join your side of the battle field, who knows. But as Techie says, we adapt to the conditions that the powers decree, however strange and uncertain they seem.
Perhaps my views antagonise you and your club too much, and that I should refrain from posting.
I may change my spots in time, but I will not change my style, for anyone.
I leave you with your winter for now.
22. mark wadsworth said...
Dear All, for the dozenth time, QE is an irrelevance, it is all smoke and mirrors. Sure, worry about recklesss govt borrowing/spending, that's real money, but QE isn't.
It's the ridiculously low interest rates that caused the bubble (that and absence of new supply or Land Value Tax) and it's the ridiculously low interest rates that are keeping it inflated.
23. crunchy said...
Freedom is to be allowed to say the things that others dont want to hear.
George Orwell.
24. smugdog said...
Sorry Growler, mistake, wrong name@21!
Response to other.
25. This comment has been removed as it was found to be in breach of our Blog Policies.
26. chrisa said...
22. mark wadsworth said...
Dear All, for the dozenth time, QE is an irrelevance, it is all smoke and mirrors. Sure, worry about recklesss govt borrowing/spending, that's real money, but QE isn't.
What? The government borrowing is being enabled by QE. They are printing the money they would otherwise have to borrow from overseas etc and buying their own debt with it. Like an animal eating itself. Hardly irrelevant.
27. mountain goat said...
Chrisa - I agree with MW. As I understand it QE prints money which is given out in return for government bonds held at BoE. It is a form of lending with the collateral (government bonds) being safer than the cash itself, because it is backed by the government whereas cash is backed by nothing. QE increases liquidity but it isn't printing money from air Zimbabwe style. The QE money can be leveraged by banks to drive up asset and stock market prices, maybe even write a few mortgages to the few solvent customers left. The assets at bubble prices will no doubt be sold before the music stops, leaving the little guys who bought the trend empty handed.