Monday, Jan 11, 2010
Shares and housing to fall 80%.
This is money: Get out of shares says prophet of doom IFA.
David Kauders, UK investment manager, believes we haven't seen anything yet. Shares and housing in thhe UK could fall by 80%.
Posted by will @ 02:09 AM (2932 views) Add Comment
35 Comments
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1. taffee said...
seems sensible chap and everything said seems logical
2. hpwatcher said...
Lots of people seem to be warning of collpse in shares, housing, price of gold and now even the dollar.....surely not everything can collapse?
3. Dilsummers said...
#2
No, it is not logically possible for everything to collapse.
Any asset can only be valued in terms of another asset. Therefore imagine all assets except one (say the seashell) collapsing in value by 99% against the seashell. If the seashell than "collapses by 99%" (IE all other assets rise by 99% against it), you're back where you started.
Therefore any collapse of "every asset" is not a collapse at all, and has no effect at all if they all collapse equally.
4. mark wadsworth said...
HPW, while not all currencies can collapse simultaneously, it is quite possible for shares to fall 80% in a short or a long period, and there's no reason why UK and European house prices, having doubled in 'value' over 9 years shouldn't halve. I doubt that they will ("whatever it takes!"), but the monetary value ascribed to them is fairly meaningless, as it's the same houses with the same people in them as it was 9 years ago.
The other half of the equation is household debt - whether people can service their debts has a lot to do with their incomes and little to do with the 'value' of the house it is secured on.
5. quiet guy said...
We've already seen our government throw everything and the kitchen sink to support property prices so does Kauders trust the government not to risk high inflation? Gilts could turn out to be an awful place to park your cash in the scenario he describes (and that's assuming the government doesn't make an Argentinian style grab of people's savings.)
6. hpwatcher said...
HPW, while not all currencies can collapse simultaneously, it is quite possible for shares to fall 80% in a short or a long period, and there's no reason why UK and European house prices, having doubled in 'value' over 9 years shouldn't halve.
Yes, I agree that currencies and house prices could collapse, but in my post I was referring to a simultaneous collapse of currencies, commodities, share prices etc.
7. techieman said...
"Most City traders predict gilts will fall in value, due to a combination of the UK's parlous financial state and the expected end of the Bank of England's 'quantitative easing' policy of pumping money into the economy." Yes - see no mention of inflation there!
As for not everything falling together (and that depends on what currency you are talking about) then yes everything (ex some currencies) can fall together - what's that called again??
Yes bears are always pretty marginalised because they hardly ever get the timing spot on. Its really difficult to call a market turn and these warnings will be forgotten since the market continues to rise. The bears look stupid and those that are short are getting mullered.
BTW gold reached the high prob target of 1150 this am, 1159 as i write. As for more upside, thats a more difficult - lower probability call.
8. mark wadsworth said...
@ quiet guy, techie, I just don't think we can have high inflation any more - that only works in closed economies with currency controls (Weimar, Zim, UK pre-1979). In the absense of currency controls, money the govt prints just leaks abroad (see Japan). But of course I may be wildly wrong on this.
9. techieman said...
Preaching to the converted here MW - but perhaps not for the same reasons.
10. ontheotherhand said...
MW - America can print faster than their own GDP growth because USD is a global reserve currency. i.e. if growth in Saudi or Indonesia or even the drgus trade means more dollars are needed, then they can print without inflation. It is a very valuable privilege. The UK has a far smaller appetite for foreign buyers as a reserve and there is certainly no growth in their requirements for sterling in the near future. The 'goldilocks' conditions of the last decade of strong pound making cheap Chinese imports even cheaper whilst credit growth exploded has gone.
11. mark wadsworth said...
OTOH, let's assume the UK govt prints money like topsey and runs up huge debts (oh! it is doing so!). You've got to remember that the money doesn't just disappear - some bank, quangocrat, consultant, construction company etc is banking that money. Now, above and beyond day to day spending, what are they going to invest in? Not in the UK, that's for sure, so what we end up with is
a) UK taxpayers have large future liability.
b) Beneficiaries of govt largesse own overseas assets (or have reduced overseas liabilities).
I fail to see how either of those increases UK money supply ergo do not lead to price inflation. Sure, sterling might fall further, but that's largely self cancelling, a ten per cent drop in sterling leads to one per cent inflation or something.
12. ontheotherhand said...
MW, I'm a bit lost. @7 "I just don't think we can have high inflation any more" @10 "I fail to see how either of those increases UK money supply ergo do not lead to price inflation"
13. techieman said...
otoh - yes i think MW got a bit muddled up - i was going to comment myself. I think "I fail to see how either of those increases UK money supply ergo do not lead to price inflation" - should read
"I fail to see how either of those increases (in) UK money supply ergo lead to price inflation" the curse of the double negative! We have all done it!
Otherwise his last sentence doesnt follow. Is that right Mark??
14. mark wadsworth said...
OTOH, maybe I worded that badly. I meant to say:
"I fail to see how either of those increases UK money supply and therefore I fail to see how they can lead to price inflation"
15. techieman said...
btw - just to record it, i am looking to get in a FTSE short, erm shortly. The level of 5600 was hit this am, it has now come off to 5550. I am hoping to short a retracement - which will give a relatively small risk at around 5570 - if it doesnt breach 5550 again to the downside first ( if it does the entry just gets adjusted).
This is the first short entry on the FTSE for months - and of course it may be a losing position (its high risk) so its going to be toe-dipping, and then look to see what them damn yankees do. If i get stopped out - high probability to be honest - then i will be looking to re-short.
16. Mark Wadsworth said...
@ techie let me rephrase this again ("I fail to see how either of those increases (in) UK money supply ergo lead to price inflation")
What I meant to say was ...
"I fail to see how higher taxpayer liabilities or higher investment abroad lead to an increase in UK money supply. Therefore I fail to see how higher taxpayer liabilities or higher investment abroad lead to domestic inflation"
17. quiet guy said...
Mark Wadsworth,
"what are they going to invest in? Not in the UK, that's for sure"
If I'm understanding you correctly, you're asserting that government expenditure tends to flow abroad (and implicitly stay abroad.) That seems like a pretty rose tinted view of things to me. More specifically:
A lot of spending is in the form of wages to ordinary people who don't invest abroad e.g. NHS.
As our currency devalues, it will have less purchasing power abroad so people might spend and invest less abroad e.g. forgoing holidays in Europe due to the relatively poor exchange rate with the Euro compared to a year ago.
If it were really true that UK plc could print pounds and export the associated inflation, the UK would be rich but it doesn't look that way from where I'm sitting. The next governemnt has plenty of incentive to let inflation rip.
18. mark wadsworth said...
QG, "you're asserting that government expenditure tends to flow abroad (and implicitly stay abroad)"
There's not really such a thing as "government spending". The money is just churned from productive economy to unproductive (I will count healthcare as productive for these purposes). If the govt just spent money on useful stuff then it would be spending a third less.
When governments run up debt, then as a general rule, they are paying for things of little value, i.e. doctors get a 100% pay rise. All that money sloshes round and round (some doctors do indeed spend every penny so somebody else gets it), but ultimately money will go to where it gets the best returns. It may plausibly be that the best place for returns is UK government bonds. So really government debt is then just accrued doctors' inflated salaries, the same as public sector pensions liabilities.
I don't see how you could argue that e.g. the £1 trillion public sector future pensions liability will lead to inflation, it is just money that will change hands in future. Muggins ordinary taxpayer has less disposable income and public sector fat cats have more disposable income.
19. mountain goat said...
Too risky for me, but China's stock market looks interesting.
The China Bubble Is Ready to Pop
20. quiet guy said...
Mark Wadsworth,
I suppose my inflationist tendencies are showing here but I found your example of the "£1 trillion public sector future pensions liability" a particularly odd choice. According to the Telegraph, these liabilities will require an extra 15p on the basic rate of income tax to collect sufficient revenue.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6771822/Taxpayers-face-2-trillion-unfunded-pensions-liability.html
Are you willing to pay that for bloated public sector pensions? I'm not. I'd rather emigrate. This is a recipe for riots. Can't pay! Won't pay!
Something has to give - either the government scales back the extent of its commitments or they print the money.
Perhaps I should ask a different question: do you beleive that we won't experience inflation over the next decade or perhaps you also expect inflation but think I'm using wrong arguments?
21. letthemfall said...
mark w:"There's not really such a thing as "government spending". The money is just churned from productive economy to unproductive (I will count healthcare as productive for these purposes). If the govt just spent money on useful stuff then it would be spending a third less.
When governments run up debt, then as a general rule, they are paying for things of little value, i.e. doctors get a 100% pay rise"
Pretty sweeping to call the public sector (excepting NHS) unproductive. You may as well say that a big slice of the private sector is unproductive. I suppose you're right about govt spending: really it is our spending, executed on our behalf by govt. We have to pay for the services we get from public sector, and for the most part we wouldn't want to do without them. The doctors' pay rise was pretty huge; whether it was deserved is a matter of opinion I suppose; there are those who think it a cockup over contracts.
22. mark wadsworth said...
QG, I never said the £1 trillion public sector pensions deficit was a good thing, I was just using it as an example.
But remember that there is no fundamental difference between printing £1 trillion in new notes and handing them to public sector workers or borrowing £1 trillion in bonds, or even for that matter leaving it unfunded and having a 15% tax hike in future.
Bank notes are just small denomination, non-interest bearing government debts. That rush of money would mainly be used to pay off mortgages (so collapse debt bubble) or to pay off tax liabilities (so returning the money straight back whence it came). And what's left over would be converted to foreign currency and invested abroad.
23. mark wadsworth said...
LTF, we've had this discussion before. The facts and figures show that only about a quarter of taxpayer funded jobs are something useful (teachers, nurses, doctors, coppers, armed forces, streetsweepers, social workers etc). And even in things that are ostensibly productive (in particular education and health) that waste and bureacracy and nannying uses a third of the budget (so it's terrible value).
If the government only spent money on things that people really value (some of which they'd happily be able to pay for themselves if taxes were lower, like education), it would only spend a third as much as it does now, that is a mathematical fact. Plus as much again on welfare and pensions (which is fair enough by me, it's the means testing and complications in the welfare system that bother me, not the redistribution as such).
And yes of course there is waste in private sector, so what? I'm not forced to pay for it.
24. techieman said...
MG - its funny really. I looked for the FTSE 100 target of 5600 myself this am. A 5th wave up on the hourlies with the right look about it. I actually managed to get some away at 5568 on the pullback from this am's lows (see my post @ 14.) . Currently wallowing in picking the high of the retracement from this am's lows. [generally a bad sign!]
Anyway i cant be sure that this 5600 is THE top of the bear move back BUT i then took a look (after the trade) at Mr, Daneric. Just out of interest. Here is what he said:
http://danericselliottwaves.blogspot.com/2010/01/monday-11-january-charts.html
"... Also FTSE 100 hit 5600 today just as this chart predicted. Keeping an eye on a potential apex turnaround.
Is there anyone left on the bearish side? Do I stand alone thinking we are going to top or even crash early this week? I think we have all seen a significant change of sentiment to the bullish. How long it lasts is why we count waves and track other sentiment-related data. And both suggest we will top this week, maybe even today.
The FTSE chart below shows a triangle. That pattern indicates a final pattern. Its at target today. Also the apex point typically marks a turn."
I am not clever enough to put the chart here like you are - could you do the honours?
http://4.bp.blogspot.com/_TwUS3GyHKsQ/S0r_l-XAgxI/AAAAAAAADgc/sqadHNcjqco/s1600-h/ftse.png
more confirmation if this closes below the upper trendline - which is where we found support earlier today at around 5535.
After that we need some follow through tomorrow for more confirmation. Either way there wont be too much pain if we haven't had the top.
By the way liked yr table the other day.
25. techieman said...
LTF : Mark's comment "And yes of course there is waste in private sector, so what? I'm not forced to pay for it."
Resonates with me....... i think we both know why! Dont know if you saw my final post on that text... i thought the quote was quite apt..
Blimey im starting to sound like smugdog!
26. letthemfall said...
mark w:
Indeed we have, many times, but I still don't know where these facts and figures come from that demonstrate the waste, bureaucracy, etc. Point me to them.
"And yes of course there is waste in private sector, so what? I'm not forced to pay for it."
Only if you don't buy anything.
27. mountain goat said...
TM here you go. Will comment more if I have any thoughts..
28. mountain goat said...
Didn't work sorry, sometimes other sites block pics.
29. techieman said...
ok - MG - am watching the close... nip and tuck at that level at the moment. Bit of a tussle going on methinks. Thanks for trying anyway.
30. little professor said...
31. mountain goat said...
TM - looks good for you so far, hope you got the top! Selling some more silver myself, got a better bounce than gold off the high especially in GBP.
32. techieman said...
MG - was a little disappointed with the close to be honest - as i said it all depends on what those Americans are going to do. i think it may well be an interesting week.
33. paranoia blue said...
I’m short from 5594.8, the Yanks appear to want to be still be a trifle “silly-billy,” yet again.
However we must be quite close to this fabricate zenith! There may be a bit more, but it has definitely stalled the last few “weaks.”
The massive “nadir-return” is looming by the day. ATB
34. Mark Wadsworth said...
LTF: "I still don't know where these facts and figures come from that demonstrate the waste, bureaucracy, etc. Point me to them."
You google "teachers UK" and click about and then write down the number, then you google "NHS employment" and click about and then write down the number of non-bureaucrats and then google "social workers UK" and then click about and then write down the number and keep going until you run out of job descriptions, and then you add up the numbers and I challenge you to get anywhere near two million :)
35. techieman said...
PB - that was a bit brave! The only place you could have done that was around 9am, so you must have been selling into strength. Or sold just after the top, either way its an impressive trade. Congrats.
And i thought i was clever selling the high of the retracement! Good thats made me feel much better.