Wednesday, Mar 17, 2010
Burning our money (part 94)
City AM: Double dip recession a real possibility, say property firms
Property investment managers and developers have warned that the threat of a double dip recession in the UK is real and would force banks to sell off their property portfolios. Delegates at MIPIM, Europe’s largest property fair, said the UK has survived on government aid since the recession and that a cut in spending could expose the underlying weaknesses of the property market. The Homes and Communities Agency has spent £1.65bn on keeping private sector building projects afloat over the past two years. “Since the recession all new housing projects have been subsidised by the government,” said Robert Lee, partner at the real estate law firm Davies Arnold Cooper. “What happens when this is cut?”
Posted by mark wadsworth @ 10:27 AM (4158 views) Add Comment
161 Comments
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1. mountain goat said...
As an investment property looks more vulnerable to the economy than ever.
If we get a double dip recession unemployment rises further and IR can't go any lower. Looks bad for property.
If the economy recovers, IR will rise, which spells trouble for over-leveraged households making their mortgage payments only thanks to amazingly low IR.
Heads you lose, tails you lose.
2. ant said...
It is nonsense to talk about double dip recession. If you read http://gregpytel.blogspot.com/2009/12/pyramid-collapse-is-about-to-resume.html, you will understand why.
3. tpbeta said...
..and if you don't read it Ant will set fire to your house.
4. ant said...
@tpbeta: you must be a sad and deeply troubled person (with loads of hang-ups and envy).
5. tpbeta said...
Yes I must be if I mock the great messiah Pytel and his one true herald Ant the Baptist I shall burn in hell.
6. tudorian said...
Interesting and conflicting news today ... again !
It seems that house price rises are stalling as more orders to sell are received .... apparently it's a buyers market now, and this article outlines the risk for the banks and the wider economy as these assets drop in price.
Petrol prices are set to soar
Elsewhere
unemployment has fallen ("further fall" says the BBC)
We've started paying off our mountain of credit card debt.
I'm guessing that much like the contrary reports of calm weather experienced in the eye of a storm, we cant pay too much attention to any single piece of economic
propagandanews reported at the moment.For what its worth, I still believe that worst is yet to come ... I'm still watching the bond market for early signs of weakness
7. ant said...
a) you do not mock (you do not appear to be intelligent enough to be capable of mocking);
b) ... in this rather silly and irrelevant parallel you took a role of pharisee
(the parallel is silly and inadequate as "great messiahs" and their "Baptists" are all the financial journalists, analysts and pundits in the mainstream media. but for some reason you do not "mock" them)
8. Mike said...
"The Homes and Communities Agency has spent £1.65bn on keeping private sector building projects afloat over the past two years."
Oh my g@d. So much 'public' money has been pouring into a sick scheme to keep 'private' companies afloat. This is scandalous. It's about time they spent the money on better things.
As for “Property companies are equity poor and need to look elsewhere for funding”, we should be telling them to get lost and raise their own funds or go bust if they can't. Hardly any other industries get this kind of support.
9. smugdog said...
Agreed Tudorian,
In the same report "The number of unemployed people in Britain dropped to 2.45 million, however the good news was dampened by the number of people out of the workplace hitting a RECORD HIGH!"
Priceless!
10. mountain goat said...
Tudorian - unfortunately I think you are right about the eye of the storm. I say "unfortunately", because I wish we could get out of this debt and asset-price bubble our economy is in without a recession and job losses.
11. str 2007 said...
tudorian
Yes, I can't quite believe the answer to all the problems was 'print more money' and 'drop interest rates through the floor'.
There must be further complications to this relatively basic solution.
I'm not quite sure how they'll manifest themselves, it does appear (round here anyway, South Hampshire) that stocking up on houses would be a good idea.
12. uncle tom said...
mg is essentially right.
One can argue about the fine detail, but the fundamentals are plain to see:
1) Governments around the world are borrowing, and borrowing very heavily.
2) The sum total of this borrowing clearly exceeds the sum total of saving by a massive degree.
3) The gap between saving and borrowing will be made up by the creation of new money.
4) Sustainable economic growth in the developed world is grinding to a halt, as the percentage of retirees increases, and the scope for new technologies to enable us to achieve more for the same effort is clearly in decline.
5) As the developing world prospers, so their products will cost more, and the cost of basic commodities will rise.
6) The combination of developed nations devaluing their currencies while the real cost of commodities and hitherto cheap manufactured goods rises, will present huge inflationary pressures on the developed nations.
7) With inflation will come higher interest rates. If governments try to keep interest rates down by further money creation, the upshot will be hyper inflation.
8) Higher interest rates are therefore inevitable, and with so many elements of the UK economy dependant on cheap finance, it is also inevitable that we will see a second, and probably more severe recession, before any stability can be achieved.
13. dbc reed said...
This quote from the original article is startling:"The Homes and Communities Agency has spent 1.65 bn quid
keeping private sector building projects afloat over the past two years."
14. mark wadsworth said...
DBC, I knew you'd like that one. Hence my chosen title for this post.
15. tpbeta said...
@ant No the mainstream media are the Romans. Romanes eunt domus
16. str 2007 said...
Uncle Tom
Is it yor opinion that if they'd kept interest rates up and accepted a recession and asset price fall (particularly property) and then reduced interet rates once said assets had returned to a 'normal' level we'd now be in a stronger position for recovery ?
From my point of view I can't bring myself to invest in my business and start employing people until such time as I've seen the due recession.
I see a postponement as a further reason to be bearish.
If we'd seen house prices down 30% from peak (all indecise) and the stock market starting to pick up from it's lows I'd be quite bullish now.
17. ant said...
@tpbeta: mainstream media are simply dense:-) This is why your parallel is vacuous.
18. mander said...
"the threat of a double dip recession in the UK is real and would force banks to sell off their property portfolios" What would be the reason for banks to keep properties if not manipulating the market? Property investors/developers are too affraid that the housing shortage myth is going to disapear soon.
19. mountain goat said...
UT - welcome back!
Agree with your points. Just question your point 4 about new technologies not coming on stream. I work in the area of genomic sequencing which is developing at a mad rate. The output of these machines is increasing faster than Moore's Law (doubling every two years). The technological implications for this are going to be significant in agriculture, medicine and biotechnologies.
20. uncle tom said...
str 2007,
There is the tale of the man who is lost in the countryside, and asks a local for directions..
"..well, sir," the local says, "if you want to go there, you don't want to start here.."
Essentially, there is no easy way out of this mess, and I'm sure people will be debating in decades to come whether the delaying tactics and mitigating measures were better than a big bang approach.
I'm inclined to think that a 'big bang' would be better overall than the current slow grind down. If interest rates had been kept firm, with no QE, we would now have seen a full correction in asset values, and would be able to move on. As it is, we have a wretched legacy of consequences to sit out over the years to come.
21. uncle tom said...
mg,
Thankyou!
Medicine is the one remaining area of technology that is still really hot and exciting, but it doesn't actually do an awful lot for GDP growth.
At best, sustainable per capita GDP growth in the UK is down to around 1% p.a. or less now, and if people keep retiring as they envisage, that will be all but wiped out.
22. tpbeta said...
@ant What, all of it? John Craven? Newsnight? Wall St Journal? The Guardian. Alphaville. Channel 4. All dismissed as dense?
23. tenant super said...
Yep, bio-medical technologies are still being well-funded. Areas that I think are going to grow massively are nootropics, genetic agricultural technologies and nano-technology. There's been a lot of alliance this decade between biotech research outfits, universities and pharmaceutical companies. Pharma companies are still highly profitable.
However, I don't think it will help the UK much as we're not producing the right calibre of graduate any more and the few we do have are going abroad. Mandelson's cuts will only compund this problem. Most of my contemporaries who stayed working in science have gone abroad (Sweden, Switzerland and France being common destinations). My little brother graduates from Imperial next year (theoretical physics) and is toying between the options of looking for a domestic job in Finance or joining his Chemistry graduate girlfriend in France and looking for a job in the nuclear power industry.
24. timmy t said...
Uncle Tom, fully agree with your sequence of events in post 11... would you care to estimate a timescale for us getting to point 8?
25. uncle tom said...
timmy,
The devil is in the timing. If there are no upsets, it could take a tiresomely long time, but the chances of that are small..
26. icarus said...
Technology and economic progress?
The following is a broad introduction to an article at http://www.cooperativeindividualism.org/hudson-michael_the_rentier_economy.html
Suppose someone at the end of World War II in 1945 had been informed of the remarkable technological breakthroughs that have occurred over the past 60 years - the advances in medicine and pharmaceuticals, genetics, air and even space travel, communications, computers and information processing, atomic power, and a better ecological understanding of how our planet works. The expectation would have been for a leisure economy in which citizens could devote themselves to better educational and cultural pursuits. At least, this was what futurists promised, decade after decade as they looked at the great potential of technological progress. The question is, why haven't these rosy pictures materialised? Why are employees working longer than ever before, with many couples holding three jobs between them?
The answer is 'economic rent' - monopolists raking off economic surplus and diverting it away from production. We often talk of land-rent and the finance sector in this regard but there is another major grabber of economic rent; much of what passes for industrial profits actually consists of monopoly rent and "intellectual property rights." These rents are highest in areas where productivity and technological breakthroughs since World War II have been largest and were expected to bring society the greatest benefits..........(read on)
27. ant said...
@tpbeta: definitely below the average standard of people I mix with. I follow them not in order to learn anything (or anything new), as it is pretty much shallow, but to know what the general sort of crap the public is fed with.
28. icarus said...
Sorry, make that http://www.cooperativeindividualism.org/hudson-michael_the-rentier-economy.html
29. 51ck-6-51x said...
Icarus,
Your link didn't work but found it at http://www.cooperativeindividualism.org/hudson-michael_the-rentier-economy.html
30. mountain goat said...
tenant super - I feel the UK is doing very well at this genomics technology. For example, the Sanger Centre in Hinxton is a key part of the 1000 Genome Project, which is blazing the trail in terms of data management, analysis and standards.
uncle tom - yes, medicine should be a good area for a few decades as the boomers retire and spend their wealth on care. Industries producing treatments and diagnostics for this generation should do well.
Although massive developments have happened in agriculture, for example broiler chickens maturing in 42 days from 90 days in the 1970's I think there is a lot more to come.
31. ant said...
@tpbeta: ask any of these guys to calculate on the spot a, say, eleven days interest on the basis of annual one and I bet that they will not be able to:-) Maybe not exactly ALL people in the mainstream media (ALL is always a very dangerous word) but a massive proportion of them are a bunch of self-publicists that write things of little or no merit that sells. Since the public at large (again not ALL) are thick that sets the standards.
32. tenant super said...
I agree Mountain Goat... I used to work on the journal Genome Biology (genomebiology.com) and I still read it from time to time. We are also leading the field in stem cell research. Having seen so many other areas of technology decline in this country I am just wondering if we will be able to preserve our lead in these areas.
33. rumble said...
[way off-topic] MG, "broiler chickens maturing in 42 days from 90 days in the 1970" -- aren't those things seriously defunct? And what's the eta for chickens being replaced by blocks of mindless meat? Minimal neural system, no limbs, no feathers, no head, hole at the top for feed, hole at the bottom for waste, a meaty sack of organs in neat rows on shelves, no wasted energy on clucking and hopping, no animal rights issues. Who are the leaders in genetic engineering? Enough of this cloning nonsense.
34. tenant super said...
"Minimal neural system, no limbs, no feathers, no head, hole at the top for feed, hole at the bottom for waste, a meaty sack of organs in neat rows on shelves, no wasted energy on clucking and hopping"
I think this arose from the urban myth that "Kentucky Fried Chicken has become KFC because they do not use real chickens. They actually use genetically manipulated organisms. These so called "chickens" are kept alive by tubes inserted into their bodies to pump blood and nutrients throughout their structure. They have no beaks, no feathers, and no feet. Their bone structure is dramatically shrunk to get more meat out of them. This is great for KFC because they do not have to pay so much for their production costs. There is no more plucking of the feathers or the removal of the beaks and feet. The government has told them to change all of their menus so they do not say chicken anywhere."
If you believe this you may as well forward your bank details to Mr. Adeyemi in Nigeria so he can transfer $1,500,000 into your bank account.
35. mountain goat said...
Rumble- yes you are talking to the converted, I prefer vegetarian and to grow my own on my allotment. Just saying that technological advances are taking place making agriculture more efficient, rather than this is good or not. But at the end of the day when buying food I do look at the price and with population growth, greater efficiency and productivity is probably on balance a good thing.
36. rumble said...
TS, I know nothing of that kfc story, and am not aware of current genetic engineering being anything more than quaint. Moving onto the fun future, isn't this the obvious future for "chickens"? And beef, etc? Why have unmanageable, inefficient creatures when genetic engineering will surely eventually be capable of more than bioluminescent pigs?
MG, not trying to convert, asking - when do we get to see some extreme biology?
37. mountain goat said...
Rumble - extreme biology is here now and fairly easy to do, but fortunately in this country there are ethical panels screening any experiments that can be done on animals. There needs to be a good (usually medical) reason to do any genetic modifications to animals before you are given approval, and animal welfare is weighed up against the importance of the research. The amazing developments in broiler chicken growth rate I mentioned were of course achieved through selective breeding. This has been going on since domestication thousands of years ago, but is now a science in its own right. Although selective breeding seems old-school the results are clearly as dramatic as can be achieved by genetic engineering.
38. rumble said...
Eliminating the brain presumably removes the animal classification - I've not heard of insect rights groups so a lack of a concentration in the nervous system might be sufficient to sustain the organism without it being an animal. I've read that the digestive system has so many nerves that it is referred to as the second brain. Well, you have your homework - I want to see the headline: Mountain Goat produces Brainless Non-Sentient Chickens. Bring on the flying pigs. And massive petri dishes of bacteria producing whale meat - will spare greenpeace their primitive confrontations. I know this has been done for silk production among other things, but industrial scale whale meat production might quieten a few people. I'll get back to you with more ideas after I've seen 3D Alice in Wonderland.
39. hpwatcher said...
If interest rates had been kept firm, with no QE, we would now have seen a full correction in asset values, and would be able to move on.
Amen to that.
40. tenyearstogetmymoneyback said...
Very interesting thread guys, which provides a partial answer to something I was thinking about on Monday after one of the threads.
I am convinced that the housing bubble won't pop and deflate unless there is an alternative for the money to go over to. If people can be
convinced that Genomics is the next big investment and they will double their money in a year then it will become a self fulfilling
prophecy. As an added bonus all you guys working on it will become Multi-millionaires. The precedent has already been set back in
1997 1999. Just don't mention the technology word. Get it right and there will be a queue of buy to letters wanting to sell up and
invest in the latest fad.
41. mick rupert said...
@ tenyearstogetmymoneyback (40)
"If people can be convinced that Genomics is the next big investment and they will double their money in a year"
Care to back that up with any examples of current companies that you would "tip"?
42. tyrellcorporation said...
Scientists are actually extremely close to growing muscle tissue - it's already been done in small quantities.
http://www.telegraph.co.uk/foodanddrink/6684854/Scientists-grow-meat-in-laboratory.html
They need to artificially exercise the tissue though - maybe strap it to GBs flapping jowels, they never seem to stop moving!
43. crash bandicoot said...
Can you grow a money tree with genetic engineering? Maybe our government know that we are close to achieving this. Now it all becomes clear...
44. hpwatcher said...
the housing bubble won't pop and deflate unless there is an alternative for the money to go over to
What about doing the things that people used to do - like start a business. That's why house prices should crash, so the money is diverted into business and real wealth creation.
45. rumble said...
Organic houses. Plant one seed in a plot, and water until the size suits. Rooms will be laid out in fibonacci sequence. (I think this is best done as a plant, rather than an animal.)
46. braindeed said...
tyrellcorporation @42 said...
Scientists are actually extremely close to growing muscle tissue - it's already been done in small quantities.
http://www.telegraph.co.uk/foodanddrink/6684854/Scientists-grow-meat-in-laboratory.html
They need to artificially exercise the tissue though - maybe strap it to GBs flapping jowels, they never seem to stop moving!
Or you could stick it to Davys sphincter Eldon, as he delivers his next bare @rsed snake-oil pitch....or your braincell as it thinks up another contorted connection between an old movie and a swipe at the beloved Broon.
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