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Crash Buyer

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  1. It depends on whether you are looking at the national house price indices or the price of an actual house. Previous posters on this site have mentioned that their houses fell by over 30% in the last crash, but the Halifax and Nationwide indices did not show anywhere near those declines. Another factor is that in a deflationary market, buyers stay out as their purchasing power increases over time. Therefore to get the market moving, sellers need to drop prices sufficiently that the threat of further deflation is removed or sharply reduced. Of course this will take some time to play out, but my expectation is that the bulk of the 50%+ declines that I expect will occur in 2008 and 2009 (actual house prices, not the indices).
  2. I don't see how high commodity prices can survive a recession in the US and other OECD nations. The oil market is very sensitive to any potentially relevant news at the moment - Nigeria rebels, Iraq, Iran, Venezuela, US inventories, OPEC announcements. The US is on the brink of recession and commodity prices will fall very quickly once the penny drops. Therefore I disagree with your conclusions, IMO we are edging closer to the collapse of the primary commodity bubble. First I expect stagflation resulting in recession, then deflation.
  3. I agree with your general comments on Asia, but BP historical data suggests that US oil consumption does fall significantly in a recession (1973 to 1975 -6%, 1979 to 1982 -17% and 1989 to 1991 -4%). The US still accounted for 25% of world demand in 2005 and oil markets still react heavily to news of changes in US inventories above all other countries. The following countries were the largest oil consumers in 2005 (from BP). The US is increasingly trying to blame China and India for rising consumption whilst downplaying its massive oil consumption volume and per capita inefficiency. Oil consumption (millions of barrels per day) USA 20.655 China 6.988 Japan 5.36 Russia 2.753 Germany 2.586 India 2.485 S Korea 2.308 Canada 2.241 I agree with stagflation in the short term and that incremental oil demand arises mostly from rising prosperity in Asia, but the data shows that OECD nations still account for the largest share of total demand. The Chinese economy (and oil demand) will also suffer from lower exports to OECD nations. Other countries like India might be better insulated from an OECD downturn.
  4. IMO commodities are in a bubble which is common at this stage of the economic cycle (Barber boom etc). Once the US is in recession, the bubble will burst. Commodity bubbles usually result from demand rising simultaneouslyacross large economies - once that demand falls, commodity prices will crash. I know peak oil fans won't like it but that's my prediction.
  5. I am expecting stagflation followed by deflation. The stagflation is already underway. Interesting post. My opinion (medium term) - Essentials - many will fall when the commodity bubble bursts (petrol, heating, some foods) others will increase (especially taxes, insurance) Big ticket items - significant deflation as usual during a recession (consumer durables) Small ticket items - deflation (commodity bubble and recession effects) Wages & rents - nominal increases for wages (1-2%), corporate profits down (i.e. losses for banks etc).
  6. Full VI 2008 report available at the link below. Good news for bears and should be another small step to keep sentiment heading in the right direction. Without the prospect of capital gains, BTL will lose its shine very quickly. http://www.nationwide.co.uk/hpi/historical/Forecast_2008.pdf Nationwide 2008 Price growth (%) Scotland 4 Outer South East 1 Outer Metropolitan 1 London 1 East Anglia 0 West Midlands 0 East Midlands 0 UK 0 Yorkshire & Humberside -1 Wales -1 South West -1 North West -2 North -2 Northern Ireland -5
  7. I would agree that prices will fall by at least 50% and probably more. However, it should be possible to buy individual properties cheap earlier than the index shows, as the index is only an average.
  8. I agree that stagflation is the real world and people are already paying the price. However CPI is 'Treasury-world' and I would not be surprised by any strange movements, because it does not reflect the cost of living. Last July, the Treasury effectively "reset" CPI by introducing a MoM fall of around 0.6% (the July MoM for the previous two years, when inflation was less of a problem, was zero). This had no basis in reality and reduced the YoY figure from 2.4% to 1.9%. The same could happen again (the basket change in January is the most likely date for the next "reset"). These "resets" are in addition to the normal built in monthly fiddles.
  9. The Bank of England may want a precautionary cut in rates, like in 2001 or 2005, but the latest Inflation Report does not make the case for a rate cut immediately. The assumption made using market rates is that a 0.25% rate cut early in 2008 will be followed by another cut later in the year. Based on past experience, the Inflation Report is only good at predicting CPI trends for the next few months, not over two years. Over the next six months, unsurprisingly the trend is up. The BoE expects an increase in CPI to 2.2% but November CPI figures suggest this is already an underestimate. However, CPI will be adjusted to show what is required - a small increase in inflation to keep the sheeple happy that inflation is rising, but only a bit, so there is no need for concern.
  10. I agree that council tax is a better barometer of actual inflation than the official stats. The majority of household spending is accounted for by food, housing and transport. Food inflation is currently running at around 10%, depending who you ask. Housing costs are up for those on variable mortgage rates or fixed resets, not to mention council tax, fuel bills etc. Transport costs are rising fast, with the average petrol price is now over £1 per litre. So inflation is under control and on target. Democracy is an illusion, choice is effectively restricted to NuLab or Conservatives (both right-wing Thatcherite parties), or in the US, Republicans or Democrats (two even more extremist right wing parties). The choice is no choice at all. NuLab immediately steal Tory policies to eliminiate choice. NuLab gained 35% of the vote at the last election (around 20% of the electorate) and were rewarded by a working majority. Is that democracy?
  11. Great graph! The Halifax reduction from 12% to 7% in just a few months also looks promising. They are the seasonally adjusted figures, which raises the question of why Halifax think its valid to smooth them using quarterly data. Also, perhaps December may be better than last year (using seasonally adjusted anyway). However, I'm hoping this trend will filter through to the sheeple by the new year. I got the same numbers that you did on a monthly basis (see my previous post). Interesting that the quarterly smoothing won't buy them much time, but at least the downturn will look like a nice straight line.
  12. Correct, but the overall effect is to smooth the data, which is probably designed to make trends appear less erratic than they really are. The Halifax MoM figures a year ago were Nov 1.7 Dec -0.9 Jan 1.4 Feb 1.9 Mar 1.2 If we assume further -0.5% MoM, the YoY result would be as follows Nov 2007 4.5 Dec 2007 4.9 Jan 2008 2.9 Feb 2008 0.5 Mar 2008 -1.1 Of course I'm not saying we will have -0.5% each month, but this type of trend is what Halifax mean when they say HPI will slow (although the press releases are based on the 'official' smoothed quarterly figures).
  13. Jason, you're right - I've corrected the data in my original post. (in Homer voice) "damned seasonal adjustments!"
  14. Halifax derive their annualised HPI data from quarterly figures “to reduce volatility”. Using the monthly data from the Halifax website, seasonally adjusted HPI calculated using monthly prices is now 6.8%. This has slowed rapidly from a 2007 peak of 11.9% in July. Month Halifax HPI % Jan 10.5 Feb 11.1 Mar 11.3 Apr 10.1 May 10.2 Jun 11.5 Jul 11.9 Aug 11.0 Sep 9.1 Oct 6.8 <a href="http://www.hbosplc.com/economy/includes/02_11_07historic_data.xls" target="_blank">http://www.hbosplc.com/economy/includes/02...storic_data.xls</a> It is the prospect of further capital gains that has kept the speculative bubble going. Now that Halifax monthly data shows housing returns are similar to a good savings account, it is only a matter of time before the ‘official’ quarterly data follows. Halifax and Nationwide play an important role in forming expectations amongst the sheeple (more timely than Land Registry). How long before the bubble bursts? EDIT: Edited to correct the percentages (seasonally adjusted), thanks to Jason for spotting it.
  15. Some bearish quotes from the Halifax report (following the bullish "the economy is strong" and "employment is high". A 2% fall in annualised HPI in a month is looking promising. Also, before the last two months, Halifax MoM was positive for 10 of the previous 11 months, which suggests we could see HPI slowing dramatically on the Halifax index.
  16. Exactly, and there is also the behavioural issue of the ONS. There is a culture in the civil service of pre-releasing data to ministers, whose advisers are constantly monitoring any potentially adverse news. The civil servants know what is good news and bad news and are monitored in this way to ensure that data is then re-engineered to show the 'correct' results for politically sensitive items. On one off projects, with the slow speed of the civil service this can take months ("is this a better result, minister?" etc), however in the case of regular data like the CPI, it is built in to the process. So that sofa at DFS will be chosen specifically to meet the policy objective. The degree of manipulation depends on the political implications of the 'wrong' data getting out. Anyone that has the right contacts will be able to confirm this.
  17. Agreed, I think someone once posted that food was previously 20% of household spending and is now 10%. However, I think we are in the early stages of the stagflation phase of the cycle where general inflation picks up and higher rates will be needed. RPI includes mortgage interest payments and CPI does not. However RPI is still underestimating inflation IMO.
  18. The methodology for CPI is not transparent, i.e. the ONS tells us the weights but not the actual items used within each category.
  19. I agree that the bursting of the commodity bubble will be a key factor, which will reflect worsening confidence in demand and therefore growth prospects. However, we have seen oil increase from $10 to nearly $100 per barrel over the last ten years and at the same time CPI has magically remained on target. The only thing that would surprise me now is an increase in official CPI. I expect IR hold this month again.
  20. A good analogy - the Treasury want to show steady growth but unfortunately many independent forecasters don't do much better, as shown by the article.
  21. I think that was the initial plan, until the Tory conference when the opinion polls turned dramatically against NuLab. So at the most favourable time, there was a poor chance of victory. Good point, also summed up by the saying that voters "hold on to nurse for fear of worse". However, I still think that the most likely outcome is a clear Tory majority in 2009 or 2010. NuLab only polled 800,000 votes more than the Tories last time and the tactical voting benefit is declining. I think the Cameron effect alone (compared to Howard) will provide at least a hung parliament, even before the effects of 'pocket book' voting.
  22. Thanks for the link Jason, but the problem I have with these categories are the bizarre Orwellian names, e.g. "Children, Schools and Families" "Innovation, Universities and Skills" "CLG Communities" Also the pie chart categories don't even match with the tables!
  23. Agreed, there is a strong herd instinct amongst forecasters and pressure to fit in with the consensus forecast. Article link below http://www.newscientist.com/article/mg13618454.700.html I wouldn't get too hung up on one school of economics. It would be better to have a wide appreciation of the limitations of all the different schools - neo-classical, Keynesian, institutional etc. There are alot of "Austrian" supporters on this site, but strictly speaking Austrians favour qualitative methods and we are discussing macro-econometric models on this topic.
  24. A good time to raise this question. I agree with bobthe~, generally macro-economic models tend to be bad at predicting recessions. Interesting 1992 article from the New Scientist on this subject.
  25. Manufacturing accounts for over 60% of UK exports - no wonder there is a massive current account deficit when only 15% of jobs are in this sector. Manufacturing also creates more "value added" than the McJobs that inevitably follow (call centres, catering etc). Some economists distinguish between positive and negative deindustralisation. It is argued that the UK has suffered from negative deindustrialisation (the inability to compete on world markets for industrial goods).
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