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House Price Crash Forum

Hat

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Everything posted by Hat

  1. You are mistaken. The economy is highly sensitive to interest rates and becoming more so each passing year. No they are not. The economy is in recession. Then you will know this economic situation is nothing like it. Utter ******** - have you walked down the average UK High St lately? Why? Who "books" holidays these days? Ah, so the mass unemployment is not down to economic conditions, it is down to people just not trying ruddy well hard enough to accommodate Victorian shopping practices. This is ********. We are in one QED. No it doesn't. Forgetting all those house prices crashes that have occurred in deflationary periods, cast your mind back to the 90s. That crash was not caused by inflation. Apart from all these points, I agree with everything you say - very wise...
  2. Yeah, it did implode and it will again if rates rise a few percent. Why do you think the BoE is pushing on string? Or do you think they fiddle the inflation figures like the numpties on the gold thread? This is complete b****cks - and if you want to walk through the numbers, I would be happy to hold your hand (after you have carried out your initial analysis - start by obtaining numbers for cash on deposit and mortgages outstanding and go from there.) Also, are we really expected to have sympathy for the creditor class? That usurious bunch of scumbags who expect to receive money for just having money in the bank? Savers are worse than BTLers IMHO - at least BTLers provide accomodation services. Same too with people who buy shares or other assets - at least they are taking a risk. What do savers provide? Nothing. They just leech off of working people all the while having their precious money insured for free by the government. Bunch of Saga-holidaying, telegraph-reading misers!
  3. I think you're bang on the money there Bosh - about 2.5% would do it.
  4. The red line is a line of "best-fit" to the limited data set of the last forty years of Nationwide data. The average % "trend" rise therefore changes over time. Currently it is falling along with real house prices. (It is now in fact 2.8% rather than 2.9%.) The truth is that there is no trend increase (Why should there be?) - the long term (ie using data over 100+ years) "red line" is horizontal. That is, we can expect real house prices to fall back to around £80k. As an aside, the Nationwide data and reporting also embeds the idea that the house price to income ratio should mean revert to 3-3.5 times, however this is also spurious - the long term average is in fact 2.5 times.
  5. Broadly correct, although I take issue with your assertion that Japan hasn't done its fair share of QE. "The Bank of Japan (BOJ) increased the commercial bank current account balance from ¥5 trillion yen to ¥35 trillion (approximately US$300 billion) over a 4 year period starting in March 2001. As well, the BOJ tripled the quantity of long-term Japan government bonds it could purchase on a monthly basis. In early October 2010, the BOJ announced that it would examine the purchase of ¥5 trillion (US$60 billion) in assets. This was an attempt to push the value of the yen versus the US dollar down to stimulate the local economy by making their exports cheaper; it did not work.[53] On 4 August 2011 the bank announced a unilateral move to increase the amount from ¥40 trillion (US$504 billion) to a total of ¥50 trillion (US$630 billion).[54][55] In October 2011 the Bank of Japan expanded its asset purchase program by ¥5 trillion ($66bn) to a total of ¥55 trillion." The UK is is also now well under way in the process of getting its debt into domestic ownership. No foreign gilt holders, no bond vigilantes - the government is able to control which entities eat the paper. At present the BoE is mopping up the gilts. Eventually it could come full circle and the banks and pension funds may get the pleasure. The important thing is that the banks (which are bankrupt) get to trade their way into writing off some of the debt burden whilst being kept afloat by the government. With reference to your response to a previous post, the banks do not need to finance these write-offs direclty out of depositor funds - although many accounts will effectively attract a negative real return on credit balances. Banks make non-retail profits and their businesses are open to global trade. Additionally, new borrowing and SVR borrowing to exisitng (often underwater) borrowers is currently a very high margin source of income. There is a sub section of mortgagees however on rates tied to the bank rate. It is these mortgagees that may be offered a deal to settle their debts early (ie a nominal partial jubilee of sorts). Also, with reference to your previous response, the "goal" of "swapping" debt into different ownership is not one of debt reduction but of control. As you correctly point out, the debt burden is not necessarily diminished by the process. The debt burden will only be reduced by a default in the domestic system and this will come in various guises. The gilt default may well not be for the whole debt burden - just the portion to keep debt repayment sustainable - but it is the only controllable way to switch back out of the "liquidity trap" (or whatever label you wish to put on the UK's predicament.) There may be charlatans who say "no-one saw it coming" - many did. They may say there needs to be a "new economic" interpretation - there is no need. They may say the situation is "unprecedented" - it certainly is not. What we have in the UK is the aftermath of a good old fashioned credit fuelled asset mania. The debits equal the credits and they will eventaully net off - the greatest part of the net off will be between gilt holders and the government, but the borrowers will also take their share - at least to the point of threatening the electability of those who seek to control the process. There will be no hyperinflations or other such nonsense - just a long drawn out misery of falling asset prices and low real income growth. The main difference between the UK and Japan is that we are just starting the process and they are just finishing it.
  6. Currency devaluation is not under direct government control but default is. Look at recent attempts to weaken the yen. These have been almost entirely offset by similar policies of other governments trying to weaken their own currencies. It is not so much that the Japanese government even chooses to default as much as it is the inevitable outcome. That is, it is only the mechanism of default that is at question, not whether or not it will happen. Somehow the grossed up Japanese balance sheet will start to net off. Debt in Japan has been shifted away from the private sector by the state and is now under the ownership of domestic bond holders. The government collects tax to pay for public goods and services and to repay interest to bond holders. If taxation is directed at consumption and inheritance - and I would urge you to look at government intentions on both types of taxation - then the net effect is to take with one hand and give with another to the same people. That is, bondholders effectively end up meeting their own interest and capital repayment via taxation. This is the proposed mechanism of default. If the population sees the writing on the wall and starts to dump bonds, then we can expect government measures to stop/tax this and/or a more forced form of direct default. However, the current envisaged mechanism relies on a certain amount of stability in the money supply and it is unlikely the government will be in control of this. The time that it could simply run deficits and print money to offset the lack of credit demand and falling velocity are near an end. Stocks and property in Japan are now at fair value (and I would argue below fair value and have invested accordingly) and the economy is finally ready to reflate. With this in mind, the credit cycle in Japan is about to turn making interest payment sustainability for the government an issue. The government will find its tax receipts unable to fund interest payments and so propose further taxes on bond holders. There will be limits to this process and resistance. Faced with this situation, the democratic process will present a choice between provision of goods and services and outright default against bond holders. The population will eventually willingly opt for the latter.
  7. +1 but with only a limited jubilee in the offing (albeit via various mechanisms), the change in dynamic is incentivised to come mainly via a process of shifting private debt ownership into government debt ownership so that default is made against the public rather than by the public. That is, in a politically controllable way rather than in a socially disorderly way - ie the societal preference. This is done by the government running deficits to allow people to pay down private debt - effectively under-taxation. Government debt ownership meanwhile is controlled and enforced either by direct central bank buying or via legislation ie stipulation of pension fund requirements, bank capital requirements etc. Whilst lenders suffer negative real rates on much of their lending, we will see some form of jubilee as lenders will have a rational incentive to offer borrowers the chance to settle their debts by repaying less than the amount borrowed. If inflation dips below these lending rates, then this incentive will slowly dissipate although the BoE can still lower the bank rate a little further. Jubilee via inflation, the seemingly unachievable political dream, will still be possible to the extent that mortgage debt maturities are increased past the point of government default - these term extensions will be a big issue in the UK in about 10-15 years time. Nearly all the increase in money supply up to its falling off a cliff (and subsequently engineered flatlining) was in the form of borrowing secured against housing. The hope is that government policies will enable lenders to absorb some debt losses at a sustainable rate (another form of jubilee). The supply of government debt meanwhile will gradually be shifted to domestic ownership (and away from overseas bondholders). Finally the government will default against its own population. To achieve this, the final act of government is to balance its books so as not to require further borrowing in the aftermath of the default - hence the current attempts in Japan to raise sales taxes now that real estate there has reached fair value. The roadmap provided by Japan is not a cultural phenomenon. Economically, the Japanese act as rationally as the British to the incentives placed before them. The proof will come when we see Japanese pensioners working rather than walking around with wheelbarrows filled with yen.
  8. Pretty much the embodiment of manic thinking...combine this with paranoia (rigged government stats, secret cabals etc)...and voila, you too can become a bona fide bi-polar tin-foil-hat-wearing gold bug...
  9. Re means testing, benefit fraud/tax evasion often is simple to perpetrate...but be careful...make sure you have secured the complicity of your beneficiaries...and whatever you do...don't...under any circumstances...publicise your fraud on the Internet...you don't want to end up like Lauren Hill.
  10. Yes, this first flaw on its own is enough to show that house prices are substantially overpriced. The dual income argument is also obviously completely flawed. Not only that, the proportion of single person aka single income households is forecast to rise even further in the future. Your calculations and assumptions have clearly shown just how much house prices need to fall....but I would keep these to yourself when doing viewings unless you can use the information via feedback to encourage your clients to drop their prices. You get paid on volume...and the good times cannot roll again until prices fall. After all, why should you care what happens to prices? Your job is to smooth the buying and selling process, not make people money...and remember, "the first cut is the cheapest"... All the best...
  11. The most obvious flaw is that the person who bought in the late 90s is also now paying a similar rate of interest to the person purchasing now....
  12. Look at the factors in the Japanese deflation and compare them to the UK. Some are different, and some the same. Are the differences going to change the outcome much? We have been importing commodity inflation, but how long will that persist? Our population is growing, but will that lead to a higher or lower dependency ratio given the levels of unemployment and the willingness of older people to work longer? The situation is not exactly the same, but we certainly have had an enormous asset bubble and now have insolvent banks. "Before he was Chairman of the United States Federal Reserve, Ben Bernanke claimed in 2002, "...sufficient injections of money will ultimately always reverse a deflation",[26] although Japan's deflationary spiral was not broken by this very sort of quantitative easing." Dr Posen also says he has learnt from Japan, but it is revealing that he said "The second thing that Japan teaches us-which perhaps does not fit with people’s beliefs about where I sit, but it has to be recognised as a reality-is that deflation, if you fall into it, is both stickier and a little less bad than we thought. When I first came before this Committee when I was nominated for the position I wrote a bit about that in my statement, and it remains true; deflation is much worse than a little inflation and it is very hard to get out of. But you don’t get into this downward horrible spiral that some of us worried about in Japan’s case. There is a lot more stickiness in the system." This statement strikes me as cavalier given how massively overpriced UK housing is in nominal terms and how much bad debt our insolvent banks still have to realise. I'm not so sure things are so "sticky"...
  13. Money velocity will continue to decrease. This paper explores how this happened in Japan.
  14. The Central Banks cannot prevent deflation. That is your fundamental erroneous assumption. QE has done very little indeed to influence inflation. The UK money supply has been virtually unchanged for the last couple of years. Nearly all inflation has come from commodities. Meanwhile the amounts of QE become smaller and smaller whilst the M4 shrinkage shows no sign of abating. You can't shrink the supply of gold. The most effective deflation fighting method at the UK government's disposal is to hike VAT which they will almost certainly do again if their deficit reduction plans start to come off the rails. As for positive real interest rates, these are easy to find in the UK. Why do you perpetuate this blatant falsehood?
  15. Without knowing what you mean by renewal, or the rate you'll be reverting to, it is still probably a really bad idea to make overpayments. If you are coming to the end of a tie-in and reverting to the lender's SVR, I would seriously consider calculating the difference in APR between that and any new deal - it may well be lower and changing mortgage pointless. If you have not done so already, convert your mortgage to interest only (and get a higher LTV if possible). Any money you were intending on using for capital repayment and overpayments is far better invested in assets that will "beat" the mortgage rate over the length of the mortgage term. The best option would be to set up a monthly payment plan to invest in Investment Trusts of equities. You should look at non-UK/European/US equities in particular ie Emerging Markets/Asia/Japan. Avoid gold and gilts. In ten years time, you will feel much better having this cash in hand rather than permanently locked up as an offset against your debt. (As well as annual ISA allowances of £10k or so for you (and possibly your wife) you also get to realise up to £10k or so pa in capital gains per person - without knowing our numbers, you may find you can in fact build your entire fund free of tax over time.) If at all possible however, I would forget all this mortgage talk and seriously consider selling your home as soon as possible to rent instead. UK house prices need to fall by 50% in real terms to revert to mean. With deflation looming or at best very low inflation, this will translate into large nominal falls. Substantial amounts of equity in your home will therefore vanish into thin air and (without knowing the numbers) this could even include past and future capital repayments. The window is closing - put your calculator aside and call an Estate Agent!
  16. You are completely correct. The amount of credit extended as a result of income mis-statement dwarfs the amount extended from the change in price of credit resulting from LIBOR manipulation. Society somehow decided that lying about income on mortgage forms became OK, but the people that took part are still contractually bound and presumably open to prosecution for doing so. The resulting silence is deafening. Maybe if the threat of prosecution was removed, then our society would be able to have an open debate and move on?
  17. We're definitely at that point and have been for a while. Monetary policy has been virtually ineffective for the last few years. That is, the money supply has not been increasing despite QE and the only demand for credit has been coming from those in financial distress via unsecured borrowing and by the government which cannot balance its books. As with Japan, the only tool left for the UK government is to hike sales taxes, but this cannot really be justified until inflation goes below target and even then, the economy would need to be growing. The truth is, that the UK government is powerless and has been all along. Global deflationary forces from emerging markets dictated monetary policy for the decade before the crunch. Since the crunch, inflation has been determined by the commodity markets. There have been no plates to spin for a very long time and there is nothing that can be done to halt the house price crash. Rising commodity supply and lower US inflation expectations will mark the denouement.
  18. Sometimes people buy into an asset class and then suffer from selection bias of data and rationales. That is they make errors of judgment by not sufficiently scrutinising evidence which supports their investment decision or by having a sufficiently open mind towards evidence that runs contrary to their position. Sometimes people take recreational drugs or have some mild mental health issue that causes paranoia. For example, they may mistakenly believe that evidence is doctored by a sub group with an agenda even when the data and methodology has been in the public domain for decades and freely open to the general public and academia to calculate themselves. Both of these effects can be further exacerbated by group behaviour. Witness for example other posters' reactions to gold price falls coinciding with announcements of monetary policy. Was it selling on the news? The market reacting to the increasingly apparent insufficiency of QE as a policy tool? No, it was "them". Clearly you are not suffering from any of these effects, so we can move on. Whilst it is relatively easy to dismiss charlatans such as those in charge of "Shadowstats", I can only presume that your dismissiveness of my belief that the official US inflation stats are the best available must be down to you employing a more sophisticated methodology as the basis of your investment decisions. I only have a few terms of statistics and it was quite a while ago, but I will gladly brush up to follow your methodology. US inflation is probably the key statistic for gold investment, so I appreciate a forum reply will be entirely inadequate to share an approach that must run to many pages. Maybe you could attach it as a file and I could get back to you once I have taken the time to get to grips with your groundbreaking work? Thanks in advance.
  19. Yes, I do trust the official stats. The methodology is in the public domain and I think it is a good one. The guy who runs the site you link to however is a nut job. Not only that, he actually expects people to pay for the cr*p he's peddling...(and far worse even than that, he doesn't even know the correct possessive form of his own surname...surely some sort of crime against humanity?) The debate between the current measure and his "SGS" measure is a very old one. If you think "SGS" gives a better measure than the official one, then feel free to explain why...
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