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House Price Crash Forum


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Everything posted by MrWallace

  1. That's not really 'value' though is it? The price that someone will give you on any given day is more a measure of the public mood, rather than a true measure of the underlying value of an asset. If the market was a person it would probably have some sort of bi-polar disorder, and right now Mr Market is probably still a bit delusional about the 'value' of most homes in the UK. For example, P/E ratios are probably the best way to value a company but what you'll get on the stock market for it's shares will differ wildly each day just because of mood and perceptions. For homes I don't know, 15 times their yearly rent maybe? Or take a wage inflation adjusted average of the yearly rents for similar properties over the last twenty years and multiply that by 15?
  2. Not so. Those figures are their after tax profits. Operators have to pay huge taxes on their profits. In the UK an operator can pay as much as 83% in the UK operators have to pay corporation tax, plus 32% royalties, plus the cost of a license to drill. Each block is licensed and license costs vary depending on the block. In Norway I believe the taxation rate is a straight 78% but then again in Norway if an exploration project is unsuccessful the Norwegian government will refund 78% of the operators losses, so it's almost like a partnership. Saying that, most 'oil companies' are not operators and are actually service companies and those companies can struggle just as much as any other company. Operators like BP do almost nothing themselves, in an operator maybe 10% of the people working there are staff, the rest are just contractors. I knew someone who worked at an IT consultancy company who managed all the IT services of major operators Aberdeen office. He'd worked there for over 10 years and like to boast that he was 'almost staff!'. Most operators don't even pick their sub-contractors, they sub-contract that service out to consultancies who review tenders and technical proposals and advise them on the best contractor to use. An Operator is just a company with a heap of cash that takes big risks by funding sub-contracted drilling and production campaigns and then hands most of the profit over to the government. And the should hand the cash over, they are after all stripping the country of it's non-renewable natural resources.
  3. What is happening in the UK's sector in the North Sea is almost a mirror image of what is happening in Norway, and there isn't a lot we can do about it to be honest. Oil production in the North Sea peaked about a decade ago. An oil field is just a collection of wells, all wells hit their moment of peak production and output declines, it gets to the point where nothing you can do will return the well to it's previous level of production. So the same thing happens to an oil field, when a field is mature it gets to the point where no matter how many extra holes you drill in it you'll never manage to extract oil from it at the rate you previously did. An oil basin is just a collection of fields and so the same thing happens to the level of production from oil producing countries. Most of the worlds large oil fields are following the same curve pattern, meaning the few areas that haven't peaked have to do more and more to make up for those areas that have. It's unlikely we'll make any big discoveries either. Unsurprisingly, the largest, most easily accessible deposits tend to be found first. We can't say for sure that there isn't another Ghawar out there, just that it's not likely. If anyone is interested in this I can recommend a book called 'Twilight in the Desert' by Matt Simmons.
  4. HMV. With HMV you can get 10,000 shares for a few hundred pounds. If the place goes bankrupt it's not gonna hurt much but in the unlikely event that they can survive and turn the business around you could make £10,000 - same with Game Group Plc actually. You're not gonna even get an oz of gold for less than a grand and there are certainly no guarantees with that either. It's not just how likely it is that something bad happens, it's more like what happens if you're wrong vs what happens if you're right. Think of it like the 'Long-Term Capital Management' hedge fund in reverse, or a bit like a lottery ticket
  5. They could have got the mortgage in the USA too actually. In America banks were giving out liar loans as well, and with a liar loan anyone can effectively borrow anything they like to buy a property. In fact, I think there were adverts on American TV saying 'no income, no job, no problem' and 'just got out of prison? We'll give you a mortgage'. If we had the American 'just hand the keys back and the mortgage debt is cleared' rules here we would probably have had a big house price crash. The American rules make bubbles worse and crashes deeper. On the way up you can effectively gamble risk free. Take out a mortgage in a booming market with the first years payments being on an extra low 'teaser' rate and if it rises you flip it and win, if not just hand the keys back and the bank (and ultimately the general public) lose. Heads you win, tails society takes the loss. On the way down people aren't trapped by negative equity and sellers aren't holding out to get back what they need to clear their mortgage debt. They don't need to, they simply hand the keys back and they're off the hook. The bank then has to fire sale the property for whatever someone will give them for it, the market is flooded with ex-negative equity properties and the banks, or rather the general public take the loss. But at least the sellers are letting the prices fall to realistic levels.
  6. I doubt their board was paid anything for that decision, I suspect that their board just looked for a high margin product line that could link in with the world of music and picked headphones. Expensive, trendy, ultra high quality headphones are, after all, the sort of thing you might actually prefer to buy out of a retail store rather than online because you get the chance to try them out first in the store to see how they look, feel and sound. I honestly don't think it was that bad a product to push. But what would you have done? I hope you're wrong about HMV being finished, but I'm not sure that you will be...
  7. To be fair it was actually not so bad a plan. There can't be much profit to be made from selling DVDs for around a fiver a disk, I doubt the profits on that even makes up the cost of the floor space and the rest of the direct overheads. If they could make headphones a must have trendy fashion accessory they could make pretty decent margins there. What would you suggest they do? I hope HMV does survive, it would be a crying shame to see such an old established company go bankrupt, and if it did high streets would be without the old fashioned entertainment stores (Zavvi is already gone) that we grew up with. I hope the entertainment store isn't a thing of the past, especially since they didn't cause this financial mess that is hurting their consumers, especially the young.
  8. I've got shares in Game Group Plc. The shares were trading at a few pounds each not so many years ago and the company had great record of paying handsome dividends, now they're trading at around 9 pence a share and dividends are in doubt. The group is the biggest retailer of console games in Europe and is especially large in the UK. My city (Aberdeen) has 3 of the groups stores with a population of around 220,000 It's not worth me selling those shares either as I wouldn't get much for them now and I do expect the company to survive. The company has never made a loss in it's 15 year history but it is widely expected to make a loss this year. I want this recession to be over...
  9. Now the Telegraph is claiming that for some, moving up the housing ladder is more difficult than getting on it in the first place 2nd time buyers priced out That's not surprising really, if you bought a house in 2006 or 2007 it's probably got some negative equity, if it hasn't got negative equity according to the banks valuation it probably has in reality when you try and sell it.
  10. Then the under 25s you know are not a representative reflection of young people as whole. As a general rule, the young today are a lot better a generation than their parents (x-ers, my generation) and their grandparents (the boomers). If young people today are out of control then the question that should be asked is: what did the generation that brought them up do wrong.
  11. Is The Whole Concept Of Buying A House Outdated? No, I don't think so. I can see no reason why it should be. The main problem I see with buying a house is houses are too expensive for many. A house should be affordable to the type of person or family you'd expect to live in it. A 1 bedroom flat in a not so great part of town should be affordable to young person on a low wage. Buying an average family home should be affordable for the average family. Etc... If property was affordable I see no reason why buying a house should be an 'outdated' concept. Quite the opposite in fact, a few large landowners owning almost everything is the outdated concept, as is the concept of the state owning everything. A nation of property owners is the modern concept, the problem is it's not in the reach of many. Saying that, social housing is a necessary for many and needs to exist, in fact, a plentiful supply of good quality social housing would really help to ensure that the prices of homes for sale stays at a reasonable price. Let house prices fall and cause the drop buy building social housing,
  12. Yes, I wrote that 'horseshit article' as it was described It's a hobby of mine. I have a website that I update now and again in order to get others feedback. Nobody knows the future but there is something to be said for the wisdom of the crowd. Everyone sees little things that others miss and when you get a lot of different points of view pouring in it helps you look at the bigger picture and see a lot of the stuff you missed. So I'm grateful for the feedback. And if someone tears all my arguments apart and helps me to see things differently I'll buy gold. My brother in law has spent thousands of pounds on physical lumps of gold and has built up quite a store of gold (and silver) over the past few years, all his savings are in gold and silver in a safe in his house (you can do this providing your insurance company is OK with it). It was this that caused me to take an interest in gold, write down my thoughts and await some feedback. I have a different view to my brother in law. I speculate on Forex for fun mainly, but my real savings are going into buying shares in profitable resource companies and high tech companies. I'm looking to buy shares in companies like BHP Billition, Microsoft, Eurasian natural resources, every few months whenever there is a decent dip. Other random articles I have written are here - UK house price predictions written Jan 2010 Peak oil - June 2010 3 random predictions July 2010 Many of my predictions have been VERY, VERY WRONG in the past Like I said, convince me that I'm wrong, and I'll buy gold. And I value different points of view. For example. Someone wrote that gold was held at $35 per oz since 1933, go point. But I could look at that in a number of different ways... I could say that gold is undervalued based on it's 1933 price and the USA didn't need to come off the gold standard in 1971, they just needed to revalue gold at a much higher price. Or I could say that this just proves that the powers that be are capable of holding gold at any price they like, and further evidence that the economic rules are whatever they say they are and I have no reason to believe they're going to say that gold is money and that South Africa and most Indians are now very rich. How should one look at that? Saying that, if they revalued gold in 1971 and kept a gold standard gold may have become more desirable than cash as people would think that gold was always worth it's paper equivalent but possible more, but never less. So perhaps that wasn't a realistic option?
  13. Not to have politicians eh? You've got my ear, but how would that work? Would it be something like ancient Athens where 6,000 random people we chosen each year to run the city. That would be way more democratic than we have now actually, as the views of a few thousand randomly chosen people would reflect what society is like and thinks way better than what 646 grubby power hungry bastards think.
  14. I think you're spot on actually, even if all fiat curriences collapsed tomorrow that doesn't mean that gold will become money. The economic system is just a set of rules that the big players draw up, in the event of the EU and US going under they'd just start again with a different set of rules. Last time the US was on a gold standard was in 1971 and gold was $35 per oz. If they were to draw up a different set of rule I can see no reason why the big powers would choose to draw up a set of rules that say that only gold is money and make South Africa and Indian amoung the richest countries in the world over night. I can totally understand people saying cash is trash in the long-term and only king in the short term so use your cash to buy assets to protect against inflation, that makes sense. But why not buy a productive asset that produces a yield, like dividend paying shares in a major company with loads of assets, e.g. Shell, BHP Billition, even Microsoft. Even an over valued property is still an asset that produces a yield in the form of a rent. But buying a lump of metal for over £1,000 per oz and storing that in your house? Doesn't seem the way to go to me. I think gold is a bubble.
  15. I suspect so. I don't actually know what gold 'should' be worth, but it seems to me that gold has been driven to its heights due to fear and speculation rather than the price reflecting it's cost of production, usefulness or any yield. I think gold is a bubble. Anyone agree?
  16. I think the gold bubble might finally burst. It's hard to value exactly how much gold 'should' cost. It doesn't have a yield and its cost doesn't reflect the costs of production either. Anyway, in the last couple of months we've seen the crisis in the Euro Zone (and the world) get worse and worse, yet the price of gold hasn't made a new high. When they write the new economic rules I don't believe they'll return to a gold standard, even if they do gold only cost $35 per oz in 1971.
  17. I understand what you're saying (I think) about the way the wealth is shared but it doesn't seem to be working like that. Or am I missing something? The way China could afford to consume what it produces with we in the West getting a smaller share of it would be for China to do as the USA have asked and float it's currency to allow the Yuan to appreciate. They seem totally unwilling to do this. The upside (for them) of letting their currency appreciate would be that they could afford to consume what they produce. And the downside of this for the Chinese would be that they would have to compete on a level playing field for the privilege of producing these goods in the first place. And not everyone in the West benefits from this system either. If you work in a well paid service sector job in the West earning 50K it probably does benefit you that the stuff you wanna buy is produced dirt cheap in Asia, but if you are a British factory worker who's lost your job because of it is probably bad for you. And sorry if this is a rather stupid question but if it's simply a case of different nations getting a different sized slice of the pie why does the pie have to shrink?
  18. Shares, mainly because I *hope* (touch wood) to keep a job anyway and I don't know what gold is worth.
  19. I live in Aberdeen. The reason house prices are still rising in Aberdeen is because there is still low levels of unemployment here and the recession isn't effecting us as much as the rest of the country. This is purely because the price of oil is high and Aberdeen's economy has been built round the oil industry. I remember in 1999 the UK's economy was booming and in Aberdeen people were being paid off by the hundreds as the price of oil hit $10 a barrel and the operators stopped drilling new wells. We're on a boom bust economic cycle just like the rest of the country, it's just that our cycle is a different one. Places like Qatar and Kuwait are booming too now.
  20. Sorry, I forgot to add that in your example, there is no difference in the amount of food produced, the difference is just one of who gets to consume what. But in the real world that doesn't seem to be happening, in the real world it seems like less food is going to be produced as the rules aren't going to allow a food producer to work. If it was simply a case of shifting from a system where some people get to consume everything they produce plus part of what someone else produces, to a system where everyone consumes what they produce and nobody lends I'd say bring it on.
  21. Thanks for your response once again So what are you saying? That we in the UK have been consuming far more than we produce for years and years because those that produce it, like the Chinese for example, have been daft enough to give us part of what they have produced for a mere promise that we'd give them back everything that they gave us in the future plus interest? Trouble is, if China stopped exporting all that stuff they make they would either have to stop making it and make millions of their own people unemployed, or simply consume it themselves instead of shipping it to consumers in Europe and America. The only way they could afford to consume it themselves though is if they let market forces allow their currency to rise in value to the point where their imports matched their exports. They don't seem to want to do that though, regardless of how much the Americans ask them too. It's almost like they will lend the West whatever they want and want to keep on lending and lending.
  22. So how do we fix this then? There is something about this crisis that just doesn't sit right with me. It is serious, but at the same time feels a bit artificial, it doesn't seem real in the same way that an earth quake or other natural disaster is real. It seems to me like our countries debt problems could all disappear tomorrow if only the world would change the financial system rules, but I don't know what the rules would need to be changed to for this to happen. If simply printing the billions we owe and paying off every penny then balancing the budget and abolishing interest isn't the solution then what is? Borrowing does not have to mean less consumption in the future. It is impossible to take anything out of the future and consume it today because the future doesn't even exist except in our minds. Borrowing only means less consumption in the future because the current rules say that it must - we must have less today because we had x yesterday. We're told that we can't have all the police, firemen, teachers, doctors, nurses etc that we currently do but yet we have them and they're willing to work. If there are less goods and services to go round next year than there are this year it's because we have chosen not to create them and less people are working. People are no less willing or able to work now than they were five years ago. The land is no less productive than it was five years ago. People are no less educated than they were five years ago... Etc... But there is this system based on paper money which is only actually worth anything because a set of strongly enforced rules say it is. And following these rules means many people's lives are getting screwed up, they're unable to find work or do anything productive because the rules say the things that need to happen for them to do this can't happen. So the rules need to change, don't they?
  23. Yes, but if the money was used to pay back debt then the sovereign debt crisis would be fixed at the same time right? Is there any way to stop the money used to pay back the debt getting into general circulation? Even if there isn't, would 50% inflation over 3 years and then inflation going back to 'normal' be a good price to pay for getting rid of all the worlds sovereign debt? Because from where I'm sitting, debt is the problem. It's like the economy and governments are tied up with debt and interest upon interest upon interest and this debt is stopping the economy from working and until the debts gone it's a millstone round all our necks that's not going away...
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