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Bubble Trouble

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    Economics<br>Politics<br>Philosophy (mainly of mind)<br>Science (mainly evolutionary theory, evolutionary psychology, the science of mind)<br>Fictional literature<br>Art (painting in oils mainly)<br>International relations<br>History

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  1. Mar G: dont be a moron. What had the US done to the fanatics before September 11th? Clinton was hardly bombing them was he? Also - most Iraqis are glad that they were liberated and are grateful . . . while arabs in other countries (including Iran) look on enviously . .. and are supportive of the americans. They will go on attacking us . . . yes even France (who they see as an ancient enemy - in a continuation from the crusades . . . yes its mad - but they are . . .).
  2. my point about europe is simply that if the free world would unite against terrorism rather than half of it trying to appease it then we would all be better off. France - despite its actions is still a target for the terrorists - they won't stop until the decadent west has collapsed . .. which of course will not happen . .. they see this as a fight to the death - appeasement just makes them think that we are wesk and decadent. Only strength and unity can show them that we are not 'decadent' (in their perverted eyes). That is our only hope of sussess. The spanish voters showed their weakness. I'm sure the british wont do the same . .. but we need everyone to join us . . . even french speakers.
  3. It will be blamed as the trigger. People will say that the crash would not have happened if it were not for this. I can't believe it has finally happened - after so long. But a large scale attack was sadly inevitable. Lets hope maybe europe will now unite against the threat a little bit better than they did after the Madrid bombings.
  4. House prices To buy or not to buy? That is the question Mar 3rd 2005 From The Economist print edition Today it is often much cheaper to rent than to buy a house “IT IS always better to buy a house; paying rent is like pouring money down the drain.†For years, such advice has encouraged people to borrow heavily to get on the property ladder as soon as possible. But is it still sound advice? House prices are currently at record levels in relation to rents in many parts of the world and it now often makes more financial sense—especially for first-time buyers—to rent instead. Homebuyers tend to underestimate their costs. Once maintenance costs, insurance and property taxes are added to mortgage payments, total annual outgoings now easily exceed the cost of renting an equivalent property, even after taking account of tax breaks. Ah, but capital gains will more than make up for that, it is popularly argued. Over the past seven years, average house prices in America have risen by 65%, those in Britain, Spain, Australia and Ireland have more than doubled. But it is unrealistic to expect such gains to continue. Making the (optimistic) assumption that house prices instead rise in line with inflation, and including buying and selling costs, then over a period of seven years—the average time American owners stay in one house—our calculations show that you would generally be better off renting (see article). Be warned, if you make such a bold claim at a dinner party, you will immediately be set upon. Paying rent is throwing money away, it will be argued. Much better to spend the money on a mortgage, and by so doing build up equity. The snag is that the typical first-time buyer keeps a house for less than five years, and during that time most mortgage payments go on interest, not on repaying the loan. And if prices fall, it could wipe out your equity. In any case, a renter can accumulate wealth by putting the money saved each year from the lower cost of renting into shares. These have, historically, yielded a higher return than housing. Putting all your money into a house also breaks the basic rule of prudent investing: diversify. And yes, it is true that a mortgage leverages the gains on your initial deposit on a house, but it also amplifies your losses if house prices fall. “I want to have a place to call home,†is a popular retort. Renting provides less long-term security and you cannot paint all the walls orange if you want to. Home ownership is an excellent personal goal, but it may not always make financial sense. The pride of “owning†your own home may quickly fade if you are saddled with a mortgage that costs much more than renting. Also, renting does have some advantages. Renters find it easier to move for job or family reasons. “If I don't buy now, I'll never get on the property ladder†is a common cry from first-time buyers. If house prices continue to outpace wages, that is true. But it now looks unlikely. When prices get out of line with what first-timers can afford, as they are today, they always eventually fall in real terms. The myth that buying is always better than renting grew out of the high inflation era of the 1970s and 1980s. First-time buyers then always ended up better off than renters, because inflation eroded the real value of mortgages even while it pushed up rents. Mortgage-interest tax relief was also worth more when inflation, and hence nominal interest rates, was high. With inflation now tamed, home ownership is far less attractive. The divergence between rents and house prices is, of course, evidence of a housing bubble. Someday prices will fall relative to rents and wages. After they do, it will make sense to buy a home. Until they do, the smart money is on renting.
  5. Could it be that the fact that first time buyers are at their lowest in well over a decade means that the cheaper houses are not the ones that have been sold? In other words: the kind of homes that a first time buyer would buy - at the bottom of the ladder -have largely dropped out of the turnover of house sales which the Halifax and Nationwide's figures report. Thus a larger proportion of the houses used in their indices are the larger more expensive homes which people in their middle ages (having already been on the 'ladder') are selling (and buying). Hence the indices have not fallen as much as the reality they profess to represent (obviously there are other factors as well - i.e. they are lagging indicators reflecting 3-5 months ago) Does that make sense? - or have I missed something?
  6. Just in time for the crash Jan 27th 2005 From The Economist Why some people think plans to raise home ownership are misconceived TONY BLAIR was playing his favourite game this week. The prime minister's latest wheeze is to set a target for home ownership. At present 70% of homes in Britain are owner-occupied. Mr Blair told the Financial Times that he would like this to rise to 80% in ten years' time. The reason Mr Blair is so keen to increase the number of home owners is that he thinks people who have no housing equity to draw on in their lifetimes or to inherit from parents are likely to stay at the bottom of the socio-economic pile. Whether the target is achievable is another matter. In the past ten years, the home-ownership rate in Britain has risen only gradually from 66% to 70%. Raising it to 80% would mean 2.5m more households becoming owner-occupiers. Tony Blair outlined his targets for home-ownership in a Financial Times article. On the same day John Prescott unveiled a five-year plan for housing. See also the Homebuy scheme. Mr Blair's aspiration sits uneasily with the more modest ambitions of John Prescott, who is in charge of housing. Mr Prescott worries about reducing the stock of social housing. He unveiled his schemes on January 24th, the same day that Mr Blair revealed his target. His “five-year plan†for England included several measures to increase cheap home ownership. However, they fall far short of the more radical changes that would be needed to raise the home-ownership rate to 80%. One initiative is to encourage cheap new homes, built for around £60,000 on government land. If, say, the land cost were an additional £40,000, the first-time buyer would acquire a 60% stake in the property. The government hopes that the scheme will spur building firms to cut construction costs. But, it will help only 15,000 first-time buyers over five years—an annual rate of 3,000. Another new measure could affect many more people. Since 1999, the government has run a small-scale scheme called Homebuy, in which people limit their purchase to 75% of the house price and the social landlord advances 25% as an equity loan. The government wants to extend this to as many as 300,000 tenants in social housing, who could purchase a share of 50% or more in their home. However, only about 15,000 of them are expected to take advantage of the opportunity each year. Altogether, then, Labour's new measures should assist about 18,000 households a year. Existing programmes, including one for “key†public-sector workers in expensive parts of the country, take the total number who will be helped to 30,000 a year. However, households are forecast to grow by 190,000 a year, dwarfing the impact of the government's efforts. But if the home-ownership rate doesn't rise that much in the years ahead, is that necessarily a bad thing? Although people generally say they would like to own their homes, owner occupation is not ideal for everyone. It is unsuitable for young people who are highly mobile. And it is risky for many people on erratic earnings. Christine Whitehead, a housing economist at the London School of Economics, cautions against unrealistic ambitions to raise the home-ownership rate, which, she says, is stabilising in several countries. “If anything, the government should be striving to increase the share of the private rented sector,†says David Miles of Morgan Stanley, author of a report to the Treasury on housing finance. What's more, governments are notorious for their bad timing. The drive to get people into home ownership is as good a sell signal for the housing market as any forward indicator. If house prices enter a long period of decline or stagnation, poor people who take up the government's offers could find themselves in possession of a burden, not an asset.
  7. RRP - the 'doctrine' I am referring to is 'economics'. Economists cannot agree on things like forecasting (apart from to say that eventually things will go back to trend or establish a new trend) and they are no good at forecasting for many technical reasons. But there are some areas that are not debated (although theoretically and techinically open to debate - as everything is in a robust discipline which is based on empirical evidence) - as the weight of empirical evidence is such that they can be taken as laws (like evolution in biology, the earth going round the sun in physics etc etc). There are people who disagree with free trade in this world who are experts in something - but they are not economists (what are they experts in then? - lots of areas: e.g. professional marxists, experts in trades unions, or long haired smelly people with PHDs in ecology or something or experts in literary critisism - probably with a penchant for french deconstructionism - but they are not economists).
  8. Yes RRP - I'm talking about your kind of economic illiteracy. Milton Friedman supports free trade - yes - but so does every other economist - there is not a debate about it (the only people who do debate it are long haired hippy environmental types who are concerned about 'global poverty' - they often erroneously charge globalisation with the blame for making the poor countrues poor and keeping them poor - when in fact what they should be complaining about is the LACK of globalisation and the LACK of free trade which is having an unfair effect on the poorest nations - what they need is more free trade not less). You can have a pointless debate if you want - but some things in life have a right answer and a wrong answer - this is one of them.
  9. The trouble is that we need MORE immigration, but the economic illiteracy (and racism in many cases) of the general population means that politicians cannot admit this. Its a shame - as everyone would benefit from more immigration. Same thing with free trade - a potent mix of economic illiteracy and racism/nationalism blinds people to the fact that these things are not zero sum games.
  10. To be fair - the guy in the article is clever - he didnt spend any of it. So he is better off than if he had not done what he did. He also noticed the loophole with egg - so did I (I've got about 30K on credit cards in savings accounts - as long as you dont spend it its a win situation). I don't understand the problem?
  11. Missed this thread when originally done. As a few have said - Hometrack is the answer for TTRTR. The figures are the most up-to-date - rather than lagging the market by 3-6 months as the halifax/ODPM etc figures do. Prices have now been falling ACROSS the UK as a whole for 7 months now. Of course some areas have not been falling for as long as that (although overall the UK has been). London has seen the largest falls (with the final 7 months eliminating all the gains from the first 5 months). Nothing more to say really (except that the crash is happening far faster than the 1989 crash at this stage - and I admit that this has caught me off guard - thats not a joke or me being faceatious by the way - I have been genuinely surprised at how fast the crash has happened so far - it will be interesting if it continues at this pace - if it does then it will not take the 7 years peak to trough that it did last time - it may even be over in 4 years. It will be interesting to see . . . .)
  12. Just thought that given my post on Labour's poster lies that this thread should make a re-entry as well. What a waste of our money!!!!!!!!!!!!!
  13. There are four claims. All are striking—and, in varying degrees, dodgy. • Britain has had the longest period of sustained economic growth for 200 years. Labour neglects to mention that this period started in 1992, when the Conservatives were in power. The claim relies on quarterly GDP estimates. Annual figures show unbroken growth between 1949 and 1973—much longer than the eight years this government has been in power. • Unemployment is at its lowest for 29 years. That's true of the official unemployment figure, which stands at 4.7%. But it is a tiny part of the employment picture. The posters are silent about the economically inactive, who are not included in the labour force and therefore not counted as jobless. Since 1997, inactivity has stuck at just over a fifth of the working-age population. • Inflation is lower than at any time since the 1960s. It is certainly true that RPI inflation fell to just 0.7% at the end of 2001, the lowest since early 1960, but it currently stands at 3.4%, the highest since mid-1998. Anyway, since inflation has subsided around the world, Labour should not get much of the credit. • Mortgage rates are lower than they have been for 40 years. True, but low inflation, not Labour, is the reason. For most of Labour's time in office, real interest rates have been around the level they were when it came to power.
  14. It seems to me that this may also happen to houses in the low inflationary era (as predicted by Bootle in his book death of inflation - where he argued contrary to the 'new economy' arguments of low inflation's impact on housing that in fact it would lower the cost of houses relative to other things). The current bubble may have masked an underlying new reality. (By the way this though does not please me - as I was - jokes aside - looking forward to investing in BTL after the crash . . .).
  15. Samuel Brittan: Long death of the cult of equity By Samuel Brittan Published: January 6 2005 21:03 | Last updated: January 6 2005 21:03 There are two culprits for what has gone wrong with pension funds and similar investment vehicles. The first is that increasing life spans have taken people by surprise. The second is that it has been fashionable to project ahead increasing equity values based on what is historically a very short slab of time. This habit lies behind the propaganda to induce people to put their savings into equity-based funds. This is only the second time I have ventured into discussing the stock market. The first was on May 13 1999, when I warned that most of the optimistic noises about the Wall Street boom of the time were "nonsense on stilts". I do so again for a second time - and with a minimum of stock market technicalities - because I fear that the period of ultra-rapid equity growth is over. I therefore asked my colleague Keith Fray, of the Financial Times statistics department, to draw up some very long-term charts of leading American and British equity indices. We tried to estimate real indices deflated, in the American case, by the Consumer Price Index and, in the British case, first by the old Cost of Living Index, until 1947,and then by the Retail Prices Index. In the first half of the 20th century, US equities adjusted for inflation showed almost no trend at all. The cult of the equity really began in the late 1950s and early 1960s. Many of the gains were subsequently lost during the troubles provoked by the Vietnam war, stagflation and the first oil price crisis. It was not until the Reagan years of the 1980s that the peaks of the 1960s were recovered. After that, there was a plateau until the boom or bubble associated with, but no means confined to, information technology stocks of the late 1990s. That bubble burst in 2000. If we switch attention from the US to the UK, we are in for a shock. It is only possible to backdate the familiar Financial Times Ordinary Share Index to 1930. As might be expected, there were postwar gains extending into the 1950s and 1960s. Even at its peak in the late 1990s, the index was still no higher than in 1936. Today, it is about the same as it was in 1933 or the darkest days of the second world war. Equities have been far from the royal road to capital growth in the US and no road at all in the UK if a sufficiently long time period is taken. The pessimists will say that the economic and financial climate is just not conducive to the cult of the equity in Britain. Alternatively, it might be Wall Street that is overvalued. No doubt there is money to be made by those who are shrewd enough to spot medium- or short-term fluctuations. The rate of interest used to discount future earnings and dividends can change; so can the equity risk premium. And dividend cover can vary. But these changes can be in either direction and cannot carry on indefinitely. In the very long run, the growth of equity values must bear some relation to the growth of the national wealth, allowing as best one can for the overseas elements in portfolios. The growth of national wealth must in turn bear some relation to the growth of national income. Some conclusions follow from these elementary thoughts. Let us assume reasonable success in the main industrial countries in keeping inflation down to present targets of 2 or 3 per cent per annum. Real growth is of a similar order of magnitude. One might therefore expect equity values, to the extent that their behaviour is in line with the underlying economy, to rise in real terms by 2 or 3 per cent per annum and in nominal terms by 4 to 6 per cent, at least as far as the domestic component of portfolios is concerned. The real Standard & Poor's Composite index has risen by a compound 1.9 per cent per annum since 1900. The more rapid 4.4 per cent real annual growth since 1950 can be seen as a catch-up after the stagnant first half of the century. It would be rash to reckon on long-term growth in values much above these modest single-digit percentages. Of course, many standard studies show a higher total return. But they include dividends as well as capital gains, on the assumption that all dividends are reinvested. We need to remember that many holders of securities need to use their dividends as income; and it would be a rare fund that could reinvest everything over 100 years. In any case, it is surely worth trying to study the movement of capital values separately from the dividend return. It was ignoring these very simple macro-economic relationships that led those who a few years ago predicted a rise in the Dow Jones Industrial Average to 36,000 to fall flat on their faces. Up to the 1960s, it was expected that a well-balanced portfolio would contain a large proportion of short- and long-dated fixed interest securities as well as land and cash deposits. Today indexed bonds should be added. But there really is no magic in funded equity investment. www.samuelbrittan.co.uk
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