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6ix

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  1. Using the period of the greatest monetary creation in human history to support your thesis is like saying that you have spent 30 seconds blowing up a balloon and on that basis expect within a year to be able to proudly rival the diameter of the earth. It ignores plenty of contradictory cycles throughout history including, most recently, Japan's experience. However, previous cycles have never had the level of monetary stimulus - if you think the only way is up for UK property and have invested accordingly then I can only say I wish you the best of luck. From a vantage point which includes London commercial & residential developments I am seeing panic set in. The economic the UK faces have the potential to be extremely long-lasting and destructive for the current property-centric wealth profile as monetary policy is going to be far less accommodative for the leveraged. Time will tell.
  2. All CB's have waited as long as is possible to wean their respective economies off ZIRP and have then tried to dictate the rate/pace which has for the most part worked but is now teetering under the influence of market forces. The dynamics are often subtle and there is still far too much emphasis given on month-by-month and even quarterly indicators as opposed to the broader trajectory - this is a myopic viewpoint. There will be a rate hike in May because the markets have priced for one - that is the difference between then and now - previously CB actions dictated market responses wheras now the opposite is becoming true - CB's have to react to market expectations in order to contain major FX movements.
  3. TonyJ gets it^ Some are falling into the trap of ascribing too much importance to individual indicators - markets expect the base rate to rise, are pricing the pound accordingly - one thing the BoE is going to be very careful to avoid right now is causing sentiment-induced volatility - it is sending clear and unmistakable signals at the moment.
  4. What you have to try and remember is that inflation at this point will most likely be caused either by external price shocks (such as oil) or lack of confidence in the UK's fiscal / monetary position. To take an extreme case, if you were going to buy UK bonds in this scenario you would want to ensure that the annual yield compensated you for any likely fall in value over time - if inflation was running at ~5% annually then any bond whose yield was <5% would be nominally falling in value, you would also want to collect some interest along the way and factor for the risk that inflation ran above projections over the term. Inflating away debt doesn't work if one is reliant on continued borrowing, it burns your existing bondholders badly and you better expect them to price future purchases accordingly. Similarly on a domestic level to avoid widespread social unrest / national strikes etc you have to raise interest rates so as to make it possible to get wages up in public and then private sectors. There is a certain amount of "give" with interest rates as consumers can absorb some reduction in disposable income via credit cards and prudence but there is a limit and in many cases people are already at or beyond that. As to impacts on individual debt: If you owe £100,000 your debt technically gets nominally deflated YOY (even assuming IR/CPI parity) by exactly the same extra amount you now have to pay to service it, except that your wages aren't likely to rise nearly as quickly as your repayments will. You are already seeing the effects in the leveraged retail and construction industries even the present baby-steps upwards that IR's are having. For this reason, when inflation starts running out of control interest rates usually have to spike extremely hard to contain it (rather than following it) (see Russia as a recent example) This is also why rising bond yields are going to be so devastating - QE/ZIRP have made bonds a very unattractive investment by depressing yields (since CB's are the buyer), once these normalise you will get huge capital flight out of markets and other speculative bubbles that have now run out of steam. There is no room for maneuver by individual CB's such as the BOE in terms of following the QT path to normalisation - any hint otherwise hits the pound, causes inflation & yields to spike and actually increases the pace at which IR's rise - this is what even the Fed chaiman fears. They will normalise as slowly as they possibly can without losing control, a very delicate balancing act.
  5. A return to 4% is well within the realms of possibility. Surely a sign of fragility if a near-return the historical average is regarded as a doomsday scenario given the UK was battling markets with double-digit rates for much of the 20th century. I suspect the notion that CB's could forever choose their desired rates will not persist for very much longer.
  6. Re: Gov't Props - please try to remember that at this stage all monetary actions have consequences right now - and almost all of them lead, via a chain reaction, to higher interest rates - which is to say the BoE could easily lose control of that process if sentiment were to shift. As to London pricing. I think the present trend continues for some time, YoY falls pretty much everywhere by end of year but once the cumulative pressures start to force quick sales at any price that will accelerate. As the saying goes "Slowly, then all at once". However, as with all data and especially with the frothy volatility that exists right now there will be outliers and contrary indicators here and there - I would urge those of an emotional disposition to stay focused on the bigger (macro) picture.
  7. I just had a look at Zoopla's data. I wonder if anyone has noticed that today the pricing graphs for previous years have been uniformly adjusted down and the last year's data adjusted up - this has been an overnight change that has pushed all areas (even London) that I have looked at into positive territory for 3/6/12mo respectively. I actually saved the pricing graph from a couple of weeks back and overlaid with today the net effect of reducing historical valuations and increasing 2018 valuations has been to show a house price rise in almost all areas I've looked at (eg. London) which had shown a major net decline. I presume it is a change in methodology but it would certainly give a user browsing today a far more bullish appraisal than would have been the case just yesterday. I don't think London rising year-on-year is remotely credible.
  8. If I may say - I would avoid assuming conspiracy and plotting behind indices - the industry actually needs accurate data - that includes investors, developers and all sorts of other participants. There will be contradictory indicators and outliers as may be expected in the current economic climate and it is the plurality of data and how that pertains to pricing momentum that is important. I do wonder if anyone knows of a data source that tracks supply by area month-on-month - I may be incorrect but supply appears to be creeping up markedly which may suggest more rapid price movement is to follow. At any rate, given present conditions, leading indicators and stated policy, it is now reasonable to tentatively assume that in many cases throughout the UK prices have peaked for the foreseeable future.
  9. I honestly don't think the Fed has much choice any more. I think as you say the general issue is that the Fed/BoE/ECB all know but can't admit that QE / LIRP / NIRP have largely failed to provide the meaningful growth and inflation that would have enabled them to be withdrawn painlessly. QE was supposed to enable CAPEX but instead of creating millions of new well-paid skilled and semi-skilled jobs, plant or productivity enhancements it has instead bankrolled over expansion of uncompetitive retail and service sectors while ensuring anyone who can be is fully invested in equities and property. It has also lasted long enough to completely obscure any notions of cyclical risk so that companies are even now frantically engaged in the share-buyback ponzi. The Fed isn't necessarily ending QE because the economy is in danger of overheating but because the dollar itself is now vulnerable with dubious long-term status as reserve currency (which is what facilitates such a large deficit) and that is before you even begin to consider fiscal policy errors which Powell stated today were unsustainable in the longer-term - he also said re: rate an extent of hikes that the Fed does not want to end up having to chase inflation upwards with IR's but he was repeatedly unable to explain the lack of meaningful wage increases over the last decade. I suspect they know full-well that it won't be internal wage growth but rather a collapsing dollar that will eventually make a rapid inflation reality. As the PRC embarks on its own vast metamorphosis to a consumer-driven economy under Xi it is v.unlikely to provide the same level of dollar support that it has done to date. Even if the long-term objective of the Trump administration is to increase tariffs and re-establish manufacturing in the same way that fracking re-established US oil production (one notable success of QE..thus far), the former objective is also a manifestly inflationary policy that the Fed has to try to front-run. If the steel/alu tarrifs are confirmed next week I expect China to reciprocate by flash-crashing the dollar in a far more meaningful and overt way than the announcement (and subsequent withdrawl) of PBOC bond-purchase tapering did a couple of weeks back.
  10. Re: London I think a forum like this is always going to have to self-scrutinize for confirmation-bias and it is good that it is not merely an echo-chamber or it would serve no purpose. That said I also think it is incredible that macro conditions have not had to fundamentally shift much at all to check and derail price appreciation. London property prices have almost certainly spiked and it is extremely hard to see any more upside. These conditions are going to deteriorate as interest rates start to rise and the UK's precarious (knife-edge) financial position puts Gov't / BoE in a position where it doesn't have any firepower left without systemic risk. Similarly, while IR's have been a matter of preference for the past decade, the recent BoE statement was Carney effectively admitting that the BoE is in real danger of losing control of that process if it moves too slowly. Anecdotally what colleagues in architectural services are hearing off the record from London agents in both residential and commercial sectors are that things are looking grim. Having said this, industry press releases have a far more optimistic tone: Case in point: Today's statement from Savills World Research: “Prime residential markets around the world reacted quickly to quantitative easing by central banks and the consequent yield shift in line with low interest rates. This was a one-off yield shift and expectations are that central banks are moving towards raising rates, reducing the potential for price growth. “Importantly, while some cities have recorded small falls, we generally don’t expect these to become significant, but we do expect prices to remain relatively stable, on a high plateau for some time, though we will continue to see volatility in oil dependent economies, for example.” Reminded me of Irving Fisher's classic from 1929 a few days before Black Tuesday: “Stock prices have reached what looks like a permanently high plateau..” Aside from macroeconomic conditions, something of a perfect storm is forming in terms of sentiment and the potential for new regulation. There is additional political pressure (and little risk) at this point for Gov't to further squeeze LL's and overseas / nonresident investors generally so we may well see additional draft legislation in the coming months as HM opposition makes it their key focus. The timeline will probably surprise everyone (as tends to happen) by taking longer than anyone imagines possible to manifest itself and then will probably unwind surprisingly quickly. While I think affordable house prices are absolutely essential for all sorts of social reasons, the ancillary effects of that wider deleveraging process are going to hit hard for many industries who wouldn't consider themselves reliant on HPI whatsoever. I say we are going to be in 2019 before this really hits, it may even take longer but I do think you can see the first signs of the inevitable - to use a roller coaster analogy, the clicking of the chain lift has just stopped and you are now travelling ever so slowly past the apex.. Just my two-cents.
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