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Everything posted by Wad

  1. Fools Gold - oil and gas in the deep South Atlantic has been talked of for decades. a geologist friend of mine explaned that people thnk it is there because of the fields in Argentina and the slope of the starta in teh Soth Atlantic but nothing major has ever been discovered. Even if it exists, the enormous engineering task that woudl be required to bulld rigs that withstand a pounding from the 'rollers' in the South Atlantic and also icebergs is too expensive. Finally, the oil is also far too far from major markets and would have to be loaded off floating storage in the open sea.
  2. You are right. I did the calculation for the house I now rent and posted it a few days ago. My reservation though was that rents are falling in my area and am sure I will be able to rent my house for 10% less than I am paying now when the lease comes up for renewal. That potential deflation in rents is the real killer. If rent fell by 10% then it would slightly swing back to renting again until mortgage rates hit 3% APR - which will be when the Bank Rate hits 1% - and that coudl be as early as February 2009. All in all, I think 31 December 2008 will be the last day that I can comfortabl;y say it is cheaper to rent than buy and it now depends on how much more I am prepared to pay in rent in order to avoid a potential capital loss.
  3. I agree. For example, when I was a student in Oxford many of the large villas on Woodstock Road and Park Town near to the centre of Oxford were lived in by academics or owned by colleges and in very poor shape. Now many have been bought and done up in the hosuing boom and are in beautiful condition. It only made sense to spend £250k resoring a Victorian villa in Oxford when people from London came up and bought them for £750k and then ended up with a house worth £1.5 million only five years later in the boom time. I have taken a close interested in Listed Buildings for some years and I have noticed that there are now very few houses on the 'At Risk Register' - especially where house price inflation has been highest. Even derelict old industrial buildings have been bought and turned into flats. It was not always so. In the 1950s/60s when house prices were depressed and income tax and inheritance tax were high old country houses were knocked down rather than restored because the cost of restoration was more than the house would be worth. Indeed, there was race to knock them down when the threat of Listing came in. I have a friend in Ireland who has a large ancestral home that eats money in repairs. He only lives there in holidays and he shares it with his extended family. Now that house prices have fallen back dramatically in Ireland it is just millstone round his neck. Not worth anything to him as the mainatinece costs exceed any rent he could bring in and and would cost a fortune to fully restore to its original condition.
  4. When I read this story last week I has the same reaction as the original poster...HORROR!. However, there are a number of factors that make it less likely to be a problem. The major factor is that the BoE is about to start quantitative easing which means that when the UK Govt needs to roll over its debt it can simply issue new Gilts to the BoE who will print money and buy the Gilts or shorter term T Bills. Even if no foreigner turns up to buy the debt it will still be rolled over by virtue of the BoE standing ready to be buyer of last resort and therefore no default will occur. Indeed, it the BoE buying the debt will fit right in with the quantitative easing plan that is designed to prevent deflation. The second major factor is that the BoE also plans to buy commercial paper and asset backed securities from banks that are made up of bundles of car leases and credit card payments - all essentially short term debt instruments. The only short term loans that are not covered by the BoE buying it up directly are the overdrafts that individuals and small and medium sized firms have with banks. Again, there is a plan and that is that Govt wil issue default guarantees for all new loans to businesses. In addition the BoE wil continue to provide liquidity to UK banks through it various liquidity facilities as they exist now. They may even add large firms to these facilities. In essence therefore most of this short term debt maturing in less than 1 year already has a promise attached to it that the BoE will either print money to buy it and or the Govt will guarantee UK banks against defaults by small firms and perhaps even individuals with overdrafts. In the end this plan will lead to inflation but for the short term this is not a problem - hence it is containable for a year. After that ... ALL HELL BREAKS LOOSE!!!
  5. To be fair, I think the OPEC leaders have a point. Mr Naimi has been making this point for many years. In essence, if you assume there is a given world demand for oil at each price level at the consumer end of the market then if Govts in consumer nations impose oil duties that reduces the potential total revenue OPEC gets from selling its oil. In many ways its no different from a pirate, bandit or higwayman standing at the dockside in the UK demanding a 'docking fee' or 'protection money' to allow the oil to be unloaded.
  6. Was there a happy ending? Go on its Xmas and we could all do with cheering up.
  7. In all my years as risk manager in investment banks - the one thing that I repeated over and over again to senior managers was never ever let your traders or anyone in charge of managing client money value and report ther own positions and performance. Look at the Nick Leeson Barings debacle. He ran the trading as well as having influence over the back office accounting system. Throughout the entire recent disaster of asset backed securities and other illiquid assets I have heard time and again that traders were effectively deciding what prices these assets should be valued at and then those prices were fed to the back office and used in the P&L and risk management systems. Mr Madoff has huge personal influence over the fund management process and from what I read here I assume he had significant influence over the process of reporting the performance as well. I may have misunderstood but that is what appears to be being said here. It should never ever happen. Trading and performance and risk reporting always have to be separated not just by walls but also by a mechanism that prevents traders and fund managers having any influence at all over what is reported internally or externally. I once found a trading firm that had a man and wife team in it. He did the trading and she reported his P&L and risk to senior management. I advised management to change that reporting relationship and a week later they did. I beleive the man and wife team left shortly after.
  8. Calm down everyone. Its just ships dragging their anchors. It happened last year as well. There are some pretty big storms out in the Med. They should armour the cables, put them in deeper trenches and stipulate a 'no anchoring zone' in the area. Problem is that Suez canal and SUMED pipelines exit in the Med in the area and the ships have to wait to enter the canal and dock to load and offload into SUMED so they drop anchor to wait their turn and then a big wind kicks and before long you have anything up to 250,000 tonnes of ship and cargo pulling on the chain and its bound to rip the sea bed up. Read the story. http://www.cnn.com/2008/WORLD/meast/02/01/internet.outage/
  9. They never seemed too bothered about the accuracy of their forecasts when the market was going up - often they were too low in their forecasts of price rises. As a professional econometrician I understand very well that 'error' is in the very nature of forecasts but it does not mean stop making them when you are wrong. You explain why you were wrong and adjust your model accordingly using objective criteria. My view is that we will see another 15% off prices by September 2009 and then very shallow falls over a long period as the effect of interest rate cuts kick in offset by falling wages and job losses. Eventually, the ratio of house prices to wages will equilibrate around 3 x average salary as they always have over the last 75 years.
  10. Plain fact is that most people do not earn enough to have a pension. Not withstanding our views on the value of houses on HPC most people would be far better off in the long term to simply get a higher salary from their employer in lieu of pension contribution and then pay off their mortgage and other debts as soon as possible, put 6 months of cash aside to guard against redundancy etc and then invest the remainder in index linked Gilts at RPI + 2%. At least their investment would go up at the same rate as wages with no fees and no risk. The pension crisis is already upon us and is really a manifestation of the fact that as a country the UK has collectively consumed its own future through excessive borrowing and over consumption and has not therefore put enough aside for people entering old age. I have no pension and expect none from the state as I am 45 now. I know it sounds grim but I can forsee an increasing pressure form old people to be allowed to take their own lives in a managed way when they run out of money and have no enjoyment from life. Sadly, it happens in Japan already where self reliance is a very powerful force in society and debt is still a shame. Let me emphasise, I am not advocating this as a solution and I absolutely wish there was a much better way out of the problm that consisted of a good basic pension system and a kinder more humane healthcare system to look after old people. However, I can see a horrible day in the not too distant future where society will demand the right to end ones own life in a dignified way at a time of ones own choosing. Even more horrifying, the State may agree on the basis that it will be cheaper. I have heard that some ancient tribal societies practiced this kind of 'agreed sacrifice' by the elderly in times of famine so that the young could survive to bear children. I know that politicians do not want to think about these issues - indeed I don't - but we are going to have to otherwise many old people will be living in abject poverty, alone and dying in terrible circumstances.
  11. To be honest I haven't had a proper job for 10 years. The last one I had, I asked the company to make me redundant because I was so bored. I had been hired on a 1 year guaranteed contract and they eventually agreed to do it after just 4 months of work. I got a year of salary and most of that tax free. After that I did a PhD for fun, expert witness and consultancy work. I work with my wife investing our own and othe rfamily money now but I have been quite underutilised for the last 2 years as there have not been many investment opportunities so I started doing voluntary work for a local charity that does debt counselling and small consumer loans. Working for a firm is a nice way to get out and meet people really but if you are underemployed or just not enjoying it - then best to move on in my view.
  12. Interesting. I just went shopping and made sure I got plenty of £5 and £10 out of the bank. I had no problem getting it but I just suddenly thought as I was walking past " I wonder what woudl happen if I could not get any cash out until 1 Jan 2009". Of course I am sensitive to this issue because of all the stuff posted on HPC but it does seem to me that quite inadvertently a bank run could develop and a panic ensue because everyone has heard of banks failing now. Bank machines running out of cash for purely logistical reasons might just be the catalysts. I will have spent most of it by stocking up in the next few days that should carry me all the way through to New Year but I just want to make sure I can carry on normal life for a while without using my credit card, cash card or the bank. I have plenty of food and drink in and seeing relatives too so I booked my train tickets and got them sent to me well before Xmas.
  13. I was about to say that the lack of real jobs for under 30s and endemic nepotism is very very similar to the Middle East. It is a major concern for all Govts across the middle East that it will eventually cause unrest which is why the oil wealth those countries have is spooned out at an alarming rate in the form of free electricty, low cost fuel, non jobs in this Ministry or other, huge social welfare programmes and all the real work is done by foreigners. The oil price falling will curtail the spending as the economies shrink and that is when the youth in all these places become very unhappy. Someone very close the top of an oil ministry in a Middle Eastern country once told me that although his countrymen often had very good degrees their ability to manage and organise labour was not up to Western oil company standards which is why the oil industry was staffed by foreigners being 'shadowed' by local managers. I have met many of the younger managers in the oil industry Middle Eastern countries and they almost all are very very bright able people but in the end the system of Govt and the way the jobs market works means they eoither emigrate or just buckle under. Greece, Spain and to some extent France is the same. Familial relationships are very important and that is how jobs and influence are allocated. The riots we are seeing in Greece are acknowledged to be a toxic mix if poor economic prospects and disatisfaction with Govt. The same wil happen in the Middle East and also in China where there are now millions and millions of unemployed people being thrown out of factory work. The global economic downturn has major implications for civil unrest in many countries.
  14. Interesting that the BBC is carrying a similar story about parents pulling their kids out of private school and putting stress on the state system. http://news.bbc.co.uk/1/hi/business/7790161.stm One in 10 English councils is seeing increased demand for school places as parents switch from private to state to save money, a report suggests. The Audit Commission's report into the effect of the credit crunch on councils showed an increasing demand for their services as well as a drop in income.
  15. The key question here is whether the assets are being given to employees at face value or at fully written down value. If it is at the fully written down value then the senior directors who seem to be getting the majority of the pot will benefit from a huge extra unearned bonus on top of what they have already been awarded when the value of the assets recovers to more normal levels. If the bonus is paid in bonds valued at the face value of the bonds and locked up for five years that would be a real sign that the senior directors were really sharing the pain as they would face significant downside risk and almost certainly realise less than the full face value of the pot.
  16. Had a similar thought myself last night and sat down to compare rent and mortgage payments on a few properties I have been looking at. Here are my calculations for the property I now rent: Realistic current market rent = £2000 per calender month = £24,000 per annum Assuming I could buy the house for £550k (including stamp duty) which is what my landlord bought it at about 4 years ago and did £50k of renovation = £600k If I got a 100% LTV offset Base Rate Tracker at First Direct @ 3.6% APR = 3.6% x 600k = £21,600 mortgage payment That leaves £2,400 to cover running repairs, decoration, insurance which I think makes rent versus buy just about breakeven on a pure cash cost basis at the moment but with no risk premium for the potential risk of capital loss I would be taking by buying. With another 1% Bank Rate cut possible in the New Year and if Libor falls by about the same amount then I may buy BUT that decision is based on what the current market rent for my house is compared with the mortgage. Rents fell by about 10% where I live and if they fall say another 10% next year then the renting decision may well still look better on a cash cost basis. That said, house prices might also fall because I do agree with another poster on this thread that a lot of older people are not going to be getting any interest on savings so may be forced to sell their house to release capital. With house prices galling I cannot see many taking even more out of the house on MEW. In sumamry, it really seems to boil down to how fast rents fall compared to house prices next year.
  17. A very inyteresting post FD. I was watching newsnight last night and Simon Wolfson was on (he is CEO of Next) and he was saying the same as you. His costs of imported clothes are going up because of weak Sterling and that Next would be forced to pass it on in the New Year. He too did not see very high risks of deflation. He did also say 2009 was going to be a very tough year and that all he could do was focus on controlling cost and letting things play out. One bright spot was he though the interest rate cuts and fuel price cutss would feed through into consumer pockets eventually towards the end of 2009. Most crucially, he said the 2.5% VAT cut would make no difference as the increase in his input cost would wipe out any benefit so consumers would not see it in the retail price. My feeling was that he preseneted a balanced realistic view but the one part I think he did not acknowledge was that if he did pass on costs in the sticker price on the shelf he might not sell anything. His view that consumers had more spare cash as mortgage rates and fuel prices had fallen was correct - but that does not means they will spend it. Some may lose their jobs and many will still be paying down debt from the good times so they may continue to spend less and focus on restoringtheir balance sheets. What FD is saying here is that sales volume has collapsed along with gross margin. My feeling is that while prices may rise volume will drop so total turnover (sales) will drop and hence gross profit and net profit and therefore in 2009 I think we will see many more businesses going to the wall because the banks will foreclose ASAP on anything that is not making a profit. Others will of course continue to fail due to cashflow difficulty and still others as their debtors (i.e customers) default.
  18. I was chatting to someone the other day who works in financial markets and for a joke we decided to see if we could work out how to lose $50 billion. We were a bit drunk but we failed - we just couldn't work out a rational and logical way of doing it. Still, if the stories are true and if Mr Madoff has lost $50 billion you have to say at the age of 70 he really has left his mark on the planet. At least he can say he went out with a bang. Maybe he has already come to terms with it.
  19. I think I can forgive brassed of brit for missing it. Not everyone reads HPC obsessively every half hour like me.
  20. The letter from Mervyn King explainng why the inflation rate has overshot target is here along with the Chancllor's reply http://www.bankofengland.co.uk/publication...ws/2008/128.htm The part that annoys me is the lengths that Mr King goes to in explaining away the inflation overshoot in 2008 as a result of rises in global commodity prices and therefore essentially outside BoE control and yet as soon as the global commodity price drop begin feeding into UK CPI/RPI the BoE immediately responds by dropping interest rates. He also states that monetery polic is only able to influence inflation in the medium to long term. In other words a short term change in commodity prices will cause UK inflation to change and therefore by implication monetary policy should not respond to that short term change. If so, why have interest rates more than halved in a short space of time as soon as oil prices started dropping and CPI is still way above target? More to the point why were interest rates no being raised aggressively increased when inflation started to take hold in house prices and other goods and services a few years ago?
  21. The frightening thing is that in the early part of the 20th Century Argentina used to have a GDP per head similar to that of the UK, France and Germany. It was the disasterous popilist policies and hyperinflation of the late 1940s, late 1970s and late 1990s caused by the preceeding years of unsustainable ecoomic expansion under nationalist socialist (Peronist) governments that have strong support from a heavily unionised workforce that has caused the collapse of the middle class. I have been to Argentina several times and it is a beautiful cultured country with a terrible tendency to financial self destruction. A highly unionised workforce with political power to deliver a President into office means that unfunded concessions on welfare benefits, wages and other socially popular spending policies inevitably lead to unssustainable booms, busts and hyperinflation .... which could never happen in the UK .
  22. I am have a lot of time for Strauss-Kahn. He has been warning for quite some time about the dangerous global financial system imbalances. Totally agree with him here on this. Civil unrest is inevitable and I include the UK in that.
  23. Well the original post looks good to me. Makes a lot of sense. I have always wondered how the Weimar Germany chaos actually played out and why it happened. I have struggled with the inflation/deflation scnerio for the last few years. I definitley think we are in for a deflation period now which is why I shifted a lot of my investments into cash and Gilts a few years ago and kept only defensive low geared cash generating equities. However, I remain worried about a sudden burst of inflation eroding the value of nominal bond assets. My view is that once central banks rates fall to zero or close to zero and 'quantitative easing' - which is just printing money - gets started I am really going to have to buy a house as a real asset at least I can enjoy the stream of rental payments I will be avoiding. I still remain cautious about gold. True it is a real asset but my worry is that it will collapse in price along with all other commodities during the deflationary period of the next few years. Only when inflation/hyperinflation gets going will it recover - but so will all other 'real' assets such as houses.
  24. The Govt website says that if you sell and make a loss you do not have to pay back the Govt. It is a free loan for the first five years. I am just waiting for a better offer. Lets say a 50% home equity loan for 5 years with no restrictions on the type and age of property you buy. I think they will do a scheme like this in the end - but what will be really sweet is if the scheme comes out after the market has already fallen 30 - 40%. That woudl be a no brainer but everyone who had bought before 2009 would be so traumatised from their losses few would be willing to take the risk of buying another house.
  25. I said on here a few months ago in a thread discussing Shared Equity schemes that we should all wait until the Govt sweetened the deal to the point that they started giving away free loans and guaranteeing that you would not have to pay back the equity if the house fell in value. Well, they have done the first bit - now just wait for the 'absolute price guarantee' part which will be aimed at restoring confidence. Indeed if they do start quantitative easing the 'home equity' loan will be counted as an asset the Govt can take to the BoE and exchange for cash. We are not quite there yet but wait a bit longer and a 'no brainer deal' wil be made by the Govt in a desperate attempt to get people to buy houses.
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