Housing Bear

Well said, Dr Bubb! As usual, a master of analysis! HB

Hi RB, I have great respect for your insight, and your postings. However, I believe you are wrong about Precious Metals, especially gold. 1. There is only one way this monumental debt can ever be repaid - via the printing press, or QE, the electronic equivalent. 2. Countries like Russia, China and Middle Eastern countries, which actually have a foreign currency surplus, are beginning to realise Western fiat paper is just that - paper. They are beginning to dump US T-bonds and T-bills, and diversify into commodities of all sorts, and gold. Their central banks are buying gold, and they are encouraging their citizens to do the same. 3. The geo-political world is a disaster waiting to happen. The last time Russia invaded Afghanistan gold doubled in 8 weeks, as wealthy individuals bought gold, not T-bonds. They will do the same again. How long be3fore another big war in the middle East? Not long, I suspect. 4. Inflation is grossly understated both in the UK and the US, as anybody who buys petrol, food, gas or electricity knows very well. 3% - you must be joking. Not in my nearby supermarket - or yours either. 5. The world capitalisation of gold is about $3 trillion - about the same as Walmart. When even a tiny bit of the $600 trillion world debt pyramid diversifies into gold - do you really think that gold will tank? 6. In the Great Depression, which was a true deflationary depression, unlike anything we are seeing now, gold went UP, not down! In the 70's, the last great inflationary decade, gold went from $35 to $840 over 10 years. 7. So in times of crisis, gold historically goes up. I think we are in a time of crisis such as the world has never seen before, unless I am very mistaken. We will see who is right - I could be wrong! By the way gold is VERY volatile, so please be very cautious! But gold is currently going up at 38% per annum in the UK, see www.goldprice.org Best wishes, HB

hi Peak Oil, thanks for this interesting post. I , probably like you, have a fairly large sum in Bullionvault, amongst other gold investments, mostly in Britannias. I am concerned about reports of CGT being dramatically increased. This \will obviously affect investors in Bullionvault, and wonder if you have any thoughts about this? the City is currently objecting! best wishes, HB

Hi. Very interested in your analysis. Could you please provide a link to the forexfactory analysis? I am in the same position as you with NS&I Index Linked Savings Certificates, with 50% in them. The other 50% is in gold bullion. So far the gold is outperforming the NS&I, and I am undecided about whether to change anything! There are good arguments on both sides for inflation and deflation. again, I am undecided, and await events! Logically I would expect inflation, after so much printing of money. However, although petrol and utilities and food are going up, Retail seems to be a disaster zone. As for housing, I simply cannot understand the current situation! Merryn Somerset Webb believes housing will crash. We will all have to wait and see! I simply cannot understand the incredibly high house prices in the middle of the worst recession / depression in memory. Anyway, I enjoyed your post. thank you.

Excellent summary and I completely agree with you. Unfortunately the price of gold is heavily manipulated by the Fed which sells futures on the Comex at opening - you can see it almost daily on Kitco.com. However, as you say, in the medium term gold can only go up. the reasons for this IMHO are as follows: 1. The USD, despite its current apparent strength, is actually in a terminal decline, and their paper has lost about 98% of its purchasing power in the last 100 years. They are drowning in debt, and the only answer the Fed has is to print more dollars, which brings us to... 2. China, Russia, the Middle East, India and Brazil are fed up with holding trillions of useless dollars, which over the medium term are losing value, and are backed by nothing other than the "good faith" of the US. China and India are now encouraging their private citizens to own gold, unlike the 70's. In the case of China and India only about 0.5% of their foreign reserves are backed by gold, unlike most European countries (except for the UK) where the figure is about 25%. If China succeed in their stated aim of bringing the gold up to 12% of their external currency reserves China will mop up ALL available gold for the next 15 years. 3. China, Russia, the Middle East, India and Brazil are quietly dumping their dollars and buying gold. They cant dump their dollars too fast, or the price of dollars will crash. So, it is quietly does it. 4. The Middle East is very turbulent, and this is very good for gold. In 1979 when Russia invaded Afghanistan gold doubled in 8 weeks. War is guaranteed in the Middle East .. It is not a question of if but when. 5. Inflation. The world "appears" to be in a deflation at the moment, but this cannot last long. The true definition of inflation is an increase of the monetary basis and credit. The monetary base in being dramatically increased, especially in the US and the UK. At the moment this extra paper is staying in the bank, who are simply lending it back to their respective central banks at large profits. However, this cannot last long. As soon as that money hits the general population as credit is eased, there will be an unstoppable wave on inflation which will make the 70's look like a tea party, due to the fractional reserve system. 6. Sovereign default. The story of Greece is not over. Whether Greece is bailed out, or Greece defaults, then we have a sovereign default. This will spread to Spain, Portugal, Ireland and the UK. In the US it will be individual stated like California. Again, the sovereign default story will make the sub prime crisis look trivial. 7. With all these factors gold will go up in the medium term. In the short term, because of heavy manipulation of the gold price by the Fed, the price of gold will be very volatile. 8.Eventually futures prices will have to be settled in physical gold. There is about one cubic tennis court of gold on the whole planet. All mining activity is increasing this cube by 1mm per year. It is anyone's guess how much futures paper gold there is, but eventually there will be a short squeeze on physical gold (and silver). 9. For the gold price to be equivalent to the peak in 1979 it would have to be $2100 approx. The situation is dramatically worse than 1979, and the eventual price, when the public start buying in phase 3 of this long term secular bull market is anyone's guess - but will almost certainly be far higher then $2100 for all the reasons above, with violent gut wrenching fluctuations of 30% on the way. I am 50% of my net worth in gold, but it is a very bumpy ride!

Hi Dr Bubb, Thank you for your comments. Could you very kindly give us all a snapshot of life in Iceland, since I fear Sterling may collapse. If Sterling does collapse, how should simple minded folk like me ideally be positioned, please? Many thanks.

1. By mid 2010 the government will have increased QE from £150 billion to £300 billion, just to pay their bills. By then no foreign government will want to own Sterling, and Fitch, Moody and S&P will downgrade the UK to AA statues, resulting in a flight of capital from the UK, before exchange controls are imposed. 2. Interest rates will have to rise to prevent a follow on from Iceland and Dubai, and even that my not prevent the UK going the same way as Iceland. 3. Savers will be wiped out as QE increases more, and holders of debt (government and everyone with any kind of debt) will finds their debt paid off for them by the worthless GBP. 4. Think Iceland. 5. The only survivors were those who had their cash in precious metals - which is why the central banks of China, Russia, India, and the Middle East are now so keen to own gold, rather than paper fiat currency of any country. 6. Think I'm daft?The debt hole is so deep that no amount of public sector cuts, increased taxes, or both, will make the slightest difference. 6. A simple study of countries over the last 2 centuries with similar situations to ours ALWAYS do the same - inflate the money supply. 7. Currently it's 14%, which mean inflation correctly measured is 14% now. 8. By mid 2010 it will be 20%, by which time this inflation monster will be unstoppable.

Sorry to disagree with you all, guys. Central banks are now buying gold, especially China, Russia, India, and Middle Eastern Banks. The Western Nations are printing money at Mach 10 speed, and the holders of all this Western paper want OUT of it, into TANGIBLES. What do you expect them to buy? Well, they haven't asked you! They have all stated that want to dramatically increase their holding from an average of 2% of gold to similar to EU, ie 25% gold. This will mop up all gold for many years! India just bought 50% of the whole world's gold mining output for 1 year! China is encouraging its citizens to own gold, not T-Bonds. How sensible is that! In the UK gold has gone up from £200 per oz in 2004 to today's all time high of £702 per oz. What other investment comes even close? Yes, it's very volatile, but it goes up in times of uncertainty. When Russia invaded Afghanistan it doubled in 2 months. If there is one word that could be used to describe the whole world's economic situation, it is ... uncertainty. The world is unstable, the Middle East especially is unstable, and money supply is increasing dramatically. Sensible central banks store gold bullion not Western paper to protect their currencies. This is exactly the sort of situation that breeds gold mania - which is what we are seeing now. It is not that gold is going up, but that weak currencies are going down, in a competitive devaluation of currencies paying virtually no interest. Why would a foreign central banker want to own GBP, when it is being devalued daily, and paying no interest? There is now no lost "opportunity cost" of owning gold compared with bonds, since neither pay any interest. This is significant. Yes, there may well be a retracement of gold, up to 20%, but the big central banks buyers will simply use that as a buying opportunity -in effect, the Chinese put. We will see, won/t we! Best wishes, HB

Yes, I dont see any alternative! How are they going to pay off the debts in a depression! Tax receipts are falling, government expenditure is rising. There is only one time honoured rout left. It is now called QE, but used to be called PRINTING MONEY! The UK could easily be another Iceland.

BRILLIANT! That explains it then. Is it possible to provide a link to the DataQuick article? Assuming this is correct, this is the most important news on HPC at the moment. Well done! Housing Bear

Relax! The "value" of UK housing used to be £3.5 Trillion, with about 60% of that value mortgaged. This has now dropped nominally by say 15% to £2.9 Trillion. There simply is not enough cash around to support the buying and selling of houses without FTB's, especially in a severe recession. It was the greatest Ponzi scheme of all time, but will take some years to unravel. The current "green shoots" in the housing market is NOT FTB's buying expensive houses (IMO) , but STL's buying houses, because they are frightened. But the VOLUME is right down - this is a very thin market. This has already come to an end, simply because cash rich buyers are not a common species. The housing market cannot survive without FTB's, like any other Ponzi scheme. In July, according to Rightmove, house prices declined by over 2%. After the next election there will be massive redundancies in the public sector, whoever wins the election. Reposessions will increase. Watch the housing crash really move then!

The original question posed on this thread was INVESTMENT, not trading. You appear to have missed out on your homework. Study the 5 year figures of the report below, and tell us all, honestly, where you would prefer to INVEST your money over a five your period. I am discounting the current bear market rally, which also occurred in the 1930's, and caused many people who had not already gone broke on 1929 to go broke anyway. http://blog.goldassets.co.uk/2008/12/24/go...tlook-for-2009/

Not a good reply to your question, but global gold mines in GBP is AUCP. If you can find a global silver mine ETF I would be delighted to hear about it! Best wishes.

Hi Guys, You might enjoy this bear food from the US. 6 minute video called "Last Warning: If you buy a house you are going to get killed" http://inflation.us/videos.html Best wishes, Housing Bear

Answer: I have physical gold in www.bullionvault.co.uk, and physical silver in www.goldmoney.com . However, I also have ETF's in gold ( PHGP) and silver ( PHSP) . These mirror the bullion prices almost exactly. I personally prefer to hold my ETF's in gold and silver denominated in GBP, rather than USD. However, be warned. ETF's are probably OK, but most people would prefer to hold physical bullion rather than "paper gold", whuch must have a risk of third party default ( counter party risk) however small. I would welcome other people's opinion on this. Best wishes.

Very, very interesting. How reliable is this, given that everyone is so rude about gold? (I do have a small amount of gold, so I'm not rude about gold!)

Quite corect! If the housing market does fall anothjer 40% from here, as suggested by James Ferguson of Moneyweek, this will potentially cause a lot of bad feeling between the two generations.

Get Ready for Inflation and Higher Interest Rates http://online.wsj.com/article/SB1244588889...Tabs%3Dcomments GRAPH: http://online.wsj.com/article/SB124458888993599879.html Quote: The unprecedented expansion of the money supply could make the '70s look benign. By ARTHUR B. LAFFER Rahm Emanuel was only giving voice to widespread political wisdom when he said that a crisis should never be "wasted." Crises enable vastly accelerated political agendas and initiatives scarcely conceivable under calmer circumstances. So it goes now. Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That's more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers' expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries. With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs -- such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid -- are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises. But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s. About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base -- which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash -- by a little less than $1 trillion. The Fed controls the monetary base 100% and does so by purchasing and selling assets in the open market. By such a radical move, the Fed signaled a 180-degree shift in its focus from an anti-inflation position to an anti-deflation position. The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10 (see chart nearby). It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base -- which prior to the expansion had comprised 95% of the monetary base -- has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base. Yikes! Bank reserves are crucially important because they are the foundation upon which banks are able to expand their liabilities and thereby increase the quantity of money. Banks are required to hold a certain fraction of their liabilities -- demand deposits and other checkable deposits -- in reserves held at the Fed or in vault cash. Prior to the huge increase in bank reserves, banks had been constrained from expanding loans by their reserve positions. They weren't able to inject liquidity into the economy, which had been so desperately needed in response to the liquidity crisis that began in 2007 and continued into 2008. But since last September, all of that has changed. Banks now have huge amounts of excess reserves, enabling them to make lots of net new loans. The way a bank or the banking system makes new loans is conceptually pretty simple. Banks find an entity that they believe to be credit-worthy that also wants a loan, and in exchange for the new company's IOU (i.e., loan) the bank opens up a checking account for the customer. For the bank's sake, the hope is that the interest paid by the borrower more than makes up for the cost and risk of the loan. The recently ballyhooed "stress tests" on banks are nothing more than checking how well a bank can weather differing levels of default risk. What's important for the overall economy, however, is how fast these loans are made and how rapidly the quantity of money increases. For our purposes, money is the sum total of all currency in circulation, bank demand deposits, other checkable deposits, and travelers checks (economists call this M1). When reserve constraints on banks are removed, it does take the banks time to make new loans. But given sufficient time, they will make enough new loans until they are once again reserve constrained. The expansion of money, given an increase in the monetary base, is inevitable, and will ultimately result in higher inflation and interest rates. In shorter time frames, the expansion of money can also result in higher stock prices, a weaker currency, and increases in commodity prices such as oil and gold. At present, banks are doing just what we would expect them to do. They are making new loans and increasing overall bank liabilities (i.e., money). The 12-month growth rate of M1 is now in the 15% range, and close to its highest level in the past half century. With an increased trust in the overall banking system, the panic demand for money has begun to and should continue to recede. The dramatic drop in output and employment in the U.S. economy will also reduce the demand for money. Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It's a catch-22. It's difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed's actions because, frankly, we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn't a pretty picture. Now the Fed can, and I believe should, do what it must to mitigate the inevitable consequences of its unwarranted increase in the monetary base. It should contract the monetary base back to where it otherwise would have been, plus a slight increase geared toward economic expansion. Absent this major contraction in the monetary base, the Fed should increase reserve requirements on member banks to absorb the excess reserves. Given that banks are now paid interest on their reserves and short-term rates are very low, raising reserve requirements should not exact too much of a penalty on the banking system, and the long-term gains of the lessened inflation would many times over warrant whatever short-term costs there might be. Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury's planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds. In addition, a rapid contraction of the monetary base as I propose would cause a contraction in bank lending, or at best limited expansion. This is exactly what happened in 2000 and 2001 when the Fed contracted the monetary base the last time. The economy quickly dipped into recession. While the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating. For Fed Chairman Ben Bernanke it's a Hobson's choice. For me the issue is how to protect assets for my grandchildren. Mr. Laffer is the chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy -- If We Let It Happen" (Threshold, 2008). Exploding_monetary_base.doc Exploding_monetary_base.doc

About 3 months, at a guess. These Halifax and Nationwide House Price Indices are based on Mortgage Applications, and are adjusted for Seasonal Variations, see below. So you can correctly conclude that there has been more mortgage money allocated to House Purchase in the recent months in question, and these have been seasonally adjusted. In view of the talk of Green Shoots everywhere, this is hardly surprising. However, this does not alter the underlying problem, namely that: 1. Unemployment is rising. 2. Houses are too expensive, both for FTB's and BTL's, who supported the last boom. 3. House price multiples of income are still way above the historic 3.5. 4. First time buyers cannot afford a house. 5. The banks are basically bankrupt. 6. Mortgages cannot now be packaged and sold off. 7. Markets virtually never fall in a straight line, which is why forcasting is so difficult. 8. According to Elliot Wave Analysis, a classical Bear Market is a typical 1,2,3 Wave, with Wave 2 in a bear market as a bear market rally. I believe we are now seeing wave 2 in the stock market, and the housing market. 9. If I am correct about Wave 2, the next Wave 3 will be a massive crash. 10. Warning: Elliot Wave analysis is extremely difficult, in allocating exact waves ( sadly) so please do not put to much credence on the Elliot Wave analysis! IMO the long term trend is down, with a short term rally in house prices. The Land Registry Index, which is the only index that tracks actual sold prices, is still DOWN! Best wishes, HB Halifax/Nationwide The methodology: The Halifax and Nationwide indices are two of the most widely quoted in the press. For both indices, figures are based on a monthly sample of mortgage applications. From these purchases a standardised house price is reached, and seasonal factors are applied. The downside: Only tracking homes bought with a mortgage ignores a significant chunk of the market - properties bought with cash. Land Registry The methodology: The Land Registry arguably has the easiest job in tracking the property market as it has evidence almost all sales made. It then averages all sale prices and compares them with the previous month. It also uses the Repeat Sales Regression method to ensure properties are compared like-for-like. The downside: While the Land Registry has the largest sample size, and covers nearly all sales in the UK, its data lags behind other indices as it takes time to compile. Also, not even the Land Registry can record every sale made.

These Halifax and Nationwide House Price Indices are based on Mortgage Applications, and are adjusted for Seasonal Variations, see below. So you can correctly conclude that there has been more mortgage money allocated to House Purchase in the month in question, and this has been seasonally adjusted. In view of the talk of Green Shoots everywhere, this is hardly surprising. However, this does not alter the underlying problem, namely that: 1. Unemployment is rising. 2. Houses are too expensive. 3. House price multiples of income are still way above the historic 3.5. 4. First time buyers cannot afford a house. 5. The banks are basically bankrupt. 6. Mortgages cannot now be packaged and sold off. 7. Markets virtually never fall in a straight line, which is why forcasting is so difficult. 8. According to Elliot Wave Analysis, a classical Bear Market is a typical 1,2,3 Wave, with Wave 2 in a bear market as a bear market rally. I believe we are now seeing wave 2 in the stock market, and the housing market. 9. If I am correct about Wave 2, the next Wave 3 will be a massive crash. 10. Warning: Elliot Wave analysis is extremely difficult, in allocating exact waves ( sadly) so please do not put to much credence on the Elliot Wave analysis! IMO the long term trend is down, with a medium term rally in house prices. The Land Registry Index, which is the only index that tracks actual sold prices, is still DOWN! Best wishes, HB Halifax/Nationwide The methodology: The Halifax and Nationwide indices are two of the most widely quoted in the press. For both indices, figures are based on a monthly sample of mortgage applications. From these purchases a standardised house price is reached, and seasonal factors are applied. The downside: Only tracking homes bought with a mortgage ignores a significant chunk of the market - properties bought with cash. Many of these are in the super prime market (properties over £10m) which is currently the only sector resisting the downturn (source: Frank Knight Estate Agents). Nationwide claim their data is more accurate than the Halifax due to updates made after the 1991 census. Land Registry The methodology: The Land Registry arguably has the easiest job in tracking the property market as it has evidence almost all sales made. It then averages all sale prices and compares them with the previous month. It also uses the Repeat Sales Regression method to ensure properties are compared like-for-like. The downside: While the Land Registry has the largest sample size, and covers nearly all sales in the UK, its data lags behind other indices as it takes time to compile. Also, not even the Land Registry can record every sale made.

No need to be rude about Financial Planner. He was stunningly accurate in his, at the time very unusual, predictions of a HPC, back in 2006, and earlier. He was one of the main reasons I sold my house in 2006. Sadly he received a lot of flack on the site, or so I understand. This site is much the poorer for his relinquishing his role as HPC spokesperson, although I completely understand. Come back FP, we miss you.

Dear VMR, thanks for this fantastic chart. Could you occasionally post an updated one? Many thanks, HB

This seems to be developing into a thread for traders - great. I have a problem, and perhaps one of you guys who know more about trading than I do can help out. I am long gold, silver, and crude oil. they are all doing OK in USD, but not in GBP. The CL contact is denominated in USD, not GBP. CL is going up in USD, but OILB (Brent crude in GBP) is not. Since I am long CL, should I spreadbet short USD/GBP for the same value as the CL contract because my gains in CL are (mostly) being lost by the rising GBP against USD. I obviously dont know as much as some of you guys, and would appreciate your comments. Sorry, I'm a bit of an amateur!

This article is more about the very real risk of a collapse in Sterling than buying gold. MSW is absolutely correct. 1. There IS a very real risk of Sterling collapsing. More so mow than when MSW wrote the article. Since then our infamous and discredited government has decided to borrow £750 billion over 5 years ( and that is based on their "green shoots scenario"), have reduced interest rates to 0.5%, have already printed £125 billion, and their gilts auctions have FAILED. Why anybody would want to buy UK gilts is completely beyond me. So there IS a very real risk of Sterling collapse, just like Iceland. 2. Should that happen, the IMF will impose severe rules, interest rates will skyrocket, inflation will skyrocket, banks will be even more insolvent than they are now, and the housing market will completely collapse, through lack of funds. 3. So MSW is absolutely correct. Buying Gold, as an insurance against a Sterling collapse as a direct result of government debt is the only safe bet. That MSW is a seriously shrewd lady, and I wish this thread would talk about her, which is what this thread is supposed to be about!

Thanks, Conveyancer, that is the best analysis of the market I have read in the last six months! Please keep us all informed! I rate you up there with Merryn Somerset Webb for actually useful analysis. I was always very suspicious of the "green shoot" stuff in the face of rising unemplyment, and now my mind is completely made up! Thanks again! Brilliant!