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What Would It Take To Admit You Are Wrong?

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So, it is summer 2013.  6 years from peak, 4 years from the nominal bottom.  We’ve been treading water at 160k for how long?  And those interest rate rises, where the ****** are they exactly?  The hyperinflation?  Need I go on.

My point is this - I used to believe many of the tropes on this forum, that markets are in control of interest rates, that eventually there would be a Great Reckoning.  Well, 2007/08 happened, there was a crash.  30% off in real terms is nothing to sniff at, but unfortunately it still leaves most of the young trapped.  It was just the froth.  Then there was massive government intervention.  Couldn’t last I thought.  

I started doing some trading (mildly profitable, but not enough to justify the time/effort/stress involved).  One thing I learned was the importance of stops.  If you take a position in the market, you should have a view as to what is happening.  You should also have a view that if the market moves in an unexpected direction sufficiently far, you are wrong and need to rethink your position.  Stops save you money in the long term and prevent delusional, wishful thinking.

When by 2011, it was pretty clear things were being held together, I had to rethink.  I was being mentally stopped out, so to speak.  How exactly did the monetary system work?  Clearly there were gaping holes in my knowledge because the model I had in my head did not reflect the reality I was seeing.  My research led me in a few wrong directions, but I know broadly understand that interest rates will remain low and the wealth transfer of the Blair years will now be set in stone.  

How will I know I was wrong?  Ok, if I see interest rates rises due to external pressure and not government policy, I’ll know I was wrong.  If I see the pound fall below 1.30 to the dollar, I’ll know I was wrong.  If a sustained economic recovery occurs (2% - 3% growth for 2 -3 years) without an increase in investment as a proportion of GDP, I’ll know I was wrong.  However there could be improvements in GDP due to re-leveraging of the population via Help to Buy and their ilk, but I think that the deleveraging as a whole is not far enough along for this to work other than as a short term jolt.  Osborne will do his best, because with 2 years to go, he is out of options.

So, what about you?  What are your stops?  At what point would you know you are wrong and need to re-think?  There are a lot of people on here with their “when interest rates rise” who are starting to sound like some nut on the mountaintop talking about “when Jesus returns”.  Let’s have some concrete numbers and/or dates.  What’s your view and what are your indicators to prove you are wrong and need to re-think?

Edited by FaFa!

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The Tories just had a circle jerk over getting GDP back where it was when they got in.

Long long way to go (and plenty of cans to be kicked) yet.

Interest rates will have to rise at some point, else we'll continue to stagnate. And don't forget the boomers will pop off soon and an entire generation below can't afford all the big houses they'll be wanting to sell once they stop selling to each other.

Edited by byron78

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Well, 2007/08 happened, there was a crash.  

Nope. The crash hasn't happened yet. All they have done is postpone the inevitable day of reckoning.

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It all depends what wrong is defined as. Look at my sig - I set my stall and admit incorrect predictions.

But overall, I am still right that housing in the UK is unaffordable, and cannot continue that way for ever without disaster. More importantly, I am right in that it is not worth my working life slaving away as a debt slave in the UK when I have other options...

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So, it is summer 2013.  6 years from peak, 4 years from the nominal bottom.  We’ve been treading water at 160k for how long?  And those interest rate rises, where the ****** are they exactly?  The hyperinflation?  Need I go on.

My point is this - I used to believe many of the tropes on this forum, that markets are in control of interest rates, that eventually there would be a Great Reckoning.  Well, 2007/08 happened, there was a crash.  30% off in real terms is nothing to sniff at, but unfortunately it still leaves most of the young trapped.  It was just the froth.  Then there was massive government intervention.  Couldn’t last I thought.  

I started doing some trading (mildly profitable, but not enough to justify the time/effort/stress involved).  One thing I learned was the importance of stops.  If you take a position in the market, you should have a view as to what is happening.  You should also have a view that if the market moves in an unexpected direction sufficiently far, you are wrong and need to rethink your position.  Stops save you money in the long term and prevent delusional, wishful thinking.

When by 2011, it was pretty clear things were being held together, I had to rethink.  I was being mentally stopped out, so to speak.  How exactly did the monetary system work?  Clearly there were gaping holes in my knowledge because the model I had in my head did not reflect the reality I was seeing.  My research led me in a few wrong directions, but I know broadly understand that interest rates will remain low and the wealth transfer of the Blair years will now be set in stone.  

How will I know I was wrong?  Ok, if I see interest rates rises due to external pressure and not government policy, I’ll know I was wrong.  If I see the pound fall below 1.30 to the dollar, I’ll know I was wrong.  If a sustained economic recovery occurs (2% - 3% growth for 2 -3 years) without an increase in investment as a proportion of GDP, I’ll know I was wrong.  However there could be improvements in GDP due to re-leveraging of the population via Help to Buy and their ilk, but I think that the deleveraging as a whole is not far enough along for this to work other than as a short term jolt.  Osborne will do his best, because with 2 years to go, he is out of options.

So, what about you?  What are your stops?  At what point would you know you are wrong and need to re-think?  There are a lot of people on here with their “when interest rates rise” who are starting to sound like some nut on the mountaintop talking about “when Jesus returns”.  Let’s have some concrete numbers and/or dates.  What’s your view and what are your indicators to prove you are wrong and need to re-think?

I've never seen why the government would hike interest rates.

A hike in IRs may lead to a 'shake-out', but it would also lead to the government of the day getting wiped out at the next election. Worse still, it would - by dint of a serious HPC - wipe the banks out completely, and senior bankers have the constant ear of the government.

For all the apparent panic about the deficit, ultimately we could run the same deficit for another decade with IRs as they are. I'm not saying it's a great thing to aspire to, but it's a mathematical fact - we'd have a huge debt pile at the end and perhaps then some pressures would start to bite, but for at least the current parliament and the one after that the can can be kicked.

Downward pressure on house prices will come from lower earnings.. but as long as we have a BTL sector which can use commercial loans, and sharply restricted housebuilding, the effect will be weak. Expect the government to keep HTB and find more ways to 'help FTBs get on the ladder'.

Sooo.. unless there is a serious external event (i.e. China actually collapses..) then we could drift for another decade. Neither labour or conservative seem to have any different ideas.

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So, it is summer 2013.  6 years from peak, 4 years from the nominal bottom.  We’ve been treading water at 160k for how long?  And those interest rate rises, where the ****** are they exactly?  The hyperinflation?  Need I go on.

My point is this - I used to believe many of the tropes on this forum, that markets are in control of interest rates, that eventually there would be a Great Reckoning.  Well, 2007/08 happened, there was a crash.  30% off in real terms is nothing to sniff at, but unfortunately it still leaves most of the young trapped.  It was just the froth.  Then there was massive government intervention.  Couldn’t last I thought.  

I started doing some trading (mildly profitable, but not enough to justify the time/effort/stress involved).  One thing I learned was the importance of stops.  If you take a position in the market, you should have a view as to what is happening.  You should also have a view that if the market moves in an unexpected direction sufficiently far, you are wrong and need to rethink your position.  Stops save you money in the long term and prevent delusional, wishful thinking.

When by 2011, it was pretty clear things were being held together, I had to rethink.  I was being mentally stopped out, so to speak.  How exactly did the monetary system work?  Clearly there were gaping holes in my knowledge because the model I had in my head did not reflect the reality I was seeing.  My research led me in a few wrong directions, but I know broadly understand that interest rates will remain low and the wealth transfer of the Blair years will now be set in stone.  

How will I know I was wrong?  Ok, if I see interest rates rises due to external pressure and not government policy, I’ll know I was wrong.  If I see the pound fall below 1.30 to the dollar, I’ll know I was wrong.  If a sustained economic recovery occurs (2% - 3% growth for 2 -3 years) without an increase in investment as a proportion of GDP, I’ll know I was wrong.  However there could be improvements in GDP due to re-leveraging of the population via Help to Buy and their ilk, but I think that the deleveraging as a whole is not far enough along for this to work other than as a short term jolt.  Osborne will do his best, because with 2 years to go, he is out of options.

So, what about you?  What are your stops?  At what point would you know you are wrong and need to re-think?  There are a lot of people on here with their “when interest rates rise” who are starting to sound like some nut on the mountaintop talking about “when Jesus returns”.  Let’s have some concrete numbers and/or dates.  What’s your view and what are your indicators to prove you are wrong and need to re-think?

The question I ask myself regularly is: "Are we moving closer to , or further away from, some defined 'optimal' economic situation?". The 'optimal' is deliberately a bit nebulous as most people will have a different definition, but despite political differences there are some common themes that would feature- stable public finances, affordable costs of living etc.

Every month that goes by seems to result in the answer being "further away", mostly as a result of the continuing worsening of the public finances and decline in real wages. If there was a sustained period where I felt the answer was "closer", with living costs at an approximately similar level, I'd be forced to conclude I was totally wrong to hold the belief that without a fall in the costs of living, chiefly housing, either by real wage increases or falls in costs, there will be no possibility of an economic recovery in the UK.

Edited by cheeznbreed

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Each time I think TPTB have pulled out all the stops, they come out with another crazy scheme to keep the plates spinning. What's to stop HTB being extended from 20% to 40% in the future? It's clear that none of the political parties favour anything like the steps that are needed to bring about more affordable housing.

The ruling classes and the media are as gung-ho about HPI as during the boom years. Nothing has been learnt.

It will therefore, IMO, take an external shock to force a return to sanity. Of course, Lehman Brothers was a US event that triggered the 08-09 drops here, so there is definitely the scope for a black swan from abroad. The Euro crisis is far from over.

Until that comes along, the UK is headed down a path towards much lower levels of home ownership. The opportunities to prevent this scenario were all shunned by the decisions made over much of the last decade.

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Im getting on with my life.

No need to admit anything.

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I've never seen why the government would hike interest rates.

A hike in IRs may lead to a 'shake-out', but it would also lead to the government of the day getting wiped out at the next election. Worse still, it would - by dint of a serious HPC - wipe the banks out completely, and senior bankers have the constant ear of the government.

For all the apparent panic about the deficit, ultimately we could run the same deficit for another decade with IRs as they are. I'm not saying it's a great thing to aspire to, but it's a mathematical fact - we'd have a huge debt pile at the end and perhaps then some pressures would start to bite, but for at least the current parliament and the one after that the can can be kicked.

Downward pressure on house prices will come from lower earnings.. but as long as we have a BTL sector which can use commercial loans, and sharply restricted housebuilding, the effect will be weak. Expect the government to keep HTB and find more ways to 'help FTBs get on the ladder'.

Sooo.. unless there is a serious external event (i.e. China actually collapses..) then we could drift for another decade. Neither labour or conservative seem to have any different ideas.

A mathematical fact? Only if the BoE can continue to supress gilt yields. I don't believe that's possible much beyond the life of this parliament.

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Lab and Con are both committed to the same approach as has been proved over the last three years, the only hope is a recovery in USA to force a change in interest rates but even they are addicted to QE ... even though they say they will cut down sometime in the future.

Yes, I think this is our only hope - a recovery in the US and US interest rates rise forcing the UK to do likewise.

However, Bernanke is not going to raise IRs and some of the people being lined up to replace him believe in more QE and ZIRP than him.

I think the banks now have the global economies by the balls - they are enjoying cheap money from the tax-payers whilst paying no interest to savers. I do not see IRs on savings rising for 5 years if not 10. Perhaps we will never return to getting interest on savings.

Hence why people have gone into houses and into shares. Buying into the stock market now, with it at near highs on both sides of the Atlantic, seems nuts of course.... and I fear that our open door policy will result, in any European or Asian crash, simply more rich foreigners coming to the UK and buying up our houses.

I am becoming of the mindset that this Autumn might be the last chance to haggle a deal on a house prior to Osborne's mad scheme starting next January.

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I admit I got it wrong. However I just don't think "home ownership" is all its cracked up to be. Certainly not for a single fella with no family ties anyway. Many HPC posters on here with different family circumstances should consider buying IMO. Think I might stick it out here for a few more years and scarper somewhere warm and sunny, or just rent somewhere warm and sunny during winter.

Edited by aSecureTenant

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Each time I think TPTB have pulled out all the stops, they come out with another crazy scheme to keep the plates spinning. What's to stop HTB being extended from 20% to 40% in the future? It's clear that none of the political parties favour anything like the steps that are needed to bring about more affordable housing.

The ruling classes and the media are as gung-ho about HPI as during the boom years. Nothing has been learnt.

It will therefore, IMO, take an external shock to force a return to sanity. Of course, Lehman Brothers was a US event that triggered the 08-09 drops here, so there is definitely the scope for a black swan from abroad. The Euro crisis is far from over.

Until that comes along, the UK is headed down a path towards much lower levels of home ownership. The opportunities to prevent this scenario were all shunned by the decisions made over much of the last decade.

O come on...it NEVER ends while we have FIAT with more committments than reality, where we have 100 years of deficit spending, where we have democracy.

It only ends when some external force puts paid to a part of it all. then its off in a new direction..

There is no end, even when it appears it has, only a change has occured, (a crisis). This is the strength of Austrian theory...Its about people and how they react in a system to a system...

FaFA supports a theory that beleives the SYSTEM is the be all and end all. This can only end in a wrong answer.

Edited by Bloo Loo

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Without wanting to turn this into a predictions thread, I was hoping that people might set out their stall a bit more fully. Such as this is the way I see things, this is what should happen, if XYZ occurs I am clearly wrong.

I don't want it to be used as taunts in the future but I feel that the same old tropes come out too much on this forum. If you are not constructing a model in your head and making predictions based on it, you are simply creating a religion.

Scepticius got a lot of flack on the other thread, but he has a coherent view of what is happening and his predictions have broadly come to pass. Red Knight is another poster who is routinely correct, yet often maligned.

I think many on here simply don't want to face up to being wrong. I don't like the transfer of wealth, it doesn't benefit me, but it is what it is.

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However, I make sure I try to remain flexible in my thinking and believe that price action is the truth and nothing else. That, for me, a house would simply be an alternative home for my money and that at the moment, I still would rather invest in more liquid, higher return and less risky markets whilst living in a nice rented home I could never afford to buy.

Likewise.

Not owning a house by not buying into the bubble will prove I was right.

I was wrong to think the market wouldn't be propped up - but it is that which makes the above a correct decision for me.

So, what I see happening is people trapped by unaffordable property, property they either cannot afford to sell, or property that they cannot afford to buy without donating their earning potential for years to come. A generation or three enslaved by high property prices.

So I am very glad I don't own a property.

Edited by LiveinHope

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A mathematical fact? Only if the BoE can continue to supress gilt yields. I don't believe that's possible much beyond the life of this parliament.

Don't believe or don't want to believe?

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I admit I got it wrong. However I just don't think "home ownership" is all its cracked up to be. Certainly not for a single fella with no family ties anyway. Many HPC posters on here with different family circumstances should consider buying IMO. Think I might stick it out here for a few more years and scarper somewhere warm and sunny, or just rent somewhere warm and sunny during winter.

I agree. Home ownership is all well and good at relatively normal income multiples and buying conditions. To take on the risk of the massive mortgage required to get on the 'ladder' these days just isn't worth it to most (even if 95% of people still seem to be chasing it more furiously than ever.

I will happily admit that I was wrong. I assumed that interest rates would eventually rise and that would have to crush the market. In London, people are merrily borrowing £400k on IR mortages at 2% above base rate to fund this boom. That is fine at 0.5% base rate because the total payable at 2.5% is well under £1,000 per month. If base rates hit even 5%, the mortgage rate goes up to 7% and they are paying nearer £2.5k per month.

A lot of these people are on relatively normal incomes, so £2.5k per month is quite a lot.

With no rate rises, large parental handouts, Help To Buy etc I can't see any reason why this can't last a lot longer yet.

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OP - good post.

Everyone should critically evaluate their views on a regular basis and long term posters on a site called House Price Crash (like myself) are certainly no exception.

For me, wrong is a return to employment growth and wage growth, reducing government deficits, all in a low inflation environment.

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House prices have halved where I live since the peak of the madness so things have played out as I figured. Now looking to buy, having saved myself from a massive amount of negative equity and decades of debt servitude by listening to this site in 2007.

I do feel sorry for people waiting for affordable housing in the London/SE region where all the 'stimulus' has gone by virtue of its proximity to the money fountain. Who could have believed exactly how far the government were going to go to distort the monetary system to support asset prices. Plus there is going to be a hell of price to pay the piper on what they have done.

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OP - good post.

Everyone should critically evaluate their views on a regular basis and long term posters on a site called House Price Crash (like myself) are certainly no exception.

For me, wrong is a return to employment growth and wage growth, reducing government deficits, all in a low inflation environment.

Utopia doesn't exist. ;)

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How will I know I was wrong

When my body gives up and my neural patterns are downloaded into my iBrain , I'll pop over to HPC one more time, close my account and hope the kids don't drop my iBrain in the toilet.

Until then, there is hope that sanity prevails and we don't end up with a crisis/war instead over little bits of paper.

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So, what about you? What are your stops? At what point would you know you are wrong and need to re-think? There are a lot of people on here with their "when interest rates rise" who are starting to sound like some nut on the mountaintop talking about "when Jesus returns". Let's have some concrete numbers and/or dates. What's your view and what are your indicators to prove you are wrong and need to re-think?

Thanks for asking, interest rates won't rise, not while governments are rigging the bond markets.

In terms of the business cycle we are 5 years on from the last trough, the cycle usually fluctuates over a 7-10 years, we are therefore at the top of such a cycle and in terms of the economic numbers it looks very different to the "booms" we've experienced in the past.

I'm preparing for the next down turn in the business cycle that could begin as early as 2015. Governments will be forced at this point to make a choice between a massive default or yet more money printing. Given the precedent over the last 5 years I'm erring on the side of money printing.

If a deficit in revenue of greater than 20-30% is supported by money printing over several years, hyperinflation will be the undoubted result, and given a further crisis in the midst of anaemic growth, huge debts and ever greater financial chicanery (fraud) we could well see the levels of printing required to do this (the UK government has run the biggest QE programme so far, printing about a 12% deficit of revenue, enough to re-inflate so far but no more).

Edited by GradualCringe

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