What Would It Take To Admit You Are Wrong?

[crashmonitor]

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?

How accurate did you want us to be :-

My prediction (and in accord with the thread) January 2007

(1) The crash would start 2008 (it did)

(2) There would be an initial crash not stagnation (we got -20%)

(3) Nominal values would return to their 2007 nominal peak in 2017. (it might)

Tbh I think there has been a major f**k up not offering the governship to a HPC member who saw this coming with spooky accuracy as opposed to Carney who clearly didn't.

I think the consensus on the forum was for a -35% real terms crash, we got -33%. Forget London, I live in Nottingham.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=41162&st=0

Edited July 31, 2013 by crashmonitor

[fluffy666]

Thanks for all the responses so far, I think it has been an interesting thread.  I think some people don’t understand quite what I am getting at.  I am not saying that everyone on this forum is wrong.  Indeed, this site and forum has got a lot of things right - the financial crisis caused by the mortgage market for one, the steep drop in house prices being another.  Few in 2006 agreed with that position, let alone 2003 when this place started.  However due to the efforts of the government(s) housing has not fallen as far and as fast as predicted and remains unaffordable for many.  A lot of people on here continue to assert that interest rates will rise and the crash will speed up.

My point therefore is how do you verify your beliefs?  If you don’t have a falsifiable view of what is happening, you just have a religion.  For example Bruce Banner gives a good example, he states that he believes there will be 20 - 30% nominal falls by 2020 - this is clearly falsifiable, we are going to know if he is correct in due course.  If he is wrong he has further stated he still considers himself to be in a good position as his cash pile gives him an adequate income to cover housing costs.  A lot of people criticise Bruce, but he has nailed his colours to the mast and I respect him for that.  Other posters such as RK, Tamara, even Realistbear for all his faults and others have done so.  Even though it pains me as a uberbear on gold I’ll even mention Errol,  though I feel he has backtracked significantly from his gold to the moon schtick.  I don’t agree with all of them, but it is easy to snipe.  RK and Realistbear have been/were really laid into at points but have persisted in offering a consistent world view.  My point is do you have a real view or are you simply hoping?  

I'm not quite sure I'm even hoping for anything, apart from some sort of restoration of sanity.

I'm pretty sure that TPTB will do everything and more to prop up nominal prices, if only because the banks would collapse into a black hole in a nominal HPC.

The problem (and the real bind in all this) is wage inflation. Trying to preserve asset prices, which are based on credit, which needs to be serviced with wages, is hard when wages are static or falling in nominal terms, and non-asset prices are rising. On the other hand, there are a great many lobbying groups who are dead-set against wage rises for the masses, and they are currently in the ascendant - see all the recent changes to employment law.

Of course, it doesn't matter if people are renting or buying, since wages are used to pay the rent..

So.. on the current path, expect the government to extend HTB, and possibly start directly subsidising mortgages to that banks can offer 10-year fixes at 2%.. Which is still a diminishing returns game, the end point is an interest free mortgage. But every step like this will only keep prices where they are (+- a bit) because of the diminishing wage effect, whilst sticking the government further into the mire; the longer prices are kept too high, the more people will have over sized mortgages.

Against this, we'll probably see continual government deficits as the tax base stagnates, pension costs march on upwards, and more cash vanishes offshore.

This could easily continue for another decade..

[motch]

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 think also for a family with a kid or two/three it's not really worth buying if on a low or average wage as renting and extras will be paid/topped up for you. Why risk buying a house when you can rent and get lots of finacial help? and if you lose your job rent and other bits paid for. I think this is correct, please correct me if wrong.

[interestrateripoff]

However due to the efforts of the government(s) housing has not fallen as far and as fast as predicted and remains unaffordable for many.  A lot of people on here continue to assert that interest rates will rise and the crash will speed up. 

Isn't the question how long can they keep that up for?

The Collapse of Complex Societies by Tainter showed the fall of the Western Roman Empire took a couple of centuries of govt manipulation of the currency to fix the economy. Each time it appeared they had pulled the rabbit out of the hat and fixed the problems but ultimately they failed and the Western half of the empire collapsed. This is the problem with the question, as not enough time may have passed for the meddling to fail.

The other side of the coin could be the UK is in fact the Eastern Roman Empire and we are economically strong enough to support our high housing costs and therefore there is no bubble....

Edited July 31, 2013 by interestrateripoff

[dances with sheeple]

Isn't the question how long can they keep that up for?

The Collapse of Complex Societies by Tainter showed the fall of the Western Roman Empire took a couple of centuries of govt manipulation of the currency to fix the economy. Each time it appeared they had pulled the rabbit out of the hat and fixed the problems but ultimately they failed and the Western half of the empire collapsed. This is the problem with the question, as not enough time may have passed for the meddling to fail.

The other side of the coin could be the UK is in fact the Eastern Roman Empire and we are economically strong enough to support our high housing costs and therefore there is no bubble....

Exactly, it is a tiny amount of time really since it all went pear shaped, the problem with being on this site all the time is that it feels glacially slow. The average punter is just getting his head round the fact that his house has lost value and no one wants to buy it Patience is required, things are more volatile, more on a knife edge than they have ever been, the downside risk for those with massive mortgages is great.

[tomandlu]

Patience is required, things are more volatile, more on a knife edge than they have ever been, the downside risk for those with massive mortgages is great.

The Game of Homes - You Live or You Buy...

[zugzwang]

One angle that hasn't been considered in this thread is the military-industrial one. Another murderous intervention in the Middle East would be a very welcome turn of events for the UK/US war machine. Provide a convenient flag for some additional deficit spending too. I also have difficulty countenancing the idea of a General Election without a backdrop of live rounds. Cameron's ticked all the boxes so far in his GE warm-up: renascent house price bubble, phoney fall-out with Europe, attacks on the unions, bogus campaign of moral rearmament. Holding up the yanks' skirts again east of Suez would literally put the tin hat on things.

[easy2012]

 My point is do you have a real view or are you simply hoping?  

Also the question is if one is simply hoping or form views based on reality distortion field.

[EMac]

I think it's very brave (or a bit foolish ) to come up with measurable predictions. The system is so complex and so completely meddled with on a global scale and who knows what crazy policies they'll come up with next to keep the house of cards standing.

All I can say is that it gives me a very uneasy feeling in my gut and that feeling is growing every day that they 'inject stimulus', keep interest rates low and encourage massive debts. My gut tells me that this sucker is going to blow, and it's going to be big. Unfortunately it doesn't say when or in what manner.

Now that's not very scientific I hear you say. Well perhaps the famous 'gut feeling' is a manifestation of our subconscious thoughts, taking in all the clues around us, compiling it and warning of imminent danger. Or perhaps it's just irritable bowel syndrome.

In any case, while I'm feeling this uneasy about the economy there's no way I'm committing to the biggest purchase and burden of debt of my life.