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RichM

100% Pure Kaletsky

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Why are house prices rising even as the economy falters? Good question

Times, 19/1/2006

While it may seem odd that people’s prosperity should depend more on the assets they own than on the work they do, this has been true of almost all societies throughout 5,000 years of recorded history, whereas the system we live in is a 200-year-old aberration.

Dear God, perhaps Brainclamp was right all along!

A frighteningly lucid piece from Mr K in some ways - HPI is entirely down to low IRs, he says. But sidesteps the BoE chairman's warnings. Fascinating stuff as ever.

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That piece is utter drivel. Almost complete economic fallacy. Whats truly astonishing is that this man can repeatedly get have his drivel printed up distributed and read.

Just goes to show I suppose.

BAB

p.s. Notice that he does not mention the "inconvenient" fact that the gold price is 40% higher than a year ago (in GBP that is, even allowing for todays plunge)

Edited by BayAreaBear

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Kaletsky is an idiot, does not understand:

Bubble dynamics in a period of fiat currency...

(this is why he is a low-paid & thinly-respected journo rather than a wealthy private investor):

Try measuring wealth in REAL MONEY (=Gold),

and you will see that the Crash in property has already begun:

Which represents the fruits of easy credit

Not being complete fools,

those Asian countries that he mentioned that have excess savings (and the more important Middle Eastern countries that he did not mention), are losing the appetite for just mechanically buying low-yielding debt, so they have started to shift their savings and reserves into real wealth= Gold.

Remember all.

Gold is just a shiny metal and you can buy it for more then you can sell it for..

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p.s. Notice that he does not mention the "inconvenient" fact that the gold price is 40% higher than a year ago (in GBP that is, even allowing for todays plunge)

Surely his arguements apply just as equally to gold as to property (and any other asset which has a limited supply).

Excellent and thought provoking article IMV.

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"Gold is just a shiny metal"

and a House is a stack of bricks

True,"Gold is just a shiny metal" but you can live in a 'stack of bricks ' .

Anyway, I suspect that if we do see a tightening of credit and IRs increase throughout the West, all asset prices will fall and that includes gold.

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Are you always so childish or is today a special occasion?

Now go away or I'll taunt you again!

His childishness is not as annoying as his habit of using the pronoun 'we' somehow implying he speaks for others. Not in my name!

(CrashIsUnderWay @ Jan 19 2006, 09:42 AM)

'and we suspect you are a gaylord'

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What about credit tightening? What about unemployment? What about oversupply? What about demographics? What about yields? What about diminishing earnings? What about people's ability to be able to make, higher and higher monthly mortgage payments? What about the speculative froth? What about personal debt levels? What about energy prices? What about consumer spending? What about trade and budget deficits? What about corporate investment? What about crippling taxes? What about productivity levels? What about real GDP? What about...

What about the truth?

In a way Kaletsky does sort of hint at this when he writes "What would be the effects of such a reorientation in society towards property ownership, rather than employment? This is a big question, to which I will return in a future column." As Whoops says, property values can't stay high if people haven't got jobs and therefore can't afford to borrow the money to pay for houses. IMO Kaletsky is far too sanguine. Rates are going to go down as far as inflation will let them, because the BoE is going to be struggling to get the economy to grow.

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He bases his article on 2 disputable ideas:

1. House prices are going up eg. Asking prices for houses up in one week in the New Year (always a volatile time for stats)

2. Interest rates are going down - Economists seem to think they're going to be flat for quite a while. After that, they can't really agree on whether the next move is up or down.

There is, however, another possibility, which seems to me just as plausible, at least in the next few years. Instead of exporting less and consuming more, the Asians could remain just as competitive and thrifty as they get gradually richer. The result would be a continuing flow of capital from Asia to the rest of the world, and especially to America and Britain. Instead of collapsing, house prices would then go on rising. And homeowners’ prosperity would depend increasingly on the value of their properties, to be cashed in at retirement, rather than on the wages they earned.

Hang on, you can't have it both ways - we can't buy goods from the Asians at the same time as buying houses from each other if houses keep going up in price. It's already getting tricky to buy more and more of both at the same time - hence the retail sales & house price slowdown in 2005. Mortgage debt is now rising much faster than credit card debt.

Who is going to buy the properties from the people wanting to cash in at retirement? One way or another it will be the banks, but the debt is ultimately serviced by the younger generation. Retiring homeowners will MEW for the last time and hope they die before their properties are 100% owned by the banks. Then the banks have to sell to a new generation. Or retiring homeowners will sell and downsize, meaning it's the younger generation once again who will have to buy their houses - with massive mortgages of course. So the banks buy the houses but someone has to service the debt.

Anyone "renting" their property from the bank, or even from a private landlord who has to pay his own "rent" to the bank, will have nothing less to spend on the goods from Asia. If we can't buy the goods, Asia will have less to invest in the UK. The banks will have less to invest in housing.

Prices of goods are not going to go down forever. The main source of deflation has been a higher proportion of goods coming from Asia, but this has to mature. Already transport costs (oil price) are beginning to offset some of the benefits of importing, so retailers are balancing their buy - some from the Far East, some closer to home. When deflation of goods drops out of the equation, interest rates have to go up. Deflation is already beginning to ease in goods, but annualising petrol price inflation is covering this up.

But Asian competition has had an even bigger impact on global inflation and money flows. The Asians, as well as working for low wages, are remarkably thrifty, saving a high proportion of their incomes. Moreover, since many of them live in economically volatile and politically risky countries, with little respect for law and private property rights, they naturally want to keep part of their savings in safe, predictable countries with strong financial traditions — of which America, Britain, Canada and Australia are the prime examples.

This doesn't continue for ever. There is already a rising middle class in Asia obsessed by Western branded goods and standards of living and they will spend increasingly within their own economies, leaving less to support asset prices abroad.

Edited by geranium

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He bases his article on 2 disputable ideas:

1. House prices are going up eg. Asking prices for houses up in one week in the New Year (always a volatile time for stats)

2. Interest rates are going down - Economists seem to think they're going to be flat for quite a while. After that, they can't really agree on whether the next move is up or down.

Hang on, you can't have it both ways - we can't buy goods from the Asians at the same time as buying houses from each other if houses keep going up in price. It's already getting tricky to buy more and more of both at the same time - hence the retail sales & house price slowdown in 2005. Mortgage debt is now rising much faster than credit card debt.

Who is going to buy the properties from the people wanting to cash in at retirement? One way or another it will be the banks, but the debt is ultimately serviced by the younger generation. Retiring homeowners will MEW for the last time and hope they die before their properties are 100% owned by the banks. Then the banks have to sell to a new generation. Or retiring homeowners will sell and downsize, meaning it's the younger generation once again who will have to buy their houses - with massive mortgages of course. So the banks buy the houses but someone has to service the debt.

Anyone "renting" their property from the bank, or even from a private landlord who has to pay his own "rent" to the bank, will have nothing less to spend on the goods from Asia. If we can't buy the goods, Asia will have less to invest in the UK. The banks will have less to invest in housing.

Prices of goods are not going to go down forever. The main source of deflation has been a higher proportion of goods coming from Asia, but this has to mature. Already transport costs (oil price) are beginning to offset some of the benefits of importing, so retailers are balancing their buy - some from the Far East, some closer to home. When deflation of goods drops out of the equation, interest rates have to go up. Deflation is already beginning to ease in goods, but annualising petrol price inflation is covering this up.

This doesn't continue for ever. There is already a rising middle class in Asia obsessed by Western branded goods and standards of living and they will spend increasingly within their own economies, leaving less to support asset prices abroad.

Good analysis. But isn't the key factor, likely to be enduring, which is driving interest rates both to convergence and downwards, the increasingly interconnected, competitive nature of the world's trading system? People all over the world - and ever more of them - can now acquire goods and services from the cheapest, best sources, even if those sources change identity from time to time. It wasn't like that in the 1970s, but perhaps it was in the 1840s.

Interest rates would only go up if protectionism and trading inefficiencies become ascendant once again. Perhaps the internet will ensure that this does not happen no matter whatever other shocks occur.

While we are seeing the benefits of the increasingly efficient world trading system, there are still plenty inefficiencies to remove and therefore this trend might continue for decades or indefinitely.

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As capital investment and jobs are going overseas to places where labour is cheaper.

I think there will come a time when either wages overseas catch up or the costs to export will be prohibative and

companies will want to bring investment and jobs back to the UK.

In the meantime what if people get fed up waiting for multinationals to bring the jobs back and start their own businesses. What if entraprenauers started up their own businesses to take over the home market

and not allow the multinationals and banks who showed no loyalty to the countries workers back in to take over where they left off.

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"Gold is just a shiny metal"

and a House is a stack of bricks

The point is that you can over-price anything...

so you can pay too little and make money, too much and make a loss.

Speculation.

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Good analysis. But isn't the key factor, likely to be enduring, which is driving interest rates both to convergence and downwards, the increasingly interconnected, competitive nature of the world's trading system? People all over the world - and ever more of them - can now acquire goods and services from the cheapest, best sources, even if those sources change identity from time to time. It wasn't like that in the 1970s, but perhaps it was in the 1840s.

Interest rates would only go up if protectionism and trading inefficiencies become ascendant once again. Perhaps the internet will ensure that this does not happen no matter whatever other shocks occur.

While we are seeing the benefits of the increasingly efficient world trading system, there are still plenty inefficiencies to remove and therefore this trend might continue for decades or indefinitely.

Some protectionism has already come back in for clothing imports (quotas partially reinstated mid 05) but yes, these disappear eventually.

There is a limit to how much will be imported from Asia, partly because of transport costs (oil) limiting the savings gained. For some retailers it makes sense to balance the buy between Eastern/Southern Europe and Asia and the distribution of buying now looks almost "optimised". They're still importing but the overall prices they can offer the consumer in the UK, sooner or later, will not get significantly lower. In fact, this is already happening. Clothing price deflation is still running at around -4% YoY (see ONS website) but it used to be much worse than this.

CPI figures are beginning to show certain goods price deflation becoming less negative, even if total CPI is looking weaker because fuel price rises are annualising.

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If the sort of "capital" that is flowing from the East is making us all wealthy then Zimbabwe has the highest standard of living on the plant.

Was that some Pigs I just saw flying by?

BAB

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What about credit tightening? What about unemployment? What about oversupply? What about demographics? What about yields? What about diminishing earnings? What about people's ability to be able to make, higher and higher monthly mortgage payments? What about the speculative froth? What about personal debt levels? What about energy prices? What about consumer spending? What about trade and budget deficits? What about corporate investment? What about crippling taxes? What about productivity levels? What about real GDP? What about...

What about the truth?

Whoa dude, you really maxed out the rhetorical question quota!

Can you be my speechwriter when the revolution comes?

frugalista

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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