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After watching this video (please have a look), I came to the conclusion that the next six months will be the most important for this country since the WWII. 
 

In the video, the CIO from Bridgewater, saying that it’s either deflation or inflation. Asset prices, including HP, must converge somehow. 
Its the part when he mentions other countries that left me with a couple of question marks. 
As far as I understood, inflationary policies are only possible for the US, as the Dollar is the reserve currency of the world. They can push, although not too much, they don’t want market to loose faith in the FED.

However, he’s got a couple of lines about the UK too.  It seems that the government is all-in to inflate the incomes to fill the hole left by the high unemployment rate. However, although he think the £ is a reserve currency, if inflation starts to raise before the government and the BoE reach their targets then we will see some big big problems down the road. 
 

Now the question is, how strong is our £? 

I personally think it’s not that strong, and with Brexit it could get even worse. I still hope the BoE will at some point say the value of the £ is the top priority, however, it seems from the video that that would mean deflation?
 

So, save the £ or keep the house fraudulent scheme in place in the worst case scenario?
 

 

 

 

Edited by NoHPCinTheUK
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8 minutes ago, Bemmymate said:

Hi there, I'm a  layman, does this mean the pound could tank? I'm think of exchanging my deposit for something else now just to protect it and wait to see how things are in 6 months.

There is nobody on this site or anywhere on the internet who can tell you where the pound goes.

Could tank? Yeah sure. Will tank? Not a clue

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13 minutes ago, Dreamcasting said:

There is nobody on this site or anywhere on the internet who can tell you where the pound goes.

Could tank? Yeah sure. Will tank? Not a clue

yea fair point. man I wish I born in the depths of wales sometimes and not in the centre of Bristol.Why the ****** is life so damn expensive!!

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14 hours ago, Bemmymate said:

Hi there, I'm a  layman, does this mean the pound could tank? I'm think of exchanging my deposit for something else now just to protect it and wait to see how things are in 6 months.

Entirely likely if TPTB choose to try to maintain inflated asset prices (eg. House Prices) at the cost of the currency.

One way or another you have to reconcile asset prices with the actual purchasing power of money.  Either the asset prices fall or the value of money goes completely out the window.

My guess is that the govt will go for inflation - it's the easy way to steal money from the masses and it handily erodes their massive debts too.

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Posted (edited)
2 hours ago, Sour Mash said:

Entirely likely if TPTB choose to try to maintain inflated asset prices (eg. House Prices) at the cost of the currency.

One way or another you have to reconcile asset prices with the actual purchasing power of money.  Either the asset prices fall or the value of money goes completely out the window.

My guess is that the govt will go for inflation - it's the easy way to steal money from the masses and it handily erodes their massive debts too.

It seems that the gentleman in the video looks at the UK as an interesting test. He is assuming that inflationary spirals might soon appear and this will put the £ under extreme pressure. 1992 again?

What the expert in the video is also saying between the lines is that only the US could basically follow this route without serious troubles. 
 

I wonder what the BoE opinion is at this point. 
 

I am not sure this is the way to go without a Brexit deal though. 
 

I am extremely worried. 
 

On the same page, I have to admit that deflation with a sinking GDP and unemployment figures above 20% is a prospect that would probably test to the extreme the country’s social hold. And I am not sure I am ready to see that either. 

Edited by NoHPCinTheUK
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Since the dollar is the de-facto global reserve currency, the US can print and spread the inflationary consequences over the entire globe.  If you try printing pounds, the UK gets the full and direct impact of doing so.

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20 minutes ago, Sour Mash said:

Since the dollar is the de-facto global reserve currency, the US can print and spread the inflationary consequences over the entire globe.  If you try printing pounds, the UK gets the full and direct impact of doing so.

So you think it would be actually better to go the other route? I am on the same page, however I fear for the social consequences. We don’t have a welfare state that could possibly deal with high levels of unemployment. It is simply not designed for that. Unless the furlough scheme doesn’t turn into something more permanent and structured. 

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I personally think that printing, interest rate repression and inflation is the more likely future ... unless it triggers a currency crisis which might force the government to take action to prevent the pound utterly collapsing.

The welfare system as we know it is IMO completely unsustainable anyway.  This will just hasten its demise/reform.  Over and above the genuine claimants, there are just so many people already taking the p*ss such that a sudden influx of hundreds of thousands/millions of new claimants, combined with plunging tax take, will make it unaffordable.  

 

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Posted (edited)
20 minutes ago, Sour Mash said:

I personally think that printing, interest rate repression and inflation is the more likely future ... unless it triggers a currency crisis which might force the government to take action to prevent the pound utterly collapsing.

The welfare system as we know it is IMO completely unsustainable anyway.  This will just hasten its demise/reform.  Over and above the genuine claimants, there are just so many people already taking the p*ss such that a sudden influx of hundreds of thousands/millions of new claimants, combined with plunging tax take, will make it unaffordable.  

 

Well, may I say it depends? The UK welfare state doesn’t provide any safe net if you’re unemployed, it’s more of an add-on if you work PT in a low skilled job. With millions of unemployed workers with basically a £0 income something like the benefits people have access to in France, Germany might be necessary. State Pensions are also extremely low, crashing the house market would mean that millions of pensioners will see a drop in their incomes,  so the gov would probably need to step in here as well? 
However, my impression is that taxes are going to go up. I wouldn’t be surprised if a sort of wealth tax will be introduced along with a new income tax. Like it or not, those who are going to pay the price will be those with a job and/or assets. Probably ISAs/SIPPs etc. will go or shaped into a new form. 

Edited by NoHPCinTheUK
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Expect to see (a) vaccine(s) rushed into service without comprehensive testing.

They're not going to get people shopping/working/travelling in cold and dark October/November days when the virus is taking off again. They can have all the money printing in the world but it won't matter if people are too scared to consume.

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Welfare state will be the last thing to go. Without it household saving would increase dramatically, people would finally become less feckless and have to save for that rainy day or hospital procedure. 

One of the next steps in China's development will be the introduction of a welfare state to arrest the high household savings rate. 

The UK can print provided others are doing the same. If they aren't doing the same then you'll end up with exchange rate pass through inflation that can only last a year so they could devalue over time. 

This isn't 1992, there's no pegging to the DM nor an ERM. Our currency is a floater ;) 

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Is everyone agreed that the government won't do nothing?

It's pretty good at doing nothing, its  the one thing the government is good at, and it could theoretically do nothing in this situation .  

Ie. If you lose your job, you get normal dole. 

If you get evicted or repossessed, you get normal housing benefit. 

Just let furlough lapse, and let normal rules apply.

It's an option, but does everyone rule that out?

 

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16 minutes ago, 24gray24 said:

Is everyone agreed that the government won't do nothing?

It's pretty good at doing nothing, its  the one thing the government is good at, and it could theoretically do nothing in this situation .  

Ie. If you lose your job, you get normal dole. 

If you get evicted or repossessed, you get normal housing benefit. 

Just let furlough lapse, and let normal rules apply.

It's an option, but does everyone rule that out?

 

Yes

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They'd like to do nothing, I am sure.

But the type of people that are gonna be affected are disproportionately the poor.... look at the type of jobs going, and that will go.

Then there are the students.

There is a lot of ingredients there for massive social unrest, it's relatively cheap to just print a few more quid and roll it over until next time.

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The UK Govt will do the following in this order IMPO:-

1. Borrow, at low interest rates why not?

2. Inflate/Print

3. Additional Taxes; not much scope here other than removing tax dodges like ISAs and adding new taxes such as land tax. Anything new needs to be easy to collect (HMRC have enough on their plates).

 

The things that we are seeing at the moment are deflationary I believe. This will persist and increase until Inflation takes over.

This country and its citizens residents are debtors, inflation reduces the debts in real terms.

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6 hours ago, NoHPCinTheUK said:

 ......... State Pensions are also extremely low, crashing the house market would mean that millions of pensioners will see a drop in their incomes,  so the gov would probably need to step in here as well? 
.....

Can you explain this further?  Do you mean that crashing house prices would likely affect rentals too - and hence boomers with  BTL portfolios will lose out?  If so, I am not so convinced.

 

It seems to me that for many past decades, a reasonable yield on property was 10%. Say that on average inflation was 3% and risk-free money interest rate was 5% =>  the market considered that a yield of 5% above risk free rate was appropriate given risk of owning property. 

Running yields on residential property are way lower than that at the moment. The only rationale for accepting a lower running yield is if there is anticipated capital growth. However, once there is no longer HPI expected - let alone HPC is expected - there is no reason to accept a low running yield  - and prices of rental properties would have to fall until the running yield provided an acceptable return.  

On this basis, house prices could fall 50%,  and if there were an expectation of stable prices, the yield on BTL would just about be reasonable - relative to the past.   _IF_ rents stay at current levels. If rents decline - because income of likely occupants declines - then house prices would have to decline by more than 50% to ensure that rental yields were stable at an 'acceptable' (i.e. historically normal) level .

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10 hours ago, bearishonhouses said:

Can you explain this further?  Do you mean that crashing house prices would likely affect rentals too - and hence boomers with  BTL portfolios will lose out?  If so, I am not so convinced.

It seems to me that for many past decades, a reasonable yield on property was 10%. Say that on average inflation was 3% and risk-free money interest rate was 5% =>  the market considered that a yield of 5% above risk free rate was appropriate given risk of owning property. 

Running yields on residential property are way lower than that at the moment. The only rationale for accepting a lower running yield is if there is anticipated capital growth. However, once there is no longer HPI expected - let alone HPC is expected - there is no reason to accept a low running yield  - and prices of rental properties would have to fall until the running yield provided an acceptable return.  

On this basis, house prices could fall 50%,  and if there were an expectation of stable prices, the yield on BTL would just about be reasonable - relative to the past.   _IF_ rents stay at current levels. If rents decline - because income of likely occupants declines - then house prices would have to decline by more than 50% to ensure that rental yields were stable at an 'acceptable' (i.e. historically normal) level .

I agree but have a concern. Days of yield may have gone. Pensions are chasing 4/5/6% growth and achieving this via investments through a complicated maze ending in bank, hedge funds and insurers taking all sorts of daft risks through credit derivatives....which end in dust. 

Investment in property in its simplest form provides the guarantee of a real asset (I am naively assuming no debt) ....the property may half in value but Lloyd’s share have done that in 3 months. 

So the yield is relative. Gold offers no yield but a ‘benchmark’ and money is moving to that. 

I guess I am saying the reason for accepting a lower yield on property for all the hassle is because there is nowhere else to go. 

I am no troll though.....this is usually temporary. Once liquidity dries up eg banks stop lending because they need to protect themselves and redundancies kick in then cash flow results in property being a burden and a cost (Even without a mortgage). It’s just a question of whether governments can keep liquidity going....I think they will do everything to keep the wheels going and they will delay it. But that’s just pushing against the tide.....eventually nature will take its course with a decent recession and a decent house price crash which allows a younger generation access to property which to date has been denied them. 

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21 hours ago, Sour Mash said:

My guess is that the govt will go for inflation - it's the easy way to steal money from the masses and it handily erodes their massive debts too.

Yeah bring it on. More inflation and salaries have to jump, asset prices have to jump.

If $1 = £2, then all those with mortgages will have their property prices up.

What happens to all those who invested in stock market if £ crashes ?

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On 13/08/2020 at 19:41, NoHPCinTheUK said:

After watching this video (please have a look), I came to the conclusion that the next six months will be the most important for this country since the WWII. 
 

In the video, the CIO from Bridgewater, saying that it’s either deflation or inflation. Asset prices, including HP, must converge somehow. 
Its the part when he mentions other countries that left me with a couple of question marks. 
As far as I understood, inflationary policies are only possible for the US, as the Dollar is the reserve currency of the world. They can push, although not too much, they don’t want market to loose faith in the FED.

However, he’s got a couple of lines about the UK too.  It seems that the government is all-in to inflate the incomes to fill the hole left by the high unemployment rate. However, although he think the £ is a reserve currency, if inflation starts to raise before the government and the BoE reach their targets then we will see some big big problems down the road. 
 

Now the question is, how strong is our £? 

I personally think it’s not that strong, and with Brexit it could get even worse. I still hope the BoE will at some point say the value of the £ is the top priority, however, it seems from the video that that would mean deflation?
 

So, save the £ or keep the house fraudulent scheme in place in the worst case scenario?
 

 

 

 


I tend to agree.

The relative spending power of GBP is pretty weak today. Go back to before the financial crisis in 2008/9 and we had GBPUSD=2.10 at one point, though this was really devaluation from even higher historic levels pre 1975 of around 2.40 and indeed 2.80 when Wilson devalued in 1967. At 2.10 this was a relative high from some levels seen in the mid 1980s/90s where we hovered more around 1.55 and in general that is the level that people think about when they talk about cable. So while 1.31 is a bit of a recovery from Brexit lows, I don’t think we are on purchasing power parity until we are are back at around 1.50-1.60.

Certainly at 2.10 the US felt cheap, this was back when the UK was known as Treasure Island, so I used to buy in US on business.

In those days you could buy $70 Levi’s in Macy’s which were essentially £30, whilst back in Blighty they’d be £45. Now those same Levi’s are say $90 and cost you £68 in the US and probably £75 over here. So the retail markup has definitely been squeezed by online competition and the slowdown, but you are also paying 66% more as a consumer.

This is why Brexit is very bad for the average UK Citizen!


I am reasonably well shielded, I have a substantial pension fund which is diversified globally and falling Sterling tends to give it a bit of a boost - though as @Simhadri has replied to the thread I am also going to remind him of the small fortune I made out of COVID. 
I also have a large house with a a proportionately small mortgage (though big by by average standards) and falling Sterling erodes the debt and pushes up the house price.

That said, if Sterling rises, then I can also gain as my expenditure falls.

The people I feel very sorry for are those without any buffers.

 

 

 

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  • 417 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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