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El_Pirata

The Twisted Logic Driving This Madness

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Britons are getting wealthier, according to a spate of recent articles such as this one:

http://www.timesonline.co.uk/article/0,,2095-2168256.html

Most of this "wealth" is due to house price rises. The net equity in our houses has risen, therefore we are richer.

This is utter rubbish, and totally ignores the basic concept of being 'long' or 'short' in a market. To most people this concept should be intuitive, but I fear a barrage of propaganda in the media has caused many to drift into a false consciousness where this concept is discarded, to the benefit of the banks from which they will borrow money to get at their wealth.

Let's go through this in very simple terms (I am going to state the bleedin obvious many times, sorry!). Pretend I am an oil producer. I just produced a cargo of oil from my well, which I need to sell. I am long one cargo of oil. If the price of oil goes up, I gain, if it falls I lose.

Now pretend I am an oil refiner. I have pre-sold some gasoline at a fixed price and I need to buy a cargo of oil to make it. I am short one cargo of oil. If the price of oil falls, I gain, if it rises I lose.

Are we clear? Now in the middle of long and short, we have "balanced". If I am balanced I neither benefit of gain from price movements. For example, I am an oil trader who has a cargo to sell, but also needs to buy a cargo to fulfill a commitment. If the price goes up, the profit I make on the cargo I have to sell is wiped out by the fact that the cargo I need to buy is more expensive. I am price neutral.

Still with me? Not hard, is it. Now, as human beings, we need a roof over our heads, so we are born short one house. While we rent, we are short one house. If the price of houses falls, we gain.

When we buy a house to live in, we become balanced. Any rise in the price of houses is offset by the fact that if we sell our house, we will also have to pay more to buy a new one of the same size and quality in the same street. Of course, we could sell our house and buy a smaller, cheaper one. But in that way we are really selling part of our standard of living. We are not benefiting from the rise in prices per se, but rather we are trading down.

Some of us, of course, go long, like TTRTR. He has more houses than he needs to live in, so he gains by house price rises. If he wants to take some of his gains, he sells a house. Bleedin obvious, innit?!

Now, what we are encouraged to believe day after day, is that as owner occupiers, we are actually long one house, not balanced ie. if the price of houses goes up, we made a profit, we are "wealthier."

But just how do we get at this wealth without selling our house (and ending up with nowhere to live)? Easy, say the banks and their friends in the media, we "withdraw equity", or in other words borrow against the increase in equity.

What I find incredible is that so many people have forgotten that BORROWED MONEY IS NOT WEALTH! YOU HAVE TO F***ING PAY IT BACK. The increase in value of your house is not going pay off that loan for you, unless you sell it, in which case you have to buy a new one! You moron! You are paying for it out of your wages! You did not "earn" any extra money because you are balanced housing, not long! It is not the same as the f***ing stock market!

Sorry to state the obvious so many times, but some people DO NOT GET IT, and it is DRIVING ME NUTS TODAY. Spread the word. Chau.

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Still with me? Not hard, is it. Now, as human beings, we need a roof over our heads, so we are born short one house. While we rent, we are short one house. If the price of houses falls, we gain.

When we buy a house to live in, we become balanced. Any rise in the price of houses is offset by the fact that if we sell our house, we will also have to pay more to buy a new one of the same size and quality in the same street. Of course, we could sell our house and buy a smaller, cheaper one. But in that way we are really selling part of our standard of living. We are not benefiting from the rise in prices per se, but rather we are trading down.

Surely you start off balanced. And by buying a house you "go long" on housing.

There's not really any effective way to "go short" on housing except property derivatives perhaps.

Your example about oil involves multiple contractual commitments at each end.

If the price of your house goes up, you could just sell with no obligation to buy another property.

Sorry to state the obvious so many times, but some people DO NOT GET IT, and it is DRIVING ME NUTS TODAY. Spread the word. Chau.

I hear you, and agree with the gist of what you're saying.

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Thanks for your excellent explanation of long / short. I like it :)

I don't totally buy into the idea that people are SO dumb that they don't understand that MEW is DEBT and that they must pay it back and then some.

But I DO subscribe to the idea that they need cash for that BMW and this is the only way they'll ever have it, and since house prices (can) never go down, MEW becomes a mechanism by which they can Live The Dream and the next purchaser will pick up the tab.

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What I find incredible is that so many people have forgotten that BORROWED MONEY IS NOT WEALTH! YOU HAVE TO F***ING PAY IT BACK.

It's hardly incredible. Our parents got to pay their debts back in much devalued money due to wage inflation, so buyers today expect the same to happen to them: they just haven't noticed that there's been minimal wage inflation for a few years and there's likely to be minimal wage inflation -- if not outright wage deflation -- for the forseeable future.

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Britons are getting wealthier, according to a spate of recent articles such as this one:

http://www.timesonline.co.uk/article/0,,2095-2168256.html

Most of this "wealth" is due to house price rises. The net equity in our houses has risen, therefore we are richer.

This is utter rubbish, and totally ignores the basic concept of being 'long' or 'short' in a market. To most people this concept should be intuitive, but I fear a barrage of propaganda in the media has caused many to drift into a false consciousness where this concept is discarded, to the benefit of the banks from which they will borrow money to get at their wealth.

Let's go through this in very simple terms (I am going to state the bleedin obvious many times, sorry!). Pretend I am an oil producer. I just produced a cargo of oil from my well, which I need to sell. I am long one cargo of oil. If the price of oil goes up, I gain, if it falls I lose.

Now pretend I am an oil refiner. I have pre-sold some gasoline at a fixed price and I need to buy a cargo of oil to make it. I am short one cargo of oil. If the price of oil falls, I gain, if it rises I lose.

Are we clear? Now in the middle of long and short, we have "balanced". If I am balanced I neither benefit of gain from price movements. For example, I am an oil trader who has a cargo to sell, but also needs to buy a cargo to fulfill a commitment. If the price goes up, the profit I make on the cargo I have to sell is wiped out by the fact that the cargo I need to buy is more expensive. I am price neutral.

Still with me? Not hard, is it. Now, as human beings, we need a roof over our heads, so we are born short one house. While we rent, we are short one house. If the price of houses falls, we gain.

When we buy a house to live in, we become balanced. Any rise in the price of houses is offset by the fact that if we sell our house, we will also have to pay more to buy a new one of the same size and quality in the same street. Of course, we could sell our house and buy a smaller, cheaper one. But in that way we are really selling part of our standard of living. We are not benefiting from the rise in prices per se, but rather we are trading down.

Some of us, of course, go long, like TTRTR. He has more houses than he needs to live in, so he gains by house price rises. If he wants to take some of his gains, he sells a house. Bleedin obvious, innit?!

Now, what we are encouraged to believe day after day, is that as owner occupiers, we are actually long one house, not balanced ie. if the price of houses goes up, we made a profit, we are "wealthier."

But just how do we get at this wealth without selling our house (and ending up with nowhere to live)? Easy, say the banks and their friends in the media, we "withdraw equity", or in other words borrow against the increase in equity.

What I find incredible is that so many people have forgotten that BORROWED MONEY IS NOT WEALTH! YOU HAVE TO F***ING PAY IT BACK. The increase in value of your house is not going pay off that loan for you, unless you sell it, in which case you have to buy a new one! You moron! You are paying for it out of your wages! You did not "earn" any extra money because you are balanced housing, not long! It is not the same as the f***ing stock market!

Sorry to state the obvious so many times, but some people DO NOT GET IT, and it is DRIVING ME NUTS TODAY. Spread the word. Chau.

Calm down dear!

It's only the eternal story of the transfer of wealth.

It'll all shake out, it always does.

You can't educate those who will not listen.

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Surely you start off balanced. And by buying a house you "go long" on housing.

I would say you start off short, because you need somewhere to live.

If you buy a house you are balanced. If you buy a second house, you go long. Or if you die.

In fact, I think "going long housing" is quite a nice euphemism for dying.

There's not really any effective way to "go short" on housing except property derivatives perhaps.

STR

Your example about oil involves multiple contractual commitments at each end.

It's the same basic and simple principle. That's how you end up with so many barrow boys in trading.

It's hardly incredible. Our parents got to pay their debts back in much devalued money due to wage inflation, so buyers today expect the same to happen to them: they just haven't noticed that there's been minimal wage inflation for a few years and there's likely to be minimal wage inflation -- if not outright wage deflation -- for the forseeable future.

Good point

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Britons are getting wealthier, according to a spate of recent articles such as this one:

http://www.timesonline.co.uk/article/0,,2095-2168256.html

Most of this "wealth" is due to house price rises. The net equity in our houses has risen, therefore we are richer.

So for example if my parents house has doubled in value... how does this help them exactly? I can't say I've noticed a hoard of £50 notes stuffed in the tea caddy (well, none more than usual), the only things that seem to reflect this non-existent wealth is the council tax and other levies. Unless they decide to sell up and pitch a tent in the park I have no idea how this notional 'wealth' actually benefits them at all, if they want a bigger house they're worse off and down-sizing is also poor value, smaller terraces have inflated at twice the rate thanks to the BTL brigade (be it from lower prices).

But look at how much debt they can take on... isn't that wonderful, and once everyone hits gamblers ruin the bank gets a real asset in exchange for bits of paper they created out of thin air. What a great way to run an economy.

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So for example if my parents house has doubled in value... how does this help them exactly?

It allows them to borrow more money at relatively low interest rates (mortgages are almost always lower than other loans). Or to sell up and move abroad where they can buy a mansion for the price of a two-bed terrace in Chav-town.

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So for example if my parents house has doubled in value... how does this help them exactly? I can't say I've noticed a hoard of £50 notes stuffed in the tea caddy (well, none more than usual), the only things that seem to reflect this non-existent wealth is the council tax and other levies. Unless they decide to sell up and pitch a tent in the park I have no idea how this notional 'wealth' actually benefits them at all, if they want a bigger house they're worse off and down-sizing is also poor value, smaller terraces have inflated at twice the rate thanks to the BTL brigade (be it from lower prices).

But look at how much debt they can take on... isn't that wonderful, and once everyone hits gamblers ruin the bank gets a real asset in exchange for bits of paper they created out of thin air. What a great way to run an economy.

Fast becoming the only way for some economies.

And will obviously continue till that Sun up there calls it a day.

"Release the value LOCKED UP in your home, we have the key".

No, I'm mortgage free and intend to stay that way.

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"Release the value LOCKED UP in your home, we have the key".

No, I'm mortgage free and intend to stay that way.

There is no money 'locked up' as they didn't put it in there in the first place, it's like trying to get water from an empty bottle. When will people realise that equity release is simply a second mortgage or secured loan and their home is simply collateral :angry:

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When will people realise that equity release is simply a second mortgage or secured loan and their home is simply collateral

When they have to pay it back with a 12% interest rate.

Oh, no, when that happens they'll sue the bank, claiming they were never told they had to actually repay their MEWing.

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I would say you start off short, because you need somewhere to live.

If you buy a house you are balanced. If you buy a second house, you go long. Or if you die.

In fact, I think "going long housing" is quite a nice euphemism for dying.

That's a different definition than I usually use.

Where do you draw the line with including human needs?

Do you include fresh water and food for instance, am I going short on those things too if I don't have supplies?

Plenty of homeless people all over the world get by without a house, but they would be in more serious trouble if they didn't have water and food. Dead in fact.

Maybe being dead could be referred to as "going long on everything".

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There is no money 'locked up' as they didn't put it in there in the first place, it's like trying to get water from an empty bottle. When will people realise that equity release is simply a second mortgage or secured loan and their home is simply collateral :angry:

You know that, I know that, the members here know that but, luckily for that great marketing machine out there, those glossy leaflets, TV and magazine adverts reach those who don't quite appreciate the reality.

Yes, used to be called a second mortgage once. That doesn't sound so cosy though.

Got to go, collecting the X5 before we take the World cruise. :)

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The funny thing is, even if this notional equity were real money (which we agree it isn't), it would be meaningless anyway.

It is impossible for everyone to be 'richer'. OK, living standards may rise, but wealth itself is relative. A million pounds is worth a lot because the next man doesn't have it. If we all had £200,000 to withdraw from our house ATM, £200,000 would quickly lose its purchasing power.

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You know that, I know that, the members here know that but, luckily for that great marketing machine out there, those glossy leaflets, TV and magazine adverts reach those who don't quite appreciate the reality.

Hrm, yes, but isn't Carol Vorderman clever!

Too clever.

It is impossible for everyone to be 'richer'. OK, living standards may rise, but wealth itself is relative. A million pounds is worth a lot because the next man doesn't have it. If we all had £200,000 to withdraw from our house ATM, £200,000 would quickly lose its purchasing power.

Exactly, those meaningless tokens may buy people a few more new trophies and make them happy for a short while but the only things that improve our collective well being in the longrun is improved productivity and the development of new technologies. Printing bits of paper mean little if there's nothing new to spend it on, it simply means the price of existing guff just gets inflated. One day we will realise the consequences of this gross misallocation of resources, for one thing an entire generation of people are disenfranchised, the demographic impact is obvious even if society cares little for such people.

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Hrm, yes, but isn't Carol Vorderman clever!

One day we will realise the consequences of this gross misallocation of resources, for one thing an entire generation of people are disenfranchised, the demographic impact is obvious even if society cares little for such people.

Forget minor celebs, if it wasn't her it would be another. Anyway, isn't the saying "no such thing as bad publicity" folklore in that narcissistic world.

Misallocation of resources is important. What we are seeing is instant rather than delayed gratification as a Nation. The rewards, in the future, of the fruits of true investment might be greater but it has suited both the Government and lenders to have their profits now.

Despair not, there will come a reckoning. My worry is that it will not be pleasant.

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But look at how much debt they can take on... isn't that wonderful, and once everyone hits gamblers ruin the bank gets a real asset in exchange for bits of paper they created out of thin air. What a great way to run an economy.

A beautifully concise and clear description of what is actually happening in our 'economy'. And the rate rise cycle that so many bulls think won't happen is now upon us. This is how the banks have traditionally transferred wealth from the productive economy to themselves...try not to think of central banks around the world being forced into rate rises for the protection of their own economies due to carry trades from Japan etc....rather think about PRIVATELY OWNED (by the large banking dynasties of course) central banks (look at the BoE on the web...it is a .co.uk....if it was really nationalised, would it not be .gov?).

Try to think of these private entities purposefully synchronising rate rises around the world in order to contract the money supply and initiate one of their periodic transfers of wealth from the lumpen-idiots to themselves.

It is the oldest scam in history.

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Wealth is about a persons buying power relative to others. If your house doubles in value that's fine, but if everyone else has too you are no wealthier. If you make 100k you are no wealthier if everyone else has too.

But if I take everyones 100k away and let you keep yours....well, you get it.

To say that Britons are wealthier because their houses are rising is a bit dumb if you are just comparing them with other Britons. If you are comparing them to say, Germans then there is some truth in it however.

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If you are comparing them to say, Germans then there is some truth in it however.

So Germans have better housing at a lower cost, but we're richer as a result?

Edited by MarkG

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Fast becoming the only way for some economies.

And will obviously continue till that Sun up there calls it a day.

"Release the value LOCKED UP in your home, we have the key".

No, I'm mortgage free and intend to stay that way.

I've just had a thought. Is there some way that the human race could release the equity stored up in the planet earth? The planet must be worth a lot because there's all that living space, productive oceans that can be used for sustenance and entertainment, and all those precious minerals and metals in the crust, not to mention all that useful iron in the core. If there was some way to unlock the equity locked up in our planet wouldn't then everybody in the world become immensely rich?

Maybe DrBubb could come up with some plan.

Billy Shears

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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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