What Still Puzzles You?

[Timm]

Agreed. He is a wolf in sheeps clothing. i.e. An oldschool Tory!

Labour have somehow let Maggie Thatchers reincarnation in through the back door and shaft them so hard that they will never recover. However..... they stand up and applaud him! Beyond belief!

Err. Was Maggie not a monetarist? (At least to start with).

(This does not absolve Gordon)

[Unexpected]

Why Orbital is here.

He is here because he wants his father (casual observer) to be proud of him.

[Jason]

Why people get confused between Debt and Wealth.

Eh, Mr McFall.

[Dr Doom]

I still can't fathom out why so many people think GB is anything more than a self-serving slimeball

I've run into several of these types recently.

How can they say with a straight face that Gordon Brown has created a fantastic economy is nothing

short of unbelievable, and why is the economy fantastic, oh because the price of my house has gone

up 4-fold. These same champagne-socialists will then go on to talk about how "clever" they were to buy

at the right time.

You have to give it to GB, he is a very slick conman.

[TokyoJoe]

Why some posters on this board believe that house prices will crash 50% and more

There are other countries in the world that are more prone for a HPC and its not happened there but for some miracle reason, it will happen here.

I know we are all fecking morons.

After a 200% increase in value there is no way they could drop by 50%.

Mind you, your other countries reason is very strong and I think will hold prices up.

Tit

[Paddles]

Why birds suddenly appear every time you are near?

[Flat Bear]

Why some posters on this board believe that house prices will crash 50% and more

There are other countries in the world that are more prone for a HPC and its not happened there but for some miracle reason, it will happen here.

.... Why you think anyone will take any serious notice to any of this ladies silly and illogical posts.

indulge us mad frog, where is there that has much higher house prices to debt ratios than England but has not, and will not, have a price correction?

[A.steve]

What I don't understand... Why are labour obsessed with low (wage/commodity) inflation, when high inflation should be more likely to be significantly advantageous to their principal supporting voters (i.e. those with debts.) Weren't the Conservatives popular in the 80s _because_ there was wage inflation?

Something I thought I did understand before I read this thread was about "random walk theory" - which earned (Merton RIP) Black & Scholes the Nobel prise for economics... which all happened before they made staggering 40% profits on the bond markets with a hedge fund (LTCM for 4 years starting in 1994) which spectacularly collapsed in 1998 leaving debts of ~£4billion... that were mopped up by the financial services sector - presumably because they didn't want questions asked about the value of their illiquid bonds.

Now, I know it is popular to assume that the the hypothesis is that "The Market Is Always Right" (is that mantra really embedded in the psyche of the over 40s? George Soros thinks it is...) but this is a misinterpretation. The random walk theory relates to the pricing of derivatives. The logic, roughly, is that because commodities and shares are frequently traded and have real value, an increased expectation of appreciation will drive up the price now... and, if we assume that traders are well informed and rational, only the unexpected will cause a deviation over time. In the environment in which it was proposed, I consider this model remarkably convincing.

There are some problems:

1. Traders, as far as I can tell, are neither rational nor experienced... at least if you consider them to be honest.

2. Derivative trading is covert - "Over The Counter" (or should that be under) and is not subject to regulatory scrutiny. This means that if there is insider trading, it is far more likely to be done with derivatives than on the open market.

3. Derivative trading is less amenable to analysis as potential derivative trades are exceptionally diverse... hence trends, even for participants, are hard to follow.

4. A key requirement for the Black Scholes pricing model (which I understand to be used by most modern hedge funds etc.) is that the underlying equities be frequently traded in a liquid market... in an illiquid market the pricing model fails. We have seen a boom in credit and other "exotic" derivatives in recent years.

5. Another key assumption to the pricing of derivatives is that the asset controls the derivative (as a dog wags its tail) but, if the estimates of the size of the derivatives markets is accurate (40 trillion erm pounds dollars - doesn't matter really - 10x world GDP) I wonder if we're not in the paradoxical state where the tail wags the dog? It seems entirely plausible to me that, on paper, it is profitable for all business and productivity to fail catastrophically.

I would be extremely interested in hard facts about the derivative markets - especially the credit derivative markets.

[headmelter]

Quite simply, why have house prices become so unbelievably ridiculous and some people still seem to be buying.

[Paddles]

What I want to know is what's happened to the Spanish HPC?

There was a flurry of TV, radio and newspaper articles about it being "just round the corner" but it's gone quiet since. Does anyone have any real news about it?

[A.steve]

Quite simply, why have house prices become so unbelievably ridiculous and some people still seem to be buying.

I assumed that this driven by two factors recently:

1. Rich people seem to be buying property - even though it is over priced - suggesting to me that they have no confidence in our currency and want to own anything that they consider solid.

2. Poor people are imitating them.

Edited September 25, 2007 by A.steve

[Optobear]

It's been interesting to see how things have developed in the last 2-3 years, more or less as some predicted albeit much slower than many expected. Market sentiment has turned, I think it is now safe to say.

I feel that I have a good grasp of the big picture forces at work, thanks in part to the many excellent posters on this site (especially those active in 2005) and from my own experiences. Most of my questions have been answered many times already. However there are still some questions where I have never found satisfactory answers.

For example:

I still do not understand why the BoE, the Treasury and the UK population generally accepts that house prices (and therefore the cost of shelter) is kept out of the inflation measures which are the major factor in determining interest rates.

What do you find puzzling about the way the housing market and the broader economy works? You never know somebody may have the answer for you, or they may never have thought about it before.

The effect is only partially kept out. Many pensions are RPI linked.

However, I understand the point is that:

- some people, ie home owners see a balancing increase in their total net worth as HPI occurs. But their monthly housing costs links only to the interest rates (they've already bought, and their mortgage doesn't increase with HPI unless they trade up or down)

- other people (renters) see some small increase in monthly outgoings as their landlords seek to recover the mortgage cost (but the market in renting is quite price sensitive and is a quite liquid market - so large increases result in empty flats). The renters don't get the increase in net worth though.

The only people who directly care are people buying (unhappy) or selling (happy).

So, the point of an inflation measure is to relate how much money people have to spend to purchase a "standard" and supposedly "representative" basket of goods and services. Most people neither buy nor sell houses very often. So do you include only a fraction of the population, and how do you decide the fraction?

The CPI keeps out the mortgage cost increase for home-owners, and also the increase in net value when the HPI occurs.

So there is some logic in it as a way of understanding how the cost of eating, or clothing your children, or buying cheap electronic tat goes. It is a perfectly good measure, as long as we understand that is all it does measure.

The great flaw with it (other than the continuous fiddling of the numbers) is that it doesn't target the measure that makes people feel whether they are wealthy or not. i.e. having a big house or nice flat. So targetting CPI = 2% might keep food on an even keel (if the approach worked), but it doesn't stop those of us hoping to buying feeling great disatisfaction.

The big thing that Nu Labour has presided over is that we've all got much poorer in real terms (ie finite amount goods, such as gold, BP shares, Renoirs, property in Kensington). However, we perceive ourselves as much better off in terms of stuff that can be produced in China - (cheap electronic tat, shirts at M&S, etc.). The amazing thing is that people think they are better off - but in reality they are much poorer in terms of how far their salaries go towards buying those finite amount goods.

The measure for that is money supply inflation (I'm not an economist) but I understand is the M4 money supply. It has been going great guns and has grown at the same rate as house prices. So Nulabour has had three factors

1) This country doesn't produce anything so we've got poorer.

2) The city have found ways to temporarily inflate money supply without it breaking the conventional restraints on how money works (securisation). This had led to the money supply growth.

3) All the cheap tat has got incredibly cheap thanks to China.

None of those three are sustainable, hence HPC and probably a major economic depression. That's how I see it. But then I've declared bearish tendencies.

[Oh Dear]

I'm puzzled as to why delegates at the Labour Party Conference, stand and applaud a man, who has robbed them blind.

http://www.dilbert.com/comics/dilbert/arch...t-20070924.html

[piece of paper]

"What do you find puzzling about the way the housing market and the broader economy works? You never know somebody may have the answer for you, or they may never have thought about it before."

I find it puzzling that people do not see that house prices are determined mainly by affordability. If interest rates come down, prices will go up because people can afford to service more debt. This has suited the government, which bound itself on headline tax rates. The tax stream from expenditure has gone some way to meet the shortfall.

Had house prices increased broadly in line with the RPI, they would be much more affordable now than in the 80s/90s.

It will end in tears because sensible interpretation of affordability has gone out the window.

p-o-p

[sossij]

What is meant by the phrase "priced in"? For example, "the markets are have already priced in an interest rate drop in XXXember". I don't understand what this means

Oh, and if I hear the expression "haircut" used in a non-grooming sense one more time I'm going to hurt somebody!

[flapjack]

I still can't fathom out why so many people think GB is anything more than a self-serving slimeball

Ditto DC!

With bicycle clips on - oh pleease!

[cells]

I still do not understand why the BoE, the Treasury and the UK population generally accepts that house prices (and therefore the cost of shelter) is kept out of the inflation measures which are the major factor in determining interest rates.

someone has probably already answered this, but just incase

the BOE and the Treasury want low interest rates since inflation is "good" for them, in that inflation (or interest rates being lower than they should be) means they pay less for their debt, and it encourages spending.

the population accepts it becuase only perhaps 2 out of 100 understand know about inflation measures and perhaps only 10 out of 100 of that know that house prices are not in it.

[winkie]

I don't understand why people who are lent money think they must be credit worthy...I must be able to afford it otherwise they would not have lent it to me.

[sortofsilver]

What still puzzles me is that when there is a bad piece of news no matter how small and insignificent that people stand up and say "This is it...", "The crash has started..", "Black (insert day here)" and "Great crash 2 is underway". There is no need to announce it when it happens because we will all know about it.

The exact reason why I never bothered to comment on the whole Northern Rock crap.

[A.steve]

I don't understand why people who are lent money think they must be credit worthy...I must be able to afford it otherwise they would not have lent it to me.

That's easily explained. It used to be true.

Someone I used to work near reminisced earlier this year about 1980s tee shirts... ones saying "Who the **** is Frankie?" (Frankie Goes To Hollywood)... and ones saying "How big is your mortgage." I quizzed him about the mortgage slogan - he pointed out that 80s dinner parties one-up-man-ship was for the chuffed to complain about the size of their mortgage... because a larger mortgage necessarily meant that you were a high earner and had achieved a greater financial success.

[winkie]

That's easily explained. It used to be true.

Someone I used to work near reminisced earlier this year about 1980s tee shirts... ones saying "Who the **** is Frankie?" (Frankie Goes To Hollywood)... and ones saying "How big is your mortgage." I quizzed him about the mortgage slogan - he pointed out that 80s dinner parties one-up-man-ship was for the chuffed to complain about the size of their mortgage... because a larger mortgage necessarily meant that you were a high earner and had achieved a greater financial success.

I get it! The more you owe the richer you must be... never thought of it like that.

[Guest pioneer31]

Why anyone is taken in by GB?. The polls suggest that many people are happy with him.

Even though he was a w***er, Tony Blair had charisma, GB has none whatsoever. He has a very obvious (creepy) fake smile.

I don't believe anything that he says - whether it be his concern for child poverty, teaching children to read or putting the NHS top of the agenda.

He reminds me of a contestant on X factor - wants fame and wealth and has no interest in being talented or entertaining people.

Edited September 26, 2007 by pioneer31

[A.steve]

I get it! The more you owe the richer you must be... never thought of it like that.

I believe that this idea has crept into the subconscious psyche of about three quarters of the general public.

While I might be seen as sexist, I think slightly more women than men feel this way - but this sways men who think with their other organ.

It's endemic - today it is about the colour of your credit card; the logos on your designer gear and the label on that bottle of Crystal champagne.

The size of your mortgage today is something you keep secret... you care that your house is valuable... and that the area you live in is rising in value significantly faster than all surrounding areas.

The locals' belief that house prices are increasing faster than average in their town is also very curious to observe. I've never met anyone who has said "House prices are rising more slowly in my area than is the national average."

[winkie]

I believe that this idea has crept into the subconscious psyche of about three quarters of the general public.

While I might be seen as sexist, I think slightly more women than men feel this way - but this sways men who think with their other organ.

It's endemic - today it is about the colour of your credit card; the logos on your designer gear and the label on that bottle of Crystal champagne.

The size of your mortgage today is something you keep secret... you care that your house is valuable... and that the area you live in is rising in value significantly faster than all surrounding areas.

The locals' belief that house prices are increasing faster than average in their town is also very curious to observe. I've never met anyone who has said "House prices are rising more slowly in my area than is the national average."

Sooo true.....Snob I love that word especially when it comes with a big ego.

...are you gold or platinum?

[sortofsilver]

Why anyone is taken in by GB?. The polls suggest that many people are happy with him.

Even though he was a w***er, Tony Blair had charisma, GB has none whatsoever. He has a very obvious (creepy) fake smile.

I don't believe anything that he says - whether it be his concern for child poverty, teaching children to read or putting the NHS top of the agenda.

He reminds me of a contestant on X factor - wants fame and wealth and has no interest in being talented or entertaining people.

Until MPs hold themselves to the same laws and rules that are forced upon us then nothing will ever change. MPs are corrupt it is a fact. It is pointed out to us on national television and what happens? Nothing because the whole system is corrupt. I see it, most people on this board see it but until the nation sees it and wants to do something about it nothing will change.