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Bear Stearns: Tip Of The Iceberg

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Given the failure of Bear Stearns, & the likely failure of more banks on both sides of the Atlantic, the BoE & FED will now slash interest rates. This will lead to a serious risk of high inflation, thus eroding the purchasing power of any cash stash you may have. Particularly significant of you are STR of have large savings. So what to do?

Gold is in my view in it's own bubble. It also pays no interest of dividend & can be very volatile.

Equities are heading mor a big fall, most likely.

So the question is should one now consider property again, at say 20% off asking. Maybe this is why there are still a few buyers out there - are they being smart perhaps.

I have in recent years been very bearish on house prices, & still am. However, given te speed of the likely global economy implosion, does the forum think property may now be the best of a bad bunch?

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Guest Mr Parry
Given the failure of Bear Stearns, & the likely failure of more banks on both sides of the Atlantic, the BoE & FED will now slash interest rates. This will lead to a serious risk of high inflation, thus eroding the purchasing power of any cash stash you may have. Particularly significant of you are STR of have large savings. So what to do?

Gold is in my view in it's own bubble. It also pays no interest of dividend & can be very volatile.

Equities are heading mor a big fall, most likely.

So the question is should one now consider property again, at say 20% off asking. Maybe this is why there are still a few buyers out there - are they being smart perhaps.

I have in recent years been very bearish on house prices, & still am. However, given te speed of the likely global economy implosion, does the forum think property may now be the best of a bad bunch?

Said it before, I'll say it again. Agricultural land.

The financial markets are not the future. Actual production of real things such as food is.

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Given the failure of Bear Stearns, & the likely failure of more banks on both sides of the Atlantic, the BoE & FED will now slash interest rates. This will lead to a serious risk of high inflation, thus eroding the purchasing power of any cash stash you may have. Particularly significant of you are STR of have large savings. So what to do?

General inflation is not a worry for the STR. Sit and hold on, wait for house prices to fall further before buying.

Lower interest rates wont have any effect, there is no money to lend, libor rates are going up. 100%+ LTV is gone.

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Guest grumpy-old-man
Said it before, I'll say it again. Agricultural land.

The financial markets are not the future. Actual production of real things such as food is.

I agree & this is what I would definetly consider if I had a large str fund.

Where & what the land is however, will no doubt be crucial (or could be?)

edited - forgot to add though.....land prices are crashing as well aren't they ? ;)

best of a bad bunch then.....

Edited by grumpy-old-man

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I agree & this is what I would definetly consider if I had a large str fund.

Where & what the land is however, will no doubt be crucial (or could be?)

edited - forgot to add though.....land prices are crashing as well aren't they ? ;)

best of a bad bunch then.....

might find our returning soldiers make a claim on farmlands by birthright- oops thats Zimbabwe- could never happen here.

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Guest Mr Parry
I agree & this is what I would definetly consider if I had a large str fund.

Where & what the land is however, will no doubt be crucial (or could be?)

edited - forgot to add though.....land prices are crashing as well aren't they ? ;)

best of a bad bunch then.....

I've always thought agri land on the margins of towns wouldn't be a bad idea. Imagine the effect of re-zoning. If not re-zoned one can always grow carrots!

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General inflation is not a worry for the STR. Sit and hold on, wait for house prices to fall further before buying.

Lower interest rates wont have any effect, there is no money to lend, libor rates are going up. 100%+ LTV is gone.

So the fact that GBP is being trashed by 13%+ annual broad monetary inflation obvioulsy doesn't bother you.

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Given the failure of Bear Stearns, & the likely failure of more banks on both sides of the Atlantic, the BoE & FED will now slash interest rates. This will lead to a serious risk of high inflation, thus eroding the purchasing power of any cash stash you may have. Particularly significant of you are STR of have large savings. So what to do?

Gold is in my view in it's own bubble. It also pays no interest of dividend & can be very volatile.

Equities are heading mor a big fall, most likely.

So the question is should one now consider property again, at say 20% off asking. Maybe this is why there are still a few buyers out there - are they being smart perhaps.

I have in recent years been very bearish on house prices, & still am. However, given te speed of the likely global economy implosion, does the forum think property may now be the best of a bad bunch?

As mentioned in the other thread, bansk have a major liquidity issue so are desperate for savers cash - hence the great rates being offered on savings at the moment!

The whole issue is making cash look ever better to hold - especially compared to property.

Edited by Pete95

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Given the failure of Bear Stearns, & the likely failure of more banks on both sides of the Atlantic, the BoE & FED will now slash interest rates. This will lead to a serious risk of high inflation, thus eroding the purchasing power of any cash stash you may have. Particularly significant of you are STR of have large savings. So what to do?

Gold is in my view in it's own bubble. It also pays no interest of dividend & can be very volatile.

Equities are heading mor a big fall, most likely.

So the question is should one now consider property again, at say 20% off asking. Maybe this is why there are still a few buyers out there - are they being smart perhaps.

I have in recent years been very bearish on house prices, & still am. However, given te speed of the likely global economy implosion, does the forum think property may now be the best of a bad bunch?

No - land and gold..

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Said it before, I'll say it again. Agricultural land.

Short of being a farmer, how do you get into it?

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Guest mSparks
Given the failure of Bear Stearns, & the likely failure of more banks on both sides of the Atlantic, the BoE & FED will now slash interest rates.

Im interested how you come to the conclusion that bank failures = lower rates, especially since interest is said to represent the cost of money, and increasing defaults increases the cost of money.

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Guest grumpy-old-man
Short of being a farmer, how do you get into it?

fair point.

nice bit of dry humour use. :D

edit - 5 to go ;)

Edited by grumpy-old-man

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However, given te speed of the likely global economy implosion, does the forum think property may now be the best of a bad bunch?

I think you may have failed to take recent developments into accounts (forgive me for the pedantic tone but I can't help it in this instance).

I will happily stick my neck out and try to restrain myself: the property market is not crashing right now, as of this instant, it is in freefall! It will probably take a few months for us to see hard data confirming it but I don't think it is avoidable.

The facts supporting this is that there are no buyers!

- Half of mortgage products have been removed from the market in the last few weeks,

- LTVs ratios are being reduced faster than you can say "falling knife", anything that could be bought before is too expensive today,

- similarly, liar loans are a thing of the past so unaffordable mortgages are available no more

- the banking industry generally, and even more so after the fall of Bear Sterns, is now in survival mode: a bank employee or executive won't lose his job for not giving a mortgage to someone that shows the slightest whiff of risk. He _will_ for taking on undue risk.

- then, the clearing banks won't lend to mortgage lenders (for the same reasons as above)

- and finally they don't have money to lend anyway, the credit contraction we are witnessing is unprecedented.

You can add ot that:

- The fear factor: sheeples are begining to notice that sh*t is hitting the fan so it's not just that they can't buy, very soon they will have no desire to buy.

- A recession is most probably on its way and on a global scale

- The higher of cost of food and energy won't be compensated by rising wages (global 'human resources' are plenty, no shortage there unfortunately) and so will reduce family budgets

And there are many more, this site is full of them.

To cut it short you have:

- A lot of forced sellers: BTLers, resetters, expats, etc.

- _No_ buyers

- A product that is overvalued by say 50% or more

This is unprecedented. What do you think will happen next in such context? I suspect the government will try to intervene but the UK is not in the same position as the US. It can't just print money on a vast scale. So options will be limited and will only partly mitigate this disaster.

The crisis of confidence in banking will take many years to be resolved so you can kiss a fast bounce goodbye. God knows what will happen in the long term.

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Guest Mr Parry
Short of being a farmer, how do you get into it?

Same as you do any other property. Go to an agent and buy it. As all land in the UK is comprehensively surveyed, Title Deeds to parcels of land should be straight forward.

. . . and no, you don't need a tractor and plough. There's no need to actually grow anything.

I buy agri land in North East Thailand, but do actually farm. First 1000 rubber tress going in next month. Have rice too. Growing things is good for the soul.

Forget the finance markets, the future is in farmers markets, where people don't buy commodities futures, rather, potatos!

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1) Whilst good Agricultural land is fetching £7k an acre right now it is not a suitable investment. Often sold in parcels no smaller that 100acres it also attracts legal fees to buy and has to be kept in order and you might see gypsies move onto it or fly tipping etc and hedges need to be trimmed and gates maintained etc. A local farmer can buy it and offset the loan for it against his farm profits. He is also eligible for subsidy on it which you are not unless you registered under the Single Farm Payment scheme in 2005 which you did not. The Farmer can further afford to outbid you as he can plant 100 acres with wheat and harvest 350 tons and sell it for £200 a ton. Which you can't.

2) Gold is a speculative short term good bet but it does have to go up by the Net interest available in NS&I 2 year bonds which are risk free.

3) Inflation is not really a concern of a STR like me. The money in the bank is going up by 5% a year. All of it will be used to buy a house which is currently going down in value by 5/10/15% a year. The divergence is a LOT of money when considering a large desireable property. A STR'r can think of his money in the bank as a house that is going up in value by the same amount that house prices are falling PLUS the net interest earned...

4) Just like the Fed the BoE will end up cutting interest rates in the UK - maybe as low as 2-3%. Which is fine by me. As an STR'r I will wait for houses to come off 10 - 20% (more if its apocalypse now) AND THEN swoop in with a 50% deposit AND buy a 25yr FIXED mortgage for maybe 4%. Quids in now. Quids in for the next 25yrs.

The future's bright.

ANDY

Edited by Andy Jones

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1) Whilst good Agricultural land is fetching £7k an acre right now it is not a suitable investment. Often sold in parcels no smaller that 100acres it also attracts legal fees to buy and has to be kept in order and you might see gypsies move onto it or fly tipping etc and hedges need to be trimmed and gates maintained etc. A local farmer can buy it and offset the loan for it against his farm profits. He is also eligible for subsidy on it which you are not unless you registered under the Single Farm Payment scheme in 2005 which you did not. The Farmer can further afford to outbid you as he can plant 100 acres with wheat and harvest 350 tons and sell it for £200 a ton. Which you can't.

2) Gold is a speculative short term good bet but it does have to go up by the Net interest available in NS&I 2 year bonds which are risk free.

3) Inflation is not really a concern of a STR like me. The money in the bank is going up by 5% a year. All of it will be used to buy a house which is currently going down in value by 5/10/15% a year. The divergence is a LOT of money when considering a large desireable property. A STR'r can think of his money in the bank as a house that is going up in value by the same amount that house prices are falling PLUS the net interest earned...

4) Just like the Fed the BoE will end up cutting interest rates in the UK - maybe as low as 2-3%. Which is fine by me. As an STR'r I will wait for houses to come off 10 - 20% (more if its apocalypse now) AND THEN swoop in with a 50% deposit AND buy a 25yr FIXED mortgage for maybe 4%. Quids in now. Quids in for the next 25yrs.

The future's bright.

ANDY

3) You will be concerned when your money vanishes into the ether from which it emerged.

4) Which will further precipitate the collapse of the Uk economy.

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I appreciate the OP's dilemma.

I'm not an STR, but I do have a decent house deposit. I too am sceptical of cash, with commodity price inflation and the possible risk of bank failures. From December 2007 until about two weeks ago, I was mostly in commodities (invested via ETFs). These did really well (20-30% gains), but I sold most of these when I became nervous about the financial system.

Here's why I felt I had to drop out of the commodity ETFs:

1. my ETFs were in an Iwebsharedealing account (part of HBOS)

2. my Iwebsharedealing account is a nominee account (no physical share certificates)

3. the ETF Securities ETFs are underwritten by AIG (which recently announced $11bn subprime losses)

3. I am concerned about a breakdown of the whole derivatives market if a few major counterparties fail

So this leaves me with relatively few options. If I was in the UK, I'd put a big chunk in the NSANDI inflation-linked bonds. They're tax-free, linked to RPI (not CPI) and are government-backed. Yes, your invested money might not buy you as much petrol in five years' time as it does now, but you should still be able to buy a home with it!

As it is I'm stuck with cash, with some share certificates in profit-making local (NZ/Australian) mining, energy and farming companies and a small amount of physical gold 'for emergencies'.

The agricultural land argument is interesting. Agricultural land should always hold some value. There are some real problems in investing, though. It's an illiquid asset, and unless you know a fair bit about farming, the land market and local factors, you could easily end up paying much more than you should. If you know and trust a farmer, you could ask them for advice - they'd be able to help out. If you have enough cash, you might want to buy some land for the (very) long term, and rent it out to a tenant farmer. That way your land will be maintained and productive, and you can rest assured that you own a small piece of the earth! I doubt that land investment is feasible if you'll need the money in 3/4 years for a house deposit.

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Explain how my STR fund - derived from hpi profit - will reduce in purchasing power over the next 12 months then Mr GeniusCockstarBoy. My wages, my dividends, my investments will all go up or down but the hundreds of thousands that I took out of my house to put into the next one is definitely going up by 5% whilst the asset it will be used to buy is deflating by the same amount. Ignorant am I?

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Explain how my STR fund - derived from hpi profit - will reduce in purchasing power over the next 12 months then Mr GeniusCockstarBoy. My wages, my dividends, my investments will all go up or down but the hundreds of thousands that I took out of my house to put into the next one is definitely going up by 5% whilst the asset it will be used to buy is deflating by the same amount. Ignorant am I?

I think what they are talking about is that people in Zimbabwe thought they had a nice nest egg for retirement and then found themselves bringing their entire life savings in a wheelbarrow down to the shop to buy a single loaf of bread.

Decent savings rates are no use in a hyper-inflation scenario. Of course it all depends whether you think hyper-inflation is possible or likely. I don't know, but if you believe it is then diversifying out of cash is something to be looking at.

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  • 295 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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