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Credit Crisis: Experts Assess How Bad It Is

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http://business.timesonline.co.uk/tol/busi...icle3599120.ece

Two years on: will we be home and dry... or going down for the last time?

Patrick Foster, Lilly Peel and Peter Stiff

As the City lurches from one nightmare to the next, with banks bracing themselves for further losses, and the global credit crunch starting to feel its way into consumers’ pockets, there is one question on everyone’s lips — how bad will it get? The Times surveyed a selection of business leaders and luminaries, asking for their views on where the FTSE 100, the housing market and the base rate of interest would be in two years’ time.

The panel were asked: two years from now:

1 Will the FTSE 100 be above the 6,000 mark?

2. What percentage change will there have been in the housing market and in what direction?

3. What will the interest rate be?

Jon Moulton, managing partner, Alchemy Partners

1 Yes but one or two of the current FTSE 100 companies will not make it that long. Tight credit and weak economic conditions will cause the demise of some big names before the two years are up

Perhaps 8 per cent to 10 per cent of the index's recovery will be from the return of inflation. In two years' time people will be predicting better times - but they will not have actually arrived.

2 Housing will drop 10 per cent and then slowly recover. Lower interest rates will moderate the pain for mortgage payers.

3 In two years' time rates will be rising - inflationary fears will have overtaken fears of recession and financial instability. Guess back at 5 per cent after dropping hard late this year. Finally - I am not very confident of my predictions!

Conditions are unprecedented. The interconnected and complex financial system may itself fail catastrophically - if so, all bets are off. Consider accumulating a stock of barter goods. Rice is especially good - it stores well.

Mark Dampier, head of research, Hargreaves Lansdown

1 Always impossible to predict markets over any period but given the excessive pessimism that is around today, I think it will be above 6,000. The market is trying to discount the present problems, so while in the short term there is likely to be pain, unless we face Armageddon the market will recover before the economy, something that investors often find hard to understand.

2 I am a housing market bear. Prices have over ten years risen by around 190 per cent but in popular areas by 300 per cent. This is unsustainable. Factor in City lay-offs and redundancies and this must have an effect on London and popular second home areas. Couple this with far stricter lending and the multiplier effect must work in reverse - people can't borrow so much, prices fall, the supply/demand factor is overcooked. House price falls of 25 per cent would not be unreasonable.

3 The level of interest rates will depend on whether the current problems turn out to be inflationary or deflationary. I'm not sure I'm bright enough to give you an answer but falling assets, especially property, are usually deflationary so rates could well be lower.

David Buik, partner, BGC Partners

1 If it's a straightforward contest between sentiment and value, it's a no-brainer. Sentiment wins every time. Sentiment is currently negative. Even though growth is likely to fall below 2 per cent in 2008, many constituent stocks in the FTSE 100 look good value. The FTSE 100 will be nearer 6,500 than 6,000 by the end of 2009, despite the most visceral credit squeeze seen since 1974.

2 The UK housing market is likely to be very patchy. Overall house prices could dip by as much as 17 per cent by the beginning of 2009. However, 2009 could well be a flat year, with prices increasing at the beginning of 2010. What is clear is that there is a continued housing shortage in this country and there is no quick remedy to this issue. London house prices are unlikely to dip for long. The 1.5 million unaccounted for Eastern Europeans will surely underpin the rental market.

3 The Bank of England and the Government are both obsessed with inflation, which offers little scope for cuts according to their bible. Interest rates in two years' time - 4 per cent. Unlikely, you might say but a reality check may manifest itself. The economy is under the cosh and will need stimulation for people to sustain the servicing of their debt while enjoying themselves in the shopping malls.

Philippa Gee, investments director, Torquil Clark Holdings

1 Absolutely. We are going through a challenging time, where investors' loyalty is being severely tested but this is an extreme part of the life of a stock market cycle and it would be wrong to be so negative over such a protracted period. There are always pockets of value, so investors should stop trying to call the bottom of the market.

2 Zero per cent. It is likely that there will be a time of reductions in value, although this will tend to be concentrated in certain over-inflated areas within the country and then followed by a tentative increase. However, this should remain minimal. Bricks and mortar will not take a decade to turn around, as in times past, it will just mean that buyers need to be ultra-careful about the property they buy, its location and investment value.

3 While further cuts are likely, the economy should certainly have worked through its negativity by that time and therefore I estimate rates will sit in the 4 per cent to 4.5 per cent region. Clearly this will benefit borrowers but investors will suffer as a result and this is another clear reason why cash is unsuitable as a long-term holding.

Bob Rowthorn, professor of economics, University of Cambridge

The answers to these questions depend on the willingness and ability of governments and central banks to shore up demand and prevent a serious and prolonged recession. I think they have both the ability and the will to achieve this objective. The main danger is that the authorities will listen to the hair shirt brigade who think it is more important to punish bankers for their reckless behaviour than to stabilise the financial system. Fortunately, the hair shirt brigade seem to be losing the argument. I predict that in two years time:

1 The FTSE will exceed 6,000; the price/earnings ratio is currently quite low.

2 House prices will be 10 per cent less than now. Relative to income, house prices are currently well above trend.

3 The interest rate will be 5 per cent. This would imply a real interest rate of 2 per cent to 3 per cent, which is about average historically.

Philip Shaw, chief economist, Investec

1 I certainly hope so. It is difficult to claim that stocks are expensive at current levels and in two years' time we would expect the financial system and the world economy to have put most of their problems behind them and for the equity market to be trading above its current levels. Failure to do so would imply that the global economy is in a serious downturn, which we could all do without.

2 We would suggest that house prices will be lower as confidence remains sapped from the market and households still have to contend with high energy and food prices. Predicting house price inflation is not exactly one of the economics profession's strong points but we have pencilled in a fall of 5 per cent by the end of this year, followed by a period of stability.

3 Interest rates will almost certainly fall again soon, but where they are in two years' time will hinge on a wide range of factors. On the basis that the UK avoids an economic slump, does not benefit subsequently from a powerful rebound and that inflation is well contained, the bank rate is likely to be around 5 per cent.

Ruth Lea, director, Global Vision and economic adviser, Arbuthnot Banking Group

1 Forecasting the FTSE 100 two years hence is just about impossible, given the number of imponderables in the markets and the economy, where recession is a real possibility. But the FTSE 100 will probably be above the 6,000 mark, not least of all because there should be a recovery in banking shares, which have plummeted in recent months.

2 House prices will decline modestly - say by 5 per cent to 10 per cent (in nominal terms) although more in real terms. There should not be a repetition of the 20 per cent fall experienced in the early 1990s, which was exacerbated by double digit interest rates, a true recession in the economy and rapidly rising unemployment.

3 Bank rate could be around 4.5 per cent, assuming no further inflationary shocks and some modest growth in the economy. This also assumes unchanged fiscal policy but this may alter, depending on the timing of the next general election.

If the election is in 2010 there may be some pre-election sweeteners two years hence; if it is in 2009, there may be some fiscal retrenchment.

Jonathan Loynes, chief European economist, Capital Economics

1 Yes. There is a risk that the FTSE falls further over the next year as the economy and profits growth slows. But it should then start to recover. Note that equities currently look cheap against some other assets like bonds and property - they had their “bubble” in the late 1990s and early 2000s.

2 Our forecasts are for a fall of 5 per cent this year and another 10 per cent or so next. But there is a clear risk of a bigger fall if house prices were to move all the way back to “normal” levels compared with income.

3 Our forecast is for interest rates to be at 4 per cent at the end of 2009. They could go even lower than that - perhaps to 3 per cent or even lower. But they might be on the way back up in two years.

Sir Martin Sorrell, chief executive, WPP

1 I would say a resounding yes and that the market will fully acknowledge the role that advertising and marketing services plays in differentiating goods and services, geographically and technologically.

2 Up to 5-10 per cent higher. I would anticipate house prices would have stabilised in two years but not shown very much growth from where they are now. London may be the exception but the recent capital gains tax changes and non-doms charge may shift the balance, even in London, although the Olympics in 2012 should strengthen the market.

3 Up to one point higher. I would anticipate that interest rates remain low to stimulate the economy. They may be around the same level as now or may be a little higher given inflation worries.

David Cheyne, senior partner, Linklaters

1 We are in a current credit crunch, not an endless crash and it will have worked its way through by then, so I would be very surprised if the FTSE 100 wasn't above 6,000.

But how much above is another question.

2 Given the structural problems in the UK housing market - there still aren't enough homes to meet demand - I would question how much of a real decline in property prices we will see. Brits are stubborn about property and many would rather hold on to their assets than sell for less than what they think they are worth. So prices may fall by around 10 per cent but I don't expect a crash.

3 They will rise but not by that much. Five per cent seems about right.

Richard Buxton, head of UK equities, Schroders

1 Yes, because irrespective of the economic environment companies will perform and shares have a downturn priced in already.

2 Prices will fall by 5 per cent to 10 per cent per annum. Property is expensive compared with other asset classes and prices will fall, partly because of the higher cost of credit, and the City will shed jobs.

3 Rates will be lower. Unlike in the US, the Bank of England is determined to cut the interest rate slowly. I think they'll fall gradually through this year and through the first half of the next. It might be that in about two years we will see the first rise but compared to now it will be lower.

Some interesting predictions

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I would not want to be taking their expert on advice on where to stash my savings. I wish I could be so bad at my job and be classed as an expert!

Many can’t see the FTSE falling from current levels, and still site the shortage of housing as an issue, do you need to know any more to discount their views.

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The entire economy is based on property price MEW and external deficit borrowing. Take that away and we are as wealthy as Romania. Sure that won't be reflected in the UK stock market to any great degree because that deals with Global investments.

Property prices are about to fall down the abyss closely followed by us.

My advice buy Gold, Silver, Rice and an AK47 for defensive purposes only, property speculators will want your Rice.

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The entire economy is based on property price MEW and external deficit borrowing. Take that away and we are as wealthy as Romania. Sure that won't be reflected in the UK stock market to any great degree because that deals with Global investments.

Property prices are about to fall down the abyss closely followed by us.

My advice buy Gold, Silver, Rice and an AK47 for defensive purposes only, property speculators will want your Rice.

Gordans miracle economy was a stack of cards based on HPI. No HPI no economy.

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Gordans miracle economy was a stack of cards based on HPI. No HPI no economy.

Forgot to add you do not need to be an expert to predict that!

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"The interest rate will be 5 per cent. This would imply a real interest rate of 2 per cent to 3 per cent, which is about average historically"

This 'expert' must have a short memory.

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One of the people quoted is Jon Moulton, the head of Alchemy. This man is one of the real experts out there, not some lousy estate agent or tv personality.

This is his advice:

Conditions are unprecedented. The interconnected and complex financial system may itself fail catastrophically - if so, all bets are off. Consider accumulating a stock of barter goods. Rice is especially good - it stores well.

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Conditions are unprecedented. The interconnected and complex financial system may itself fail catastrophically - if so, all bets are off. Consider accumulating a stock of barter goods. Rice is especially good - it stores well.

That's quite chilling coming from someone like John Moulton.

When you read such stuff on HPC you take it with a pinch of salt - but when someone at the centre of the financial world starts suggesting storing food - whether for barter or for personal use - it kind of makes you sit up and listen. No offence to HPC posters, but we do tend to err on the gloomy side!

Maybe we should start a thread on storing food - what type, shelf-life, how to store, bulk suppliers etc. I know nothing about this and would welcome any advice from the more informed.

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Hmm, looking at that lot, all I can see if a lot of small percentage changes in stuff, and excessive use of words like "maybe" and "could". If you ask me, that's basically a load of financial industry players saying "We don't know what's going to happen, hope it's not nasty, I'm sure it'll be okay". Even Moulton, despite his CGNAO moment, doesn't want to commit to anything, and has gone with some very soothing figures.

Had they just turned round and said "erm, dunno", it would have been a lot more honest.

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Hmm, looking at that lot, all I can see if a lot of small percentage changes in stuff, and excessive use of words like "maybe" and "could". If you ask me, that's basically a load of financial industry players saying "We don't know what's going to happen, hope it's not nasty, I'm sure it'll be okay". Even Moulton, despite his CGNAO moment, doesn't want to commit to anything, and has gone with some very soothing figures.

Had they just turned round and said "erm, dunno", it would have been a lot more honest.

Its pretty disturbing that the most optimistic forecast the Times can find is 0%, I'm sure similar pieces only a couple of weeks back saw things picking up again now or in the summer. Before that a nominal fall of any kind was laughable. And a reference to barter goods OMFG!!! :ph34r::ph34r:

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Hmm, looking at that lot, all I can see if a lot of small percentage changes in stuff, and excessive use of words like "maybe" and "could". If you ask me, that's basically a load of financial industry players saying "We don't know what's going to happen, hope it's not nasty, I'm sure it'll be okay". Even Moulton, despite his CGNAO moment, doesn't want to commit to anything, and has gone with some very soothing figures.

Had they just turned round and said "erm, dunno", it would have been a lot more honest.

Since they are looking into the future, they can hardly do otherwise than say "maybe" and "could". No-one in their right mind would say of a future event, this will definitely happen. Furthermore, a "dunno" would be totally worthless to anyone attempting to make plans for the future, even if i was an honest response. The fact is, NO-ONE knows what will transpire in the future, but some are trying to take a stab at what might happen. I'd sooner have a few stabs in the dark to go on, even if contradictory, than a stack of "dunnos". At least one has a chance of assessing the predictions and weighing them up against historical events or other knowledge, and drawing a personal conclusion. There's not much one can conclude from a "dunno" other than "neither do I" and that's no good to man nor beast when trying to make an educated guess as to how events might unfold.

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One of the people quoted is Jon Moulton, the head of Alchemy. This man is one of the real experts out there, not some lousy estate agent or tv personality.

This is the guy who fronted that Panorama programme about the credit crunch etc. about 6 weeks ago , has a razor sharp business mind , and clearly has his own agenda as we all do , just can't quite work out what his is though ....

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Maybe we should start a thread on storing food - what type, shelf-life, how to store, bulk suppliers etc. I know nothing about this and would welcome any advice from the more informed.

Buy Uncle Bens rice in a carton. The best before date is on the top of the carton.Buy as much as you want from most stores. Keep in a dry kitchen cupboard. Simple really.

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house prices 10% off, thatll be 20% then as weve already had 10% from the peak.

Half price houses in time ( real)- thats my bet.

They just dont get it- there aint no money!

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What is the optimum storage temperature for rice?

I once heard an interview with a solo sailor who was planning to circumnavigate the globe in an absurdly small yacht. He researched his dietary options with a pro nutritionist and they concluded the most healthy compact food option was dried dog food.

So that's my HPC survival plan, 1/2 a ton of rice and dog food in the attic.

Now where can I buy an AK47?

Edited by dreamOn120k

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Whats is really interesting is of their 11 experts only 1 thought prices would go up, actually no economics expert, Martin Sorrell, a brilliant marketing business engineer, but clearly clueless with his classic 'the Olympics in 2012 should strengthen the market'.

All the others ranged from flat to droping about 25%. And remember, if your a pundit your going to be cautious.

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What is the optimum storage temperature for rice?

I once heard an interview with a solo sailor who was planning to circumnavigate the globe in an absurdly small yacht. He researched his dietary options with a pro nutritionist and they concluded the most healthy compact food option was dried dog food.

So that that's my HPC survival plan, 1/2 a ton of rice and dog food in the attic.

Now where can I buy an AK47?

I prefer the M16, it might jam sometimes, but at least it shoots straight.

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This is the guy who fronted that Panorama programme about the credit crunch etc. about 6 weeks ago , has a razor sharp business mind , and clearly has his own agenda as we all do , just can't quite work out what his is though ....

Telling it like it is?

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I prefer the M16, it might jam sometimes, but at least it shoots straight.

The good old over and under, good at short range, especially if someone is stealing the rice out of your cupboard. :rolleyes:

Oh and you can buy them legally. ;)

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Maybe we should start a thread on storing food - what type, shelf-life, how to store, bulk suppliers etc. I know nothing about this and would welcome any advice from the more informed.

Buy a chicken. They can give you breakfast every morning for a year and then you can have the main course at Xmas. All they eat is lidl fleas, brocken egg shells and dust.

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I prefer the M16, it might jam sometimes, but at least it shoots straight.

Nope, its the AK, When you really have to every last muthaphucker in the room.....accept no substitues

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Maybe we should start a thread on storing food - what type, shelf-life, how to store, bulk suppliers etc. I know nothing about this and would welcome any advice from the more informed.

Good idea I have been doing research.

http://www.spl-wholesale.co.uk

Rice should be good for 4 years providing a low moisture environment and that rodents are kept at bay.

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That's quite chilling coming from someone like John Moulton.

When you read such stuff on HPC you take it with a pinch of salt - but when someone at the centre of the financial world starts suggesting storing food - whether for barter or for personal use - it kind of makes you sit up and listen. No offence to HPC posters, but we do tend to err on the gloomy side!

Maybe we should start a thread on storing food - what type, shelf-life, how to store, bulk suppliers etc. I know nothing about this and would welcome any advice from the more informed.

Nothing particularly inventive here but immediately springs to mind most tinned fish. Tuna in oil should last for years I think. All pasta will last for decades. All pulses too, and plenty of protein there. I'm just trying to convert mung beans (infinite shelf life) into bean-sprouts...looks pretty easy.

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  • 292 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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