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Housing Recovery Is Years Away


VedantaTrader
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Thanks for the update - once we have all had a chance to read it (probably about 10 times) I will merge it into your pinned thread at the top.

Would you mind if I put a link to this thread on the main board - there are people over there who would find it challenging. ;)

Ah cheers Doccyboy...yeah for sure you can put a link on the main board for sure...Thanks.

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I am actually more concerned now than before. I would not consider buying a house for the next 5 years, unless it was bought with a very small mortgage, or outright.

However, I think rather than setting a date, it is better to play it by ear, and take a wait and see approach, as things can change quickly.

Thanks for the post VT.

The people rushing to buy property today may find in a year or two, that it was not as affordable as they thought it would be.

Edited by Belfast Boy
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............

Now this is the point I want to make. I think we can all agree that house prices will only rise in a vibrant economy. It is my thought that a price recovery will be nominal and not in real terms. If house prices go up in anyway that resembles a recovery, then be afraid�€�as oil will be at 400 USD, commodities will rise a lot.

This in my opinion will lead to an inflection point, in that with the CPI moving higher, the central banks will be forced to push up interest rates. However, I think it will be very difficult for the central banks to push rates up.

Central planning never works. A central bank does not know what the right quantity of money in the economy should be. After the year 2000 they lowered interest rates to historic lows. This was the catalyst for all the cheap credit which entered the economy and led to the bubble. Of course the central bank raised rates in baby steps, much to slowly and late in the day, which popped the bubble. If we are going to have central banks setting interest rates, then there is a policy they need to enact, which I don�€™t think they will be able to do. Also for political reasons they have didn�€™t do it before. They really needed to raise rates to nominal GDP growth+CPI to curb the bubble before it got out of hand.

I contend that they will not be able to do this easily. Lets say the economy recovers, and grows at 2.00% a year which is below what Darling is projecting in the next few years. In that scenario, lets say CPI is 4.5%. In order to reign in inflationary pressures, the central bank will need to raise rates above the sum of these two numbers, which would be circa 7.00%. With the increased debt load due to all the bailouts and fiscal deficits, will they really be able to do this? If they do, can anyone imagine the consequences? My take on it will be that it will be a �€œdouble dip�€� recession. Raising rates, will burst the bubble they are creating now, in government debt, and will make the next slump, deeper and more prolonged, with unemployment climbing higher.

During the preceding bubble, they did raise rates, however, the never took rates above or even to the level of GDP+CPI. The point of raising rates is to slow down credit growth. However, when the BOE were raising rates, credit growth actually increased and did not decrease, which shows that interest rates were not sufficient and much too low for too long. This is the puzzle the central banks are faced with. And this is the corner the government actions have backed themselves in to.

If they don�€™t raise rates, then the risk is that inflation and prices in all the places where people don�€™t want to see price rises will run out of control, ie the cost of living, heating oil, petrol, taxes, services, food costs, clothes etc etc. Already from the previous charts, commodities have went up a lot in a very weak economy. In a vibrant economy, where houses will recover it will not be a real recovery, and in that situation the cost of living will be uncomfortable, and in the end will lead to fuel protests, social unrest, an up spike in crime. It will not be a time for thinking about speculating or buying a house unless one can really afford it without a large mortgage.

I don�€™t know if commodities have bottomed out, however, the start of the bull market began in 2000, they are now moving up from a higher base than then.

I see inflation coming in the next 5- 10 years, who knows, maybe by 2010/11 it could be showing up. Infact, a little anecdotal, it seems alive and well today. I actually filled up the car the other day at a garage and the cost was now 109p, I bought the set of cut throat razors this morning, and they are now up by 50p, a 20% rise. Yesterday I read this�€�

Already

I am actually more concerned now than before. I would not consider buying a house for the next 5 years, unless it was bought with a very small mortgage, or outright. The reason, being for the reasons outlined above. I would not even feel comfortable with a 5 year fixed. After 5 years time, where could interest rates be? I would also stay away from a variable rate and interest only�€�Does anyone know what is the longest fixed rate mortgage available right now? Can you get a ten year fixed?

However, I think rather than setting a date, it is better to play it by ear, and take a wait and see approach, as things can change quickly.

Over the next 6-12 months�€�I said we could see a rally lasting six months. The FTSE has rallied. I actually think the market will fall again, an could make new lows, towards the end of the year, and commodities, including oil will could also test the previous lows, then I think it will be the buying opportunity of a lifetime. Any corrections in oil or other commodities provide a good chance to buy more.

So to summarise. Between, 2003-2007, we saw stock markets rising, house prices rising, commodities rising from a base which made them the cheapest inflation adjusted for 200 years. The USD dollar weakened, the GBP moved higher. In this period no one really cared about the rising prices(until the 2007), as they indulged their minds in the illusory nature of the temporary wealth stored in bricks and mortar.

In the last six months we have seen a mini pattern of that same occurrence between 2003-2007. The USD has weakened as can be seen in the USD index chart, the GBP has strengthened, and returned to the same pattern against the GBP/Yen. However, there is one difference this time. In this pattern house prices have fallen, unlike 2003-2007, when they were rising under similar inter-market relationships�€�which brings me to my point that they wil not be able re-inflate the bubble that has just burst. It has never been done in history. It takes a decade or longer for an asset class to come back into favour. And when it does come back into favour, the general public don�€™t participate anyway until the latter stages�€�It is only the smart money that participates in the beginning.

The next 6-12 months�€�

Stock market correction, possibly making new lows.

Commodities will correct.

Government bonds will increase in price as a flight to safety.

The GBP/Yen will correct also, possibly making new lows.

The USD will strengthen.

House prices will fall.

More money will printed and thrown at the problem. They will blow not succeed in kick starting the housing market in any meaningful way.

They will succeed in blowing up an bigger government debt bubble. They will increase the chance that interest rates will have to increase a lot in the next 5-10 years, they will increase the chances that when this happens, bond prices will fall, and bond yields will rise, especially in the long bond�€�which is used to set mortgage prices, thus increasing the chances that any recovery in housing is not realistic.

They will increase the chances if sowing the seeds for bad inflation.

The events of the last 6 months, I would call a microcosm of what will happen in the coming decasde�€�

Weakening USD, rising commodities, falling house prices in real terms, real interest rates and yields moving higher, higher taxes, stock market in a large range, but losing value in real terms with civil unrest and geopolitical problems emerging and becoming more acute in the coming years.

I hope I have been able to articulate my point ok, as it is quite difficult to explain. Anyway, I could be wrong about the timing of these things happening...I think however, it is hard to argue with price and relationships in any market, and thus far this seems to be the way it is playing.

thanks for the update vt, just on the subject of a double dip recession, this may be of interest. I agree with a lot of your analysis, a strengthening $ looks likely in the near term - what do you think is a good way of playing this? nat gas looks undervalued at present so buying the $etf with £ could prove the best of both worlds, what do you think?

cheers again VT, pp

ps, there is a lovely structured upward channel in palladium

pps jim puplava looked at the W shaped recession on fsn in april (big picture archives) which may be of interest

ppps!!! I was right about oil md!

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Ah cheers Doccyboy...yeah for sure you can put a link on the main board for sure...Thanks.

VT's post is proving very popular , 72 users on the NI board a few minutes ago

That's got to be a record :o

ps welcome one and all to the home of the real HPC , we are down about 50% from peak and expecting more ;)

Edited by Malthus
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SORRY, FORGOT TO INCLUDE THE PRICE SCALE IN THE CHARTS,HAHA. However, the percentage changes can been seen in the highlighted area.

It was six months ago, I wrote the piece which is pinned at the top of this forum. It is never easy to predict the future, and with economics, it is even more uncertain that. However, the best we can do is try to look at the patterns and inter-market relationships that exist, and watch how they evolve in real time, with price being the superior guide in watching these relationships unfold into the future. The best we can do is to outline as many different possibilities as possible as to what might happen, and then assign a probability to each scenario to avoid making costly mistakes with regards risk�€�in this case, to buy or not to buy a property.

I think now is as relevant a time as ever to come back and have a look at how events have unfolded in the last six months.

What we see now is the �€œgreen shoots�€� of recovery being touted in the mainstream media�€�goodness we have even seen two months of house price rises in the last six months, which from my reading on sentiment on this board and in general seems to have brought into question some peoples sentiment. Some are getting cold feet regarding staying out of the property market, in the fear that prices could start to rise. The economic indicators in the economy although still anaemic do show signs of being �€œless bad�€� than before. Stocks are up, and the banking system seems to have stabilised.

However, I don�€™t see any of these as real positives. I just see it as a natural occurrence of events.

I m going to quote some relevant parts from that piece back in December, and look at what has actually happened in the last six months, and give my opinion on what I think will play out over the next 6-12 months.

Quote .

"Lowering the rate of interest artificially and price fixing the cost of money encourages speculation. Speculative money flows to where the fundamentals suggest there is an opportunity. The money never flows straight back into the bubble that has just burst, at least not for many years, usually a decade, but if the policy actions are bad enough, perhaps decades later if ever. It is my hunch that this new inflation of the money supply will lead to the assets where the supply and demand fundamentals and the opportunity is, that will be commodities and alternative energy, not stocks, bonds or real estate in the western world. Artificial stimulus in the end always leads to mal-investment in other parts of the economy,"

I stated before that re-inflation never flows back into the same bubble that has popped. I said the money will flow to where the opportunities are. So in the last 6 months house prices have risen twice, but overall have still fallen in this last 6 months.

It shouldn�€™t really be a surprise that we have seen some rises. After all, we have had a 500 billion GBP taxpayer bailout of the banking system, a round of QE and interest rates cut to near zero, and the ramping up of gigantic fiscal deficits that will be there for our lifetime, and have also led to an increased chance of a UK debt default. That is quite some effort and outlay of capital to achieve two months of house price rises. A good attempt!

I do think it is important to get this in some perspective which brings me back to this quote from six months ago. The money will not re-inflate the housing bubble. I have said over the last six months we will see single digit percentage falls over the coming years in nominal terms, in real terms possibly more. What is important is to look at what has happened in other markets other than the housing market.

I had said six months ago, the inflation will come in the recovery and the money will flow to where the fundamentals suggest the opportunity is�€�that place is commodities. The recovery in my opinion is a very dangerous thing.

And here is the reason why�€�the important theme to understand is that this has all happened in a very weak economy. Excuse all the charts, but they are necessary to make my point. And also, excuse the poor image resolution as I m just using print screen function other wise they will be too big to upload.

CrudeOilChart.jpg Crude oil futures

CottonFutures.jpg Cotton Futures

HeatingOil.jpg Heating oil, and we are in summer.

HighGradeCopper.jpg High Grade copper futures.

CoffeeFutures.jpg Coffee Futures

CornFutures.jpg Corn Futures

WheatFutures.jpg Wheat Futures.

SugarFutures.jpg Sugar Futures

Palladium.jpg Palladium

OatsFutures.jpg Oats Futures

CocoaFutures.jpg Cocoa Futures

AluminiumFutures.jpg Aluminium Futures.

US_DollarIndex.jpg US Dollar Index. As can be seen the USD has weakened, which is what you would expect as USD liquidity returns. In an inflationary environment, you would expect the USD to weaken, and hence commodities are moving higher. However, I do think the USD will gain in strength over the coming months, as deleveraging continues, causing government bonds to move higher, stocks to correct, commodities to correct and house prices to fall.

30Yr_US_Treasury_Bond.jpg

This tells a story. Mortgage rates are influenced by the long end of the yield curve. We can see that the T-bond has crashed in recent months, leading to a weaker USD. This concept is a a bit of a head fry. The price has moved down, which means the yield has moved up. When bond prices move up in price, the yield moves down. Hence thats why when the bond prices moved up at the height of the collapse we saw the yields move to historic lows. Now however, the interest yield is moving up as the price moves down.

Also interest rates and bond prices move inversely. So when the FED, and other central banks cut interest rates, the prices went up. If in the future interest rates move up, then bond prices will fall as they have been and the yields will move higher...These are used to set mortgage rates, with mortgage rates set a few basis points higher than the government yield, potentially locking the mortgage financing and refinacing market...There isevidence of this already happening. mortgage rates

Spread_on_yield_TBond.png

I selected the 01/02/09 and 13/06/2009 to compare the spread on the long dated bond in the last 4 months. It is clearly moving higher, as can be seen.

Lets not be naive and think that dollar liquidity will not cause a similar problem here.

The other reason, why this is posing the greatest of migraines for Mr Bernanke is this chart...Mortgage_Resets.jpg

There is a st*tstorm of option arms and ALT-A mortgages which will recast and reset at in the next 2 years. One can see the subprime debacle is behind us, look 2007/2008...However, there are about 500 billion USD of these toxic mortgages which will need refinancing.

This might explain why the FED have been buying bonds (by creating new money to buy them), to try and raise the prices and hence lower the yields, so that they will not reset at at a higher rate mortgage...which will only increase the defaults. Estimates put the default rate at 61% on these mortgages.

The bank Wells Fargo , JP Morgan Chase and others have large exposure. So will we see TARP 2 needed... more problems ahead for the banking system. More money thrown at the problem?

The FED and Bernanke in their genuis don't realise that their actions are counter productive, creating new money to buy bonds is what will increase yields...I guess we can't expect them to get anything right.

So...

As can be seen in a very weak economy commodities have performed very well indeed. Oil has doubled in 6 months, sugar has doubled, copper, corn, wheat, coffee all up 30-70%. So the money flow seems to be going to where the opportunity is.

Now this is the point I want to make. I think we can all agree that house prices will only rise in a vibrant economy. It is my thought that a price recovery will be nominal and not in real terms. If house prices go up in anyway that resembles a recovery, then be afraid�€�as oil will be at 400 USD, commodities will rise a lot.

This in my opinion will lead to an inflection point, in that with the CPI moving higher, the central banks will be forced to push up interest rates. However, I think it will be very difficult for the central banks to push rates up.

Central planning never works. A central bank does not know what the right quantity of money in the economy should be. After the year 2000 they lowered interest rates to historic lows. This was the catalyst for all the cheap credit which entered the economy and led to the bubble. Of course the central bank raised rates in baby steps, much to slowly and late in the day, which popped the bubble. If we are going to have central banks setting interest rates, then there is a policy they need to enact, which I don�€™t think they will be able to do. Also for political reasons they have didn�€™t do it before. They really needed to raise rates to nominal GDP growth+CPI to curb the bubble before it got out of hand.

I contend that they will not be able to do this easily. Lets say the economy recovers, and grows at 2.00% a year which is below what Darling is projecting in the next few years. In that scenario, lets say CPI is 4.5%. In order to reign in inflationary pressures, the central bank will need to raise rates above the sum of these two numbers, which would be circa 7.00%. With the increased debt load due to all the bailouts and fiscal deficits, will they really be able to do this? If they do, can anyone imagine the consequences? My take on it will be that it will be a �€œdouble dip�€� recession. Raising rates, will burst the bubble they are creating now, in government debt, and will make the next slump, deeper and more prolonged, with unemployment climbing higher.

During the preceding bubble, they did raise rates, however, the never took rates above or even to the level of GDP+CPI. The point of raising rates is to slow down credit growth. However, when the BOE were raising rates, credit growth actually increased and did not decrease, which shows that interest rates were not sufficient and much too low for too long. This is the puzzle the central banks are faced with. And this is the corner the government actions have backed themselves in to.

If they don�€™t raise rates, then the risk is that inflation and prices in all the places where people don�€™t want to see price rises will run out of control, ie the cost of living, heating oil, petrol, taxes, services, food costs, clothes etc etc. Already from the previous charts, commodities have went up a lot in a very weak economy. In a vibrant economy, where houses will recover it will not be a real recovery, and in that situation the cost of living will be uncomfortable, and in the end will lead to fuel protests, social unrest, an up spike in crime. It will not be a time for thinking about speculating or buying a house unless one can really afford it without a large mortgage.

I don�€™t know if commodities have bottomed out, however, the start of the bull market began in 2000, they are now moving up from a higher base than then.

I see inflation coming in the next 5- 10 years, who knows, maybe by 2010/11 it could be showing up. Infact, a little anecdotal, it seems alive and well today. I actually filled up the car the other day at a garage and the cost was now 109p, I bought the set of cut throat razors this morning, and they are now up by 50p, a 20% rise. Yesterday I read this�€�

Already

I am actually more concerned now than before. I would not consider buying a house for the next 5 years, unless it was bought with a very small mortgage, or outright. The reason, being for the reasons outlined above. I would not even feel comfortable with a 5 year fixed. After 5 years time, where could interest rates be? I would also stay away from a variable rate and interest only�€�Does anyone know what is the longest fixed rate mortgage available right now? Can you get a ten year fixed?

However, I think rather than setting a date, it is better to play it by ear, and take a wait and see approach, as things can change quickly.

Over the next 6-12 months�€�I said we could see a rally lasting six months. The FTSE has rallied. I actually think the market will fall again, an could make new lows, towards the end of the year, and commodities, including oil will could also test the previous lows, then I think it will be the buying opportunity of a lifetime. Any corrections in oil or other commodities provide a good chance to buy more.

So to summarise. Between, 2003-2007, we saw stock markets rising, house prices rising, commodities rising from a base which made them the cheapest inflation adjusted for 200 years. The USD dollar weakened, the GBP moved higher. In this period no one really cared about the rising prices(until the 2007), as they indulged their minds in the illusory nature of the temporary wealth stored in bricks and mortar.

In the last six months we have seen a mini pattern of that same occurrence between 2003-2007. The USD has weakened as can be seen in the USD index chart, the GBP has strengthened, and returned to the same pattern against the GBP/Yen. However, there is one difference this time. In this pattern house prices have fallen, unlike 2003-2007, when they were rising under similar inter-market relationships�€�which brings me to my point that they wil not be able re-inflate the bubble that has just burst. It has never been done in history. It takes a decade or longer for an asset class to come back into favour. And when it does come back into favour, the general public don�€™t participate anyway until the latter stages�€�It is only the smart money that participates in the beginning.

The next 6-12 months�€�

Stock market correction, possibly making new lows.

Commodities will correct.

Government bonds will increase in price as a flight to safety.

The GBP/Yen will correct also, possibly making new lows.

The USD will strengthen.

House prices will fall.

More money will printed and thrown at the problem. They will blow not succeed in kick starting the housing market in any meaningful way.

They will succeed in blowing up an bigger government debt bubble. They will increase the chance that interest rates will have to increase a lot in the next 5-10 years, they will increase the chances that when this happens, bond prices will fall, and bond yields will rise, especially in the long bond�€�which is used to set mortgage prices, thus increasing the chances that any recovery in housing is not realistic.

They will increase the chances if sowing the seeds for bad inflation.

The events of the last 6 months, I would call a microcosm of what will happen in the coming decasde�€�

Weakening USD, rising commodities, falling house prices in real terms, real interest rates and yields moving higher, higher taxes, stock market in a large range, but losing value in real terms with civil unrest and geopolitical problems emerging and becoming more acute in the coming years.

I hope I have been able to articulate my point ok, as it is quite difficult to explain. Anyway, I could be wrong about the timing of these things happening...I think however, it is hard to argue with price and relationships in any market, and thus far this seems to be the way it is playing.

I don't buy an aweful lot of this charted evidence you seem to rely on... as an example there have been people here predicting that the reason house prices would fall is that their value at a constant level needs to return to norm vs the price of gold.... actually what happened is gold bounced MORE than house prices fell resulting in a position todat where historically I believe houses represent on trend value vs goal.

I would however agree that house prices will fall ( I think thats fairly common knowledge) its just a pity with all your chart data you don't seem able to offer any ideas to the scale or speed of further falls... my uncharted view is that the rate of slow down for the next 12 months will be slower than the previous and monthly drops might well avaerage 0.8% vs 1.5%.

Where I do disagree with you is over the stock market... in my view we have seen the lows already and those will not be visted again.

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I don't buy an aweful lot of this charted evidence you seem to rely on... as an example there have been people here predicting that the reason house prices would fall is that their value at a constant level needs to return to norm vs the price of gold.... actually what happened is gold bounced MORE than house prices fell resulting in a position todat where historically I believe houses represent on trend value vs goal.

I would however agree that house prices will fall ( I think thats fairly common knowledge) its just a pity with all your chart data you don't seem able to offer any ideas to the scale or speed of further falls... my uncharted view is that the rate of slow down for the next 12 months will be slower than the previous and monthly drops might well avaerage 0.8% vs 1.5%.

Where I do disagree with you is over the stock market... in my view we have seen the lows already and those will not be visted again.

Abharrisson, if you had been reading my posts,and these two posts, I did say 2012 will be a bottom in house prices, nominal bottom at least. Also, I have estimated that the falls will be over 50%, perhaps nearer to 60%.

The charts are there to show a relative change in price...

You thinking about gold or goal v house prices is quite muddy thinking in my opinion. So many other fundamental factors that you need to take into account.

As for reliance on charts...for sure, someone who has never made money using charts will find no use for them. I have never made money on horses by my own accord, and some would say that it is a mugs game where the bookies only win. A relative truth. Yet I know a professional gambler who has consistently made money over many many years...

Charts are only one tool in a toolbag. The charts posted are not my system. Instead, it is of more a fractal nature, with about 5 charts of the one security on 5 different timeframes, which can find low risk entry points on lower time frames according to what is happening on higher timeframes. I also incorporate 4-5 different non-correlated methods to make a decision, based on cycles within cycles within cycles, trend, volatility, patterns, risk management, and the constant intertwining of disequlibrium between buyers and sellers.

When as many non-correlated methods are in agreement as possible then there is an opportunity.

It suits me, as I feel comfortable with it, and it works.

The method never lets me miss a meaningful move in any market, where it is applied.

Edited by VedantaTrader
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An epic post. Thanks for your time.

The rising interest rates and inflation scenario makes sense to me, yet learned (?) types eg hugh hendry, make equally strong arguments for deflation -

I suppose thats what makes life interesting. It all seems too complicated to me, think I'll stick with Betfair for my investing, up 32% so far this year. And all from watching lots of sport on tv!

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thanks for all the time and effort VT! I need to read it a few more times to totally digest it.

Hopefully for me looking to buy nov/dec/jan (for kids nursery and primary school applications) and as long as i drive a hard bargain, I might get something not too much above bottom price!!!

I've been renting for over a year now and have felt very fortunate seeing my previous house fall by 100k in value!

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They will succeed in blowing up an bigger government debt bubble. They will increase the chance that interest rates will have to increase a lot in the next 5-10 years, they will increase the chances that when this happens, bond prices will fall, and bond yields will rise, especially in the long bond�€�which is used to set mortgage prices, thus increasing the chances that any recovery in housing is not realistic.

With American debt surpassing $120trn, the Baltic Dry index at all time lows, it's obvious where things are going.

http://investmenttools.com/futures/bdi_bal...y_index.htm#bdi

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Should have mentioned beforehand, thank you for the effort of the post VT, very enlightening. Firstly your prediction of a double dip recession is read by me the same way. However on the points of the commodity supercycle which is still inevitably out there, there are a couple of points that don't stack. Any upswing in the economy will not led to oil increasing to $400 per barrel and secondly in the short to medium term the commodity uptick will abate. Comm prices are in my opinion driven firstly by over enthusiastic dealers trading on any goods news item, and more importantly various economic stimuli measures in countries such as America/ China etc are leading to temporary fluctuations. Also many countries have been re-stocking inventories at cheap prices. Indeed on the oil story, most government inventories are at all time highs. The Chinese in my opinion are not going to be in the mood for buying much more at $70 per barrel, with reserve tanks near fill.

The maelstrom of the economic argument within your theory, that worse is to follow as a result of government debt repayment, leads me also to believe that there is a lot worse to follow for the USofA and world economy and Obama's administration does not inspire confidence in me. This is not good for any investment story.

In terms of viewing things, my views have always been to not over complicate, break it down to its simplest format and espouse, who can afford higher comms in the near to medium term. The simple theory of the elasticity price of demand seems to answer this. Coupled to this theorem is the reality that developing nations such as China/India as consumer are still relatively poor by Western standards (although in years this will change) and can ill afford these support levels suggested. (Increases in RmB/Yuan to the dollar makes central America more appealing to the States than China et al, but that’s another story). But globally never mind China, the support levels for comms are not strong enough. Oil was the catalyst that broke the camels back of the world economy, it will not repeat again soon. It may in the medium to long-term term or on a shorter period if this economic malaise fails to materialise.

It is possible however that your assertions are correct (without me sounding conceited) and mine wrong, but 12 months ago mines was a lone voice warning to short oil, China was not all it was cracked up to be and decoupling for the States by Asia was impossible. My advice is to short oil to $50, the fundamentals are based on fresh air, with again over enthusiast dealers trading on wafer thin good news when in reality world trade has fallen off the cliff per earlier post of the Baltic Index. The July driving season on the other side of the pond will be the barometer though in my opinion.

As a caveat, soft’s are promising at the moment, people have to eat.

para fix

Edited by md23040
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Should have mentioned beforehand, thank you for the effort of the post VT, very enlightening. Firstly your prediction of a double dip recession is read by me the same way. However on the points of the commodity supercycle which is still inevitably out there, there are a couple of points that don't stack. Any upswing in the economy will not led to oil increasing to $400 per barrel and secondly in the short to medium term the commodity uptick will abate. Comm prices are in my opinion driven firstly by over enthusiastic dealers trading on any goods news item, and more importantly various economic stimuli measures in countries such as America/ China etc are leading to temporary fluctuations. Also many countries have been re-stocking inventories at cheap prices. Indeed on the oil story, most government inventories are at all time highs. The Chinese in my opinion are not going to be in the mood for buying much more at $70 per barrel, with reserve tanks near fill.

The maelstrom of the economic argument within your theory, that worse is to follow as a result of government debt repayment, leads me also to believe that there is a lot worse to follow for the USofA and world economy and Obama's administration does not inspire confidence in me. This is not good for any investment story.

In terms of viewing things, my views have always been to not over complicate, break it down to its simplest format and espouse, who can afford higher comms in the near to medium term. The simple theory of the elasticity price of demand seems to answer this. Coupled to this theorem is the reality that developing nations such as China/India as consumer are still relatively poor by Western standards (although in years this will change) and can ill afford these support levels suggested. (Increases in RmB/Yuan to the dollar makes central America more appealing to the States than China et al, but that’s another story). But globally never mind China, the support levels for comms are not strong enough. Oil was the catalyst that broke the camels back of the world economy, it will not repeat again soon. It may in the medium to long-term term or on a shorter period if this economic malaise fails to materialise.

It is possible however that your assertions are correct (without me sounding conceited) and mine wrong, but 12 months ago mines was a lone voice warning to short oil, China was not all it was cracked up to be and decoupling for the States by Asia was impossible. My advice is to short oil to $50, the fundamentals are based on fresh air, with again over enthusiast dealers trading on wafer thin good news when in reality world trade has fallen off the cliff per earlier post of the Baltic Index. The July driving season on the other side of the pond will be the barometer though in my opinion.

As a caveat, soft’s are promising at the moment, people have to eat.

para fix

HI MD, thanks for the reply. It is good to see you are not 100% in agreement, as I m aware I could be wrong. However, the best way is to be nimble and hedged, with not too many correlated positions.

The 400 USD was kind of tongue and cheek, as a way of saying, well if they turn around the housing bubble, oil will be at 400USD...which I think would be the case.

I do think in the next 10 years oil will be at this price. I thought oil was a good short at 147 USD, however, I did think it would come back to 70-90 USD...so wrong there. However, I ll make estimates, but doesnt mean I would buy at that price. This is just a guide. Price will be the ultimate guide, and none of my indicators turned up at that point as it went through every level like a knife through butter...so didnt enter at that stage. However, good call by yourself.

Again, China is always a longterm story. Any country that has progressed economically had terrible periods, which are in part necessary.

My focus, lately has become a little more short term with regards market, very volatile. I love looking at the macro trends, and I think it is important that everyone develops a big picture view of how the world looks and willl develop. No one can expect to be right all the time, regards timing and direction. For me, as I say prices are up for commodities, and oil which is really going with the trend. However, many economist will say (this goes for any market), this market will correct, its over valued, undervalued etc etc, yet we see the market continue a relentless march in the same direction...so at times you find yourself ironically being a contrarian for following the trend.

I think we actually agree on the commodity outlook. I think they will correct in the short term. Six months. Infact Wheat has already come off...might be leading indicator.

The scenario I have not ruled out is a similar occurrence to the 1930's crash. The stock market could fall, 50-80% from these levels. It has happened before, it could happen again. I dont think it will, as they are pumping so much money into the economy, the money enters via the banking system, large banks, investment companys, hedge funds, amongst others are the first to come into contact with the new money, so I think they could nominally support price declines from around the levels and lows in March and November. I m going for either a retest of the lows, or a collapse below the lows. No one knows, but once price gets there, we can look at how it reacts around those levels...and get hopefully a better idea.

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world trade has fallen off the cliff per earlier post of the Baltic Index

para fix

yes, but how has demand for oil been looking ? is demand even 10% compared to 2008 peaks ?

Or is it that fundamentals of oil demand are good but the speculation you talk about driving the volatility in the price.

And oil will be doing this two-step with the dollar for some time to come. uncertainty just seems to be the buzzword, now more than ever.

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hello everyone :rolleyes:

im completely new to any kind of forum like this but I am working a long and boring night shift and have found many of the comments extremely interesting and have been very precise on the predictions (which when i look back a lot have been very very scary true).

myself and my husband as first time buyers bought a 3 bed terrace approx three and a half years ago (£105k) as young (22 and 24) first time buyers!!! we have just got an offer accepted on our dream home in our dream location (a little cottage in need of a lot of work in the countryside)..

am i mental to have two mortgages in this climate.. :unsure:

i was hoping to get my first home sold and break even ... at this point i don't care i don't want to take the risk of having two houses... my husband says no way we should rent our first house out and not sell untill we do make a profit???????? this is all confusing when EA's tell you 'green shoots' and the Belfast Tele is saying ' it's all over, house prices on rise' when should i sell???? its ok paying two mortgages now.. we have good jobs and interest rates are low... but they wont be forever!! :unsure::unsure: will i really have to wait to 2012 or beyond to see a turn around????

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hello everyone :rolleyes:

im completely new to any kind of forum like this but I am working a long and boring night shift and have found many of the comments extremely interesting and have been very precise on the predictions (which when i look back a lot have been very very scary true).

myself and my husband as first time buyers bought a 3 bed terrace approx three and a half years ago (£105k) as young (22 and 24) first time buyers!!! we have just got an offer accepted on our dream home in our dream location (a little cottage in need of a lot of work in the countryside)..

am i mental to have two mortgages in this climate.. :unsure:

i was hoping to get my first home sold and break even ... at this point i don't care i don't want to take the risk of having two houses... my husband says no way we should rent our first house out and not sell untill we do make a profit???????? this is all confusing when EA's tell you 'green shoots' and the Belfast Tele is saying ' it's all over, house prices on rise' when should i sell???? its ok paying two mortgages now.. we have good jobs and interest rates are low... but they wont be forever!! :unsure::unsure:will i really have to wait to 2012 or beyond to see a turn around????

While no one can really predict the timing and magnitude of any drops, getting one is an achievment, I think we need to let the market tell us that by price and fundamentals, and change in trend by looking at a long period of base building around a bottom which could last 2 years... At this moment the trend is down if we average it out with a couple of moving averages, and the fundamentals are lousy regards the economy. Also, the fundamentals specifically regarding property don't suggest we are anywhere near a bottom, they suggest we are over valued, rental yield, income ratio, etc etc

I m not being negative, but I think 2012 is in someways not a bad time to buy, but in other ways, it is optimistic, if you want to sell the other house at a profit. That could be much much longer, depending on what value the £105,000 one is now.

I see a nominal bottom in 2011/12, not sure when, perhaps 2012 judging by the "stickiness" of people to drop prices.

What happens if in 2 years from now interest rates go up, and brings us back down into a protracted slump, ands the deleveraging continues?

If we take a base building period last 24-36 months from 2012, then it could be 2014-18, until a real bottom is in,if we adjust for inflation.

However, on a positive note, by 2011, maybe you will be able to drive a hard bargain, and get a price which means you are comfortable to buy to meet your circumstances. So thats good. If it is going to be your home, and you can get it at a good price, and you will be doing alot of work to it, then perhaps there could be some value. However, the key is how much you can get for your first home?

I would recommend two mortgages, if it is going to be a struggle to maintain, especially if one is in negative equity.

Edited by VedantaTrader
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myself and my husband as first time buyers bought a 3 bed terrace approx three and a half years ago (£105k) as young (22 and 24) first time buyers!!! we have just got an offer accepted on our dream home in our dream location (a little cottage in need of a lot of work in the countryside)..

am i mental to have two mortgages in this climate.. :unsure:

It does not sound very sensible to me. How many times your joint income are the 2 mortgages going to be? How easy will that debt be to service if interest rates return to their long term average of 5% or the average since WWII of 7%? There is no way I would extend my debt levels in the current climate. The risk is just to great that the debt will become unaffordable.

i was hoping to get my first home sold and break even ... at this point i don't care i don't want to take the risk of having two houses... my husband says no way we should rent our first house out and not sell untill we do make a profit???????? this is all confusing when EA's tell you 'green shoots' and the Belfast Tele is saying ' it's all over, house prices on rise' when should i sell???? its ok paying two mortgages now.. we have good jobs and interest rates are low... but they wont be forever!! :unsure::unsure: will i really have to wait to 2012 or beyond to see a turn around????

So your husband wants to become a landlord? :rolleyes: That is best left to the professionals.

Your husband wants to make a profit from the first house :rolleyes: He really, really wants to stop reading Helen Carson in the Belfast Telegraph. She is going to cost you a small fortune. He wants to do his own research into bubbles and cycles. Most people here agree that the housing bubble will not fully deflate until 2011-2012.

Here is a really good quote which sums up the position of estate agents and the belfast telegraph...

To paraphrase the Upton Sinclair line - it is virtually impossible to get all those involved in ‘property’ in this country to understand the reality when their salary depends on them not understanding!

You really should test the market by trying to sell the house you have first. You don't actually have to sell it, but putting it on the market will give you first-hand experience of real activity and prices. You will also probably find that the estate agents are a lot more realistic/honest with you when you are selling.

Remember you don't actually own the house you are in. The bank owns it until your mortgage is paid in full. Personally, I would sell then buy. Then you are only renting 1 house from the bank. ;) This keeps your personal debt levels lower should interest rates suddenly rise.

Good luck,

BB

Disclaimer: I am not a financial adviser. Any advice you receive here is worth exactly what you apid for it.

Edited by Belfast Boy
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