Thursday, Nov 09, 2006

Debate with David Smith over long-wave cycles

House prices just keep on flying: www.economicsuk.com

I have been having a debate with David Smith (from The Sunday Times) about my theory that stocks, commodities and property are in a long-wave cycle of 33-36 years. Please read the posts from November 8th onwards. It would be useful to know any of your comments on this subject.

Posted by sold 2 rent 1 @ 02:29 PM (412 views)
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18 Comments

1. paul said...

His current appraisal of the nation is as follows (from what I read)

1. Debt is not a problem in the UK
2. Oil prices will imminently fall to some unprecedented low level.
3. The housing boom won't be followed by a bust.
4. The real rate of inflation is the CPI, nothing more, nothing less, and inflation is not rising at all.
5. Climate change is a non issue.

I'm all for mavericks but there's nothing original or pertinent about his opinions. In fact he's consistently wrong on nearly everything, and his overconfident confrontational style makes him a bore and a poor economist.

Waste of time if you ask me.

Thursday, November 9, 2006 04:05PM Report Comment
 

2. sold 2 rent 1 said...

Paul,

Thanks for the comments.
I realise that he is one-dimensional is his views an is not open to new ideas..

Do you think my idea of a 33-36 year cycle in stocks, commodities and property is crazy?
Most people I know are not that interested - predominantly because it involves both shares and property falling - which scuppers their house, pension, and investments.

When I say there is an oportunity with commodities they get too scared.

Thursday, November 9, 2006 04:34PM Report Comment
 

3. sold 2 rent 1 said...

24 hour Gold up 14 to $632 at 4:40PM
http://goldprice.org/

That 16K of gold mining ISA warpped unit trusts I bought 2 weeks ago should be doing quite well

All we need now is for stocks to start falling and the 33-36 year cycle is fully engaged

Thursday, November 9, 2006 04:42PM Report Comment
 

4. paul said...

I'm not sure s2r.

It is said that if you look closely enough you can find the golden ratio everywhere, espcially if you're looking for it. I agree gold is a good investment right now. David Smith doesn't apparently.

Thursday, November 9, 2006 05:39PM Report Comment
 

5. harold said...

sold 2 rent 1

What goes up must come down, and in this respect it is legitimate IMHO to view markets as cyclical. However, the sort of 'clockwork' 33-36 year cycle you have in mind does not reflect the nature of the system. That is, the economic system is non-linear in that small transactions (or system perturbations) on one side of the globe may have large repercussions on the other side of the globe (commonly referred to as the 'butterfly's wings-to-storm' effect). In this respect, investors who cover stock charts with parallel lines representing breakout maxima and minima are, to some degree, fantasts. There are too many variables ever to make solid predictions - unless one is an insider trader. Having said that, I think your move to gold was good, and should the dollar collapse may prove to be an exceptional investment. I'm with Paul on Davis Smith, I'm afraid.

Thursday, November 9, 2006 05:53PM Report Comment
 

6. paul said...

s2r,

I recommend the film "Pi" by Darren Aronofsky (1998). It's a really interesting story about someone who can see patterns where others can't.

Thursday, November 9, 2006 10:58PM Report Comment
 

7. sold 2 rent 1 said...

Paul and Harold,

Cheers for the comments.

I think I saw that film. Wasnt that where a child looked at the sun until it damaged his eyes? He then had a talent for figures but was cursed with terrible headaches. Nice ending where he solves all his problems by drilling into his own head.

I think I will still persist with my idea. There are people who have spotted trends with stock and commodity markets. There are people are who have spotted trends with the property market. All I have done is to link these 2 ideas together.

I can see why you can be sceptical about the idea. Imagine all the events that can take place to throw the trends off course

Maybe it is because economies have become more developed that these patterns exist. I think that there were so many catastrophic events before (such as WW1and WW2) that made these cycles change too much. Now world events are much calmer these patterns are more visible.

I think the key to understanding these cycles is that one generation will not know much about what happened in the previous generation. Even the older generation will forget what happened in their youth.

Also important to understanding is the underlying reasons of why secular trends occur at all. Most peoples view of economics is about the standard cycle of bear and bull, boom and bust. How one recession relates to the previous recession is generally overlooked. Consecutive recessions are generally seen as being independent of each other. The reality is that maybe the imbalances that cause one recession are still ingrained in the economy when the next recession arrives.

For the record
1966-1982 stock market secular bear
1982-2000 stock market secular bull
2000-2017 stock market secular bear

1980-1998 commodities secular bear
1998-2015 commodities secular bull

1974-1992 property affordability secular bear
1992-2010 property affordability secular bull
Actual house prices crash 2008, 2017, 2026

Thursday, November 9, 2006 11:49PM Report Comment
 

8. Headmelter said...

"Actual house prices crash 2008, 2017, 2026."

just curious as to why you are uncertain about the date for HPC?

Friday, November 10, 2006 12:55AM Report Comment
 

9. Nohpc said...

I have read several reports saying to get out of gold now as it is expected to crash and crash badly. I wouldn't invest a penny in gold. Silver is expected to do better and plantinum as well.

Friday, November 10, 2006 03:03AM Report Comment
 

10. Nohpc said...

http://business.iafrica.com/news/345001.htm

Friday, November 10, 2006 03:05AM Report Comment
 

11. sold 2 rent 1 said...

Here is a better way of explaining the last 50 years of the UK economic/property cycle.

The golden era of low inflation in the 1950s and 1960s came to an end in the early 1970s. This era lead to huge global speculation in land in the 3-5 years before the crash of 1974.

We often talk about people overstretching themselves and getting their houses repossessed. But what of the vast majority who overstretch themselves financially but keep their properties. What is the impact on a persons long term spending ability over the next 20 years?

Imagine a FTB couple buying at the top of the market. They manage to keep their house in a crash. How much less will they have to spend over the next 20 years as their family grows up (compared to a FTB couple buying at the bottom of the market)?

The consequences of the land speculation/crash in 1974 were felt for the next 20 years; by having 2 more recessions and property crashes in 1981 and 1990

In the early 1990s household finances were eventually freed from the effects of the 1974 land speculation as that generation has grown old and their kids have left home.

So we start the 33-36 year cycle again with another golden era 1993-2007/8

Friday, November 10, 2006 07:00AM Report Comment
 

12. sold 2 rent 1 said...

Here is a posting from David Smith's blog yesterday
==============================
Just a few comments from a very worried estate agent based in Maidenhead.

We're not getting any instructions, the phones have stopped ringing, we have lots of property refusing to budge despite discounts...my take (I'm 39) is that "hello, we've been here before in 1989-90". Lenders are being wreckless, we have in reality a RPI or CPI or whatever at 10%, money growth at 14% (surely this in itself is inflationary?), 16 months of rising unemployment, rising insolvencies, retailers going bust (OK M&S have done wonderfully well, considering) and a debt mountain that is sickeningly large....recession? I bet my life we are about to go into one!

The fact is that UK plc has been spending thanks to property inflation. Our homes have been used as credit cards - and it's payback time.

I'm retraining as an IVA practitioner and filling my boots in debt company shares, Gold, and staying in cash.
==================

David's comments:
===============
Don't know why there is sudden outbreak of interest in a piece posted nearly two weeks ago, but always glad of it.
===============

HPC website traffic stats went to an all time high yesterday
http://www.alexa.com/data/details/traffic_details?q=housepricecrash.co.uk&url=housepricecrash.co.uk

There is definately a change in the air


Friday, November 10, 2006 07:08AM Report Comment
 

13. george monsoon said...

Here is a site that allows you to play the stockmarket as if it were real, with virtual money.
www.bullbearings.co.uk

Friday, November 10, 2006 08:59AM Report Comment
 

14. Bagehot said...

You guys need to move on. Smith has been right for the past 3/4 years. We (including me) have been wrong. Simple. Move on. Live life.

Friday, November 10, 2006 10:00AM Report Comment
 

15. Needle said...

just read this guys site.

the guy is either very dim or in the pockets of some vested interest or other.

His opinion is without merit or intelligence.

Friday, November 10, 2006 10:27AM Report Comment
 

16. Nasha said...

I did wonder why the site was going so slow.

Friday, November 10, 2006 10:43AM Report Comment
 

17. indiablue19 said...

S2R1....

Not an economist, but have always understood that the markets will offset one another; but with trend patterns particularly in relation to stocks, bonds, and property market. In other words, that those who desert Stocks that are flagging will probably find their way into Bonds; that when markets go flat or uninteresting, property will be more attractive. And this simply because of the offsetting nature, exposure, volatility, of the different types of investments, and not especially any magic. Meanwhile, some will set out to be diversified and remain so over the longer course.

The dynamic of one investment vehicle becoming more attractive, however, must be played against the backdrop of changing public opinion, international politics and cultural/scientific development. None of them predictable AT ALL. Which is probably what makes the thought of market trend predictability something of a non-starter, unless you consider that all human and social development is on a frequency that can be actively mirrored by the markets. If you look at "chaos" theories and revelations in quantum physics over the past two decades, these are real possiblities. To see chaos theory in all its glory, one must view an extraordinary scope of information and the patterns emerge. Recent developments of quantum physics suggest that "we wil see what we want to see" because we as human beings, whether individually or collectively, make reality happen. So any common mental trend in the population could literally produce the effect we expect.

And the moral of this story is "Think HPC!"

Friday, November 10, 2006 02:02PM Report Comment
 

18. sold 2 rent 1 said...

Bagehot,

People were predicting the tech stock market crash to happen in1997. Then again in 1998. And again in 1999. It still happened, just in 2000.

I do think that David Smith will always be right about HPC. When the figures show that a crash will happen he will announce it loud and clear. Unfortunately that will not help the people buying now who will be plunged into negative equity.

Personally, I have always been gunning for a 2008 property crash

Nohpc,
Sure, there is evidence that gold could go either way in the short term.
Look at what happened in the 1970s
http://www.zealllc.com/c2004/Zeal090304A.gif

Gold halved in stage 2 before rocketing off into the stratosphere

Headline in the telegraph today:-
China 'to boost gold for years to come'
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/11/10/cnchina10.xml

Long term this is a secular bull for gold people with pacemakers should not buy gold.

I agree with your comments about silver being a better investment. Does anyone know of a unit trust that caters for silver mining stocks?

indiablue19,
Good point.

Friday, November 10, 2006 03:08PM Report Comment
 

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