Sunday, January 24, 2010

Beware the shill

Raise your half-full glass to a positive market

Asset prices cannot be in a bubble – when assets are in bubbles almost by definition no-one is saying so. One last contrarian indicator that persuades me that there is life left in the market was the high attendance at a recent presentation by one of the City's most famously pessimistic brokers, Société Générale. They were far too many to count but there must have been 500 or more investors crammed into a London hotel to hear SocGen's gloomy view of the market. That level of interest in bad news never coincides with a real market top.

Posted by devo @ 12:44 AM (1921 views)
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17 thoughts on “Beware the shill

  • shill

    One who poses as a satisfied customer or an enthusiastic gambler to dupe bystanders into participating in a swindle.

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  • By Tom Stevenson
    Published: 9:00PM GMT 23 Jan 2010
    Tom Stevenson is an investment commentator at Fidelity International
    The views expressed are his own.
    Fidelity is one of the largest mutual fund groups in the world.

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  • markj69 str05 says:

    Am I missing something?

    The article starts off by saying if you start low and get higher (Empty to 1/2 full) you have optimism, and if you start high and drop lower pessimism. But then states – ‘Because our glass was so empty a year ago, people are worried today that it has been filled too quickly.’ The too representing pessimism, although a rising state which, from the initial statements imply optimism. Sounds a little confusing to me.

    Anyway, I beleive most are feeling bearish partly because of 09 increases, but mostly because they have their heads stuck so far up their own @rses they can’t see the other outcome. Or rather dare not beleive the alternative outcome will ever happen. ‘Socially engineered denial’.

    Everyone seems to be looking at their flute as if it’s just been toped up, shame they haven’t realised it was blue nun, and it’s all about to be spilt leaving a very sour taste in the mouth.

    Bring on the election. It’s too big a thing not to have an effect. Next gov’t (New or existing) will have to shake things up early, in order to start the true recovery before the following GE. Summer will be a very interesting time!

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  • so all assets have to have a blow off top in todays world then?

    This is a very necessary market correction…the nasdaq100 was same level as 2007!

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  • tenyearstogetmymoneyback says:

    taffee said “the nasdaq100 was same level as 2007! ”

    AND still much lower than it was in 1999.

    http://www.forecast-chart.com/historical-nasdaq-100.html

    If the House price chart looked like that there would be no need for this web site.
    If anything we should be talking up the Stock Markets. One of the main reasons
    for rampant House Price Inflation was that no one wanted to invest in Industry
    and decided “You can’t go wrong with bricks and mortar.”

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  • I think he is talking about ‘contrarian investing’………on the contrary.

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  • I disagree “tenyearsetc.” – the main reason we had a housing boom was because GB et al decided to destroy the usefullness of pensions (for any but the wealthiest and/ or public servants) and so the populous put their money into something that has, always made money. Yes the last decade was disastrous for the majority of young in the UK, but pensions are, and unless you can put away something like 500 quid a month into one, will be worth pocket money, and the state pension pin money, by the time I reach retirment age. The stock market is manipulated on a second by second basis by those who would make money of the ordinary retail investor. It has, is and always will be a gamble, which many are too nervous or too clever to get involved in. This shouldn’t make me out to be a property bull rather an equity bear/ sceptic.

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  • markj69 str05 says:

    @tenyears… The graph has been created on a logarithmic scale, not linear. Have you thought about what it looks like on a linear scale? Exponential growth raise any alarm bells?

    On a market basis – Where does the money creation come from?
    On a population basis – Where are the resources to sustain the growth coming from? Energy, food, etc…???

    We are ‘all consuming’, and the sooner people realise it’s not sustainable the better. Too late to think it’s a problem for the future, It’s not right, and it can’t continue. Lets just hope a global realisation and correctative action is forthcoming soon.

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  • markj69 str05 says:

    See: – http://www.mnforsustain.org/bartlett_arithmetic_presentation_long.htm
    Extract:-

    IV. Exponential Growth in a Finite Environment

    Bacteria grow by division so that 1 bacterium becomes 2, the 2 divide to give 4, the 4 divide to give 8, etc. Consider a hypothetical strain of bacteria for which this division time is 1 minute. The number of bacteria thus grows exponentially with a doubling time of 1 minute. One bacterium is put in a bottle at 11:00 a.m. and it is observed that the bottle is full of bacteria at 12:00 noon. Here is a simple example of exponential growth in a finite environment. This is mathematically identical to the case of the exponentially growing consumption of our finite resources of fossil fuels. Keep this in mind as you ponder three questions about the bacteria:

    (1) When was the bottle half-full? Answer: 11:59 a.m.!

    (2) If you were an average bacterium in the bottle, at what time would you first realize that you were running out of space?

    Answer: There is no unique answer to this question, so let’s ask, “At 11:55 a.m., when the bottle is only 3% filled (1 / 32) and is 97% open space (just yearning for development) would you perceive that there was a problem?” Some years ago someone wrote a letter to a Boulder newspaper to say that there was no problem with population growth in Boulder Valley. The reason given was that there was 15 times as much open space as had already been developed. When one thinks of the bacteria in the bottle one sees that the time in Boulder Valley was 4 min before noon! See Table II.

    Table II. The last minutes in the bottle.
    11:54 a.m. 1/64 full (1.5%) 63/64 empty
    11:55 a.m. 1/32 full (3%) 31/32 empty
    11:56 a.m. 1/16 full (6%) 15/16 empty
    11:57 a.m. 1/8 full (12%) 7/8 empty
    11:58 a.m. 1/4 full (25%) 3/4 empty
    11:59 a.m. 1/2 full (50%) 1/2 empty
    12:00 noon full (100%) 0% empty

    Suppose that at 11:58 a.m. some farsighted bacteria realize that they are running out of space and consequently, with a great expenditure of effort and funds, they launch a search for new bottles. They look offshore on the outer continental shelf and in the Arctic, and at 11:59 a.m. they discover three new empty bottles. Great sighs of relief come from all the worried bacteria, because this magnificent discovery is three times the number of bottles that had hitherto been known. The discovery quadruples the total space resource known to the bacteria. Surely this will solve the problem so that the bacteria can be self-sufficient in space. The bacterial “Project Independence” must now have achieved its goal.

    (3) How long can the bacterial growth continue if the total space resources are quadrupled?

    Answer: Two more doubling times (minutes)! See Table III.

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  • Excellent article markj69

    I remember sitting in a population biology lecture as an undergraduate and being told that if growth continued at the current rate we would run out of food (that the calories produced if all available land were used for high energy crop production would be less than the calorie consumption required to feed everyone in the world) and other resources in (I think) 54 years Dr Turner calculated, and that was 14 years ago. This assumed a vegetarian diet, so one can assume, given the reality of consumption, this tipping point is much closer.

    It is a desperately naive position to think there are enough resources to sustain the population, if only they were distributed better or if we all became vegans and stopped using our cars. This may hold for a short while but any such actions are only [email protected] against the wind. In the UK, we have an indigenous birth rate of 1.8 which, being below the 2.2 needed to sustain the population should lead to a slow decline. What needs to be tackled is the high birth rate of certain groups in this country and persuasive measures should be introduced.

    Malthusian thinking is very unfashionable at the moment and that is stifling international debate on population. Internationally, population growth needs to be addressed as a matter of urgency.

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  • tenyearstogetmymoneyback says:

    I’m not going to disagree with either of you.

    Howver the facts are that in 1999 you could buy an average house for £70000.
    In fact someone bought mine for that. At that point all the “smart money” was still
    going into Technology stocks, although the majority of mine went in the building
    society where it was earning me a decent amount month after tax.

    To try and answer markj69s points (although I may miss the point).
    As discussed a week or two ago it is difficult to measure growth accurately
    when the relative costs of everything is changing. Back in 1986 the people
    I bought by first house from (for £24000) had a £700 HiFi video recorder.
    You would have real difficulty in spending the equivalent in todays money in Currys today.
    Going further back a colleague spent 10% of the price on his house on an
    automatic washing machine. So although the sales of these types of items go up is it growth ?

    As for resources again I’m not sure quite what the argument is. How much metal and plastic
    does it take to make an Ipod compared with a Hi Fi stack system.

    As for the point on pensions I agree with the £500 figure (which is less than I and my employer pay).
    What is annoying is that you just know that the people who aren’t saving anything (not even into BTL etc)
    will expect to be bailed out when they reach 65.

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  • Or alternatively http://danericselliottwaves.blogspot.com/2010/01/speed-surprise-and-paradoxes.html

    Will i hope i answered your questions recently! http://www.housepricecrash.co.uk/newsblog/2009/11/blog-stay-safe-boys-26273.php

    Some bulls (estrader) included think that this is just a correction … maybe they are right but i’m not so sure:

    “23. techieman said…
    EStrader – between you and me i am a little worried of missing the move down – i dont think there will be classical reversal indicators, as such i think that the first move down off the top will be difficult to get into (eg a few hundred down before a shallow retrace)…….Wednesday, January 6, 2010 01:18PM”

    ALSO http://www.housepricecrash.co.uk/newsblog/2010/01/blog-party-of-opportunism-spots-opportunity-27359.php 11 and 13.

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  • tenyearstogetmymoneyback says:

    Just read the latest posts about population after making mine.

    Have you not read about the falling population in some areas of Italy.
    What about China’s one child policy ?

    They don’t need that in Japan. When we were there a few years ago a
    tour guide told us about their falling poulation and said in all serious that
    if the trend continued there would be no one left in the country in 200 years.
    That is why they are so into Robot development. Many of the robots they are
    designing are to take care of the old. Certainly a different approach to just letting
    in more Migrants

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  • Have you not read about the falling population in some areas of Italy.
    What about China’s one child policy ?

    Yes, and as I said, birth rates here amongst natives is 1.8 which indicates negative growth. But these small pockets of decline are being far outweighed by high birth rates elsewhere. However, I don’t think this Global problem has anything to do with the speculative housing bubble.

    Back to asset bubbles, although house prices and tulip bulbs or slaves are not directly comparable because shelter is an essential whereas flowers and slaves are not, I still do not buy the crowded island argument because of i) the number of empty properties ii) the amount of undeveloped land (unlike bacterium we do not increase our population so rapidly) and iii) rents ought to have risen by a similar percentage as well if this were the case.

    I reckon (and I have no basis than instinct) that house prices will no longer be an average of 3.5 salary (that would make an average UK house £90k which I can’t see happening), but around an average of 4.5 x salary. That means average hp should be around £120k. So we are in a bubble but the bubble isn’t as big as some are making out.

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  • tenyearstogetmymoneyback says:

    tenant super.

    4.5 x salary could be explained by the fact that a VCR used to cost a months wages
    while now a DVD recorder is less than a weeks and lots of other things like washing machines,
    TVs and clothes have fallen similar amounts.

    Something I keep thinking would be interesting would be to compare how much it costs
    to fit out a house now (using sensibly priced stuff) compared with in the past, and adjusted
    for inflation.

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  • I think the explanation is probably a number of factors. It is certainly the case that furniture, electrical goods and other consumer durables are far cheaper relative to incomes, leaving more to meet mortgage costs. Similarly, as my father often laments, a bottle of whisky was a day’s pay when he was a young person. But you can get a bottle of tesco value scotch for the minimum hourly wage. The cheap cost of living in other areas has left more disposable income even after the rise in other costs such as petrol.

    The biggest factor behind the change in wage/ house price average, I believe is the fact that more women carry on working when they have children. If you take the average wage (net) and subtract nursery fees for two kids, you have an extra 10k per year than if Mrs stayed at home with Johnny and Jemima (more if you take into account tax credits or nursery vouchers). I think it is ironic that with women’s advancement, a side effect is that the extra income has forced up asset prices so that most women (except the super affluent, or very poor) no longer have the option of staying at home to be a housewife. Women’s lib…what’s so liberating about being forced to dump your children in some sub-standard nursery to be cared for by some vicky-pollard type so you can go out to work all day to pay an extra £600 per month to your mortgage lender? They just don’t see it though!

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  • 1. devo

    You missed, ‘and one who gets very well rewarded for their misdeeds.’

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