Monday, December 1, 2014

Unwind of London super-prime properties dead ahead

Oil Producing Nations Currency Carnage Continues

Russian money flows into UK have ended - sanctions. China cracking down on corruption and black economy - massively reduces flows into London via tax havens. Gulf money - now in trouble as oil is under break-even and domestic spending needs shoring up to keep populations placid. QE in USA - has ended Bank of England - tightened mortgage rules massively OECD - cracking down on tax-havens All demand fundamentals are impaired. For London super prime to maintain current levels, a new source of capital flight/in-flow is needed. The only thing I can think of is Draghi's come-lately money-printing. But will it be enough? Meanwhile all supply fundamentals are improved - loosening of planning and huge glut of London construction. Is this the end of the London party?

Posted by sneaker @ 05:02 PM (2612 views)
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18 thoughts on “Unwind of London super-prime properties dead ahead

  • Not sure that QE has ended in the US. Some say that the Fed is rolling over its interest and principal payments on its $4.5 trillion bond inventory into new bond purchases, and the banks now infused with $2.6 trillion in cash from the Fed are purchasing bonds in place of the Fed’s QE purchases.

    Saudi oil is not below break-even and its currency reserves are very healthy. Two of the reasons for its being relaxed about the oil price.

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  • @icarus “Saudi oil is not below break-even”
    Depends if you look just at the cost of extraction or the state spending on top of it that is necessary to placate the domestic population (so they don’t form an uprising or go jihading). This fiscal break-even was breached a while ago….
    http://www.telegraph.co.uk/finance/oilprices/11263851/Saudis-risk-playing-with-fire-in-shale-price-showdown-as-crude-crashes.html
    […] In the meantime, oil below $70 is already playing havoc with budgets across the global petro-nexus. The fiscal break-even cost is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, and $125 for Bahrain, $111 for Iraq, and $105 for Russia, and even $98 for Saudi Arabia itself, according to Citigroup. […]

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  • How does Citigroup get that $98 figure? Another view from 24/7 Wall Street:

    ‘While it is more expensive now than it once was to get Saudi oil out of the ground, the Kingdom’s cost per barrel is at least half that of the cheapest U.S. producer. The usual estimate is $25 to $35 a barrel. Prices have to drop a lot lower before pumping Saudi oil becomes uneconomic’.

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  • “Is this the end of the London party?”……………”Oh dear!

    ..Don’t you guys trust our wonderful politicians to do the right thing?

    I just watched Nick Clegg on TV telling us about all the money the government is set to lavish on us. There is probably a really good reason why we need to spend a few billion on projects like a tunnel under Stonehenge. Clegg then turns to Radio 4 and blasts his coalition partners for stingy “austerity measures”. It seems you can have it both ways 🙂

    But well done Cameron for building extra homes in the new garden city of Bicester. Set in Tory heartland there are lots of expensive private houses being built, just a short train journey from London.

    As the land is currently owned by the MoD, will the profits from private housing come back to the people of the UK by reducing the national debt or will the profits find they way back into government by way of donations to the Tory party from grateful developers?

    Answers on a postcard, as they say………

    Last word from Clegg:
    “This is a significant victory for the approach championed by the Coalition Government – where local areas put their hand up and say we want to become a Garden City or Garden Town.” (so absolute minimum social housing, then. No point spoiling a nice new garden city).

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  • Wonder how long before the frackers give up the ghost. 12 months? 18 months? 2 years. Whatever it takes, it will be worth it.

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  • @icarus – there are two separate concepts here.
    1. the extraction cost – which is certainly low for Saudi and many oil-exporters
    2. the fiscal break-even – the Gulf states don’t earn income from other industries, only oil; they spend the difference between the extraction cost and the international market price on keeping their people quiet. The average Saudi doesn’t really do much work – they live off state spending. The reason the monarchs of the Gulf do this is to prevent an Arab Spring type uprising or, worse, militant jihadism (which they already have problems with). The fiscal break-even is much higher than the extraction cost and (silly people) they allowed state spending to expand when oil was trading above $100, on the assumption it would stay there forever. In the west, governments spend tax revenues; in the gulf, governments spend oil revenues. (Where else does all that money for those huge skyscrapers and resorts come from?)

    So the challenge here is for the Gulf states to keep on spending to keep their domestic populations placated. We’ve seen in Iraq and Syria what can go wrong, and the Gulf monarchies are mortally scared of the same happening to them. Imagine what would happen if IS/ISIS/ISIL (whatever you want to call it) was in charge of those huge Saudi oil fields. If oil is trading not far above its extraction costs, then this risk becomes much much smaller and this is another reason why the rest of the world is trying to wean itself off Gulf oil e.g. with fracking. But the problem then is how to prevent regional instability spreading. It’s a giant mess!

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  • I don’t remember people being so worried about it when oil was less than 20 dollars a barrel, 15 years ago. Being worried about everything is almost a sport these days.

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  • End of 2008 and beginning of 2009 prices were low $40’s a barrel, and that’s only 5 years ago.

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  • @icarus – http://www.bbc.co.uk/news/business-30288739

    @flashman – well yes, in 1999 life was quite a bit better (in the developed world). The amount of complaining we see now is no doubt mediated by the internet and social media, but there are quite a few more things to complain about it seems.

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  • Not sure about that sneaker. I think people have a tendency to think things were more care free in ‘the old days’. I sometimes think back to the life of my grandfather. He fought in two world wars, lived through the great depression and hung on long enough to see Vietnam and the cold war. I don’t suppose he’d think we had much to worry about

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  • @flashman – we’ve seen the largest seven-year drop in real incomes in recorded history (nearly 200 years), eclipsing what was seen in the Great Depression, whilst one – maybe two – generations are priced out of the housing market. Sure, we don’t have bombs raining down on us or millions dead – but the squeeze on living standards in not really a trick of the memory, surely. Economic unhappiness is very real. Maybe we need “a good war to reset the system”!

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  • I hear what you say sneaker but there are always two ways of looking at things. Real wages did indeed fall causing misery but only after an almost continuous rise from the 1980s until 2009. Reaslistically it couldn’t go on for ever and at least they are finally starting to go in the right direction again (especially private sector wages).

    Regarding comparisons to the great depression, our unemployment numbers didn’t even get close to what we had in the 70s, 80s and 90s let alone the great depression. It was bad though.

    I can’t and won’t argue with your point about generations being priced out. We all know my views on this and I am getting less an less patient with people, who for selfish reasons, refuse to acknowledge it as an escalating crisis. These (mostly NIMBYs and Greens) people will be the first to whimper and complain when the crisis causes the rise of far right parties and violent social turmoil.

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  • @flashman, just about agree with you. On your last point: I propose we do a simple study – compare the ratio of London house-prices to non-London house-prices with the popularity of UKIP! I suspect the correlation will be strong. The higher London goes, the higher UKIP rise. We could also do a similar study with rent-to-income ratios and a few other ratios.

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  • sneaker – I’d love to discuss oil geopolitics with you but this isn’t the place. Just a few of points though. (1) Total Saudi oil revenue could increase if the lower oil price lowered the output of other producers and give the Saudis a bigger market share and (2) America and Russia/Syria/Iran are big players in this game and we know which side the Saudis/UAE support (3) there’s a lot of competition between the Russians and the Gulf states, especially Qatar to control pipelines and natural gas supplies to Europe. Bottom line regarding a point you made – the mayhem in Syria and Iraq is part of this bigger game and not a simple matter of indigenous populations getting fed up with their economic lot.

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  • “GAVE the Saudis a bigger market share”

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  • Flashman, real wages should have kept rising because of increased productivity with new technologies.

    The ONLY reason wages have not kept pace is increased labour mobility due to free movement of labour within Europe. Particularly for manual workers.

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  • @15 – why are real wages stagnant in the US and Japan too?

    Wiki article on “Wage share” shows wages as a % of GDP in advanced countries falling since the ’70s.

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  • libertas, please take leap of faith and believe what I’m telling you. You really don’t have a clue what you’re talking about. Stop wasting your time and everyone else’s

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