UK Government debt now GBP£2trn (>100% GDP) https://www.bbc.co.uk/news/business-53859299
Apple now worth USD$2tn https://www.dailymail.co.uk/news/article-8643751/Apple-company-worth-2-t...
UK house prices at record highs https://moneyweek.com/investments/property/house-prices/601803/uk-house-...
Unemployment soaring at record rates (or will do when Government support ceases in October) https://www.bbc.co.uk/news/uk-england-53819623
Gold and Nasdaq also at record highs recently.
Low interest rates and money printing are of course the main reasons for most these facts, but I cannot believe there won't be a big property market crash within the next 2-3 years (which itself would lead to a recession if big enough). Something has to end the asset bubble party sooner or later (possibly the mother of all crashes if the bubble continues to inflate at its current rate).
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Not quite correct.
Low interest rates probably account for two of the five facts. Money printing has little connection to any of the five facts.
What happens if everyone does it is the big question?
The reason it we may need to increase interest rates is because one needs higher interest rates to prise savings from other economies to then get deposited here when our currency is weak, but if we all are printing so much that in relative terms we all then stand still, what then?
Economics 1.0 may indicate what you say but you may have forgotten the ceteris paribus part, all other things are certainly, currently, not equal (Except that most Western economies are possibly equally printing fast)
Not quite correct.
Low interest rates probably account for two of the five facts. Money printing has little connection to any of the five facts.
The use of money has taken a dive during the current pandemic.
Just ask Birds Bakery.
Do not ignore leisure , it is also going to suffer as is, to a degree, the office sector.
Growth likely in small studios/workspaces/workshops (as redundancies etc increase more people likely to set up working for themselves) and logistics/distribution warehouses both large out of town ones as hubs and in town smaller ones as local distribution centres - both ought to be in demand.
I have been telling our banks for over twenty years that having a broad swathe of small commercial tenants, in smaller size units,as we have, is safer than having large institutional tenants. Whilst we have since March had a few voids appear we have also filled most of them with new tenants- maybe the Chartered Surveyors ought to reconsider how they value tertiary investment properties and reduce required yields re their investment valuations, we carry a fair few in our accounts that, per their Red Book valuations, get valued at 10-12% yields- it has always been madness, a well managed broad tertiary city portfolio is safer than a shopping centre, imho
There's a plot of land available in Dounreay.
Bit of a long term investment, though. You can't use it until 2333.
Of course they're still making land.
Relaxing of planning permissions is effectively making land.
Don't go too much by what granny used to say.
So you are not buying into some of the Stagflation arguments currently being mooted?
The trouble with record highs re gold/property etc is that in the long term every price , with hindsight,tends to be merely a step to a new record high.
Whilst I agree there will be some major changes within commercial property valuation metrics, the future here is not the past as the economy accelerates its change of direction towards steering a very different course from what it was on before Covid ( the trends were already there before), I am just not that convinced there will be that much of a residential downturn- there is still a wall of money moving into UK residential, build to rent continues to grow.
As an example a reasonable size commercial site we own , capable of converting to blocks of flats, has has a few out of the blue enquiries over the last couple of years, it is always prospective build to rent schemes(well it at least makes a change from student accommodation and before that care homes)) and the financial institutions need places to park their cash as do the overseas investors .
If sterling weakens , say if no agreement in the current EU trade talks (as is starting to look a very distinct possibility), then the wall of overseas cash will be massive. A fair few Edinburgh developments already have their penthouses etc snapped up by overseas buyers before general release and I see that trend continuing.
The fact is housing is predicated on people needing a place to live, there is a shortage which is not going to change that quickly (reduced net arrivals into UK coupled with more new builds will assist but will take years), in meantime either landlords or owner occupiers will continue to buy.
When the banking system froze in 2008/2009/2010 yes prices softened, but it sorted itself with the supply of properties being marketed dropping, people just sat tight, the forced sellers got a bit burnt, the volume of transactions reduced, but by 2015 in Edinburgh we were back up to 2007 prices again (I followed this period very closely as we sold 60 flats from 2010 to 2015 due to pressure from our bank)
I personally do not like gold (except hanging from my wife), it generates no income, but I certainly do not want to be in cash right now . I still remain pretty fully invested in shares/ITs etc, the only change is I hold more now within Asian, Pacific and Chinese markets, a bit in North America, a bit more in emerging and my UK exposure is down to near 20% of the total now and my property investments are now in logistics warehouses etc rather than more traditional retail,leisure and office sectors.
The catch with economics is there are no certainties, Stagflation within some theories ought not to even exist, yet it does.
Most of my university economics and economic history has over the years departed my brain and therefore I these days tend to just steer using gut instinct, some I get right (I did very well predicting the outcome if Brexit vote was yes and positioned accordingly) some I get wrong (mistimed Covid drops and caught a falling knife) and some are neither up nor down( then partially recovered and am now only 6-7% down from pre Covid)
When most western economies are spending what they do not have, and there is no certainty they will try to revert to a balanced position re their deficits, probably most economic theory departs- its relevance depends upon governments reacting to market pressures, borrow too much we punish you etc, but if everyone borrows too much what then, how does say a currency devalue when its neighbours are as errant as it is?
In my, very humble opinion, we are heading into uncharted territory, there be dragons ,but what sort nobody really knows, so in absence of better information I run with:
Where in the world has the most abundance of the factors of production , I believe this is the Pacific so I invest in that region (albeit be careful as legal rights can get a tad flexible)
All I'm saying is that that is not sustainable and a (possibly very big) crash is inevitable.
Ach - it'll be grand.
Not so, my daughter's boyfriend has just purchased an Edinburgh flat, he is circa 28-29, he has purchased it in his sole name just based on his earnings (Scot Gov Employee), she is not a party to the mortgage. (She is actually working down in England , likely for at least the next 18 months)
My son who will be 29 this year graduated about six years ago, earns a decent amount as a contractor (software developer) and I suspect is only about a couple of years away from being able to buy an Edinburgh flat outright, without even a mortgage ,if he so wanted (He does not, he is trying to get married- wedding now delayed- and is then moving to New York)
The lack of affordability meme needs tempered region by region, city by city, the one thing about property is it is markets not a market.
OT: we were in Kelso recently! Up from the big smoke for some fresh air both sides of the border.
OT: we were in Kelso recently! Up from the big smoke for some fresh air both sides of the border.
Did you see Bonnie Prince Charlie's horseshoe ?
The Borders are God's country (I am biased as I was born in Peebles)
Love Peebles. I've done the walk up the railway line past Neidpath Castle and up to Lyne and back a few times. Lovely view up the river from the railway bridge.
We lived up the Lyne Water at West Linton until I was five. I do pop back there every so often to the one restaurant, the one remaining hotel (there were three) or to the cafe on the Green ,but these days even the bookshop has shut (the property was available to buy on Rightmove) notwithstanding West Linton now seems to have twice the number of houses it did when we lived there.
My last trip to Peebles was last year, it was a bit of a cheat as it was a day trip down to the Hydro which was looking a bit on the shabby side (afternoon tea).
Peebles is top of where , as a compromise,I would retire. If may work and be allowed by "She Who Must Be Obeyed" as it has the compromise of rural (me) , some local shopping (her) and not that long to visit Edinburgh (her).
My last trip to Peebles was last year, it was a bit of a cheat as it was a day trip down to the Hydro which was looking a bit on the shabby side (afternoon tea).
The Scottish RL team stayed at the Hydro when they played at Gala. Only decent sized hotel in the area, so they claimed. Away teams were housed in Edinburgh, forty miles away.
Could be right, from memory there are not that many really large hotels.
Cringletie I believe is pleasant , I think I recall my wife having afternoon tea there but I was not with her, but no idea how many rooms it has. There is also The Macdonald Hotel at Cardrona, but hard to think of too many more.
Could be right, from memory there are not that many really large hotels.
Cringletie I believe is pleasant , I think I recall my wife having afternoon tea there but I was not with her, but no idea how many rooms it has. There is also The Macdonald Hotel at Cardrona, but hard to think of too many more.
I couldn't think of any either.
Justin
What is a big crash, what percentage is that?
Frankly if 2008, with the lending taps turned off, merely stunned the property markets, dropped them a bit for a few years, I just cannot see your big crash, frankly given Edinburgh's offers over system ranges up and down anyway by 10-15% ,depending on the market out there ,you need well over 25% imho to constitute any form of crash worth talking about.
A few facts, my first house purchase was 1985 for £14,500, my next was 1989 for £50,000 my last was 1997 for £105,000 and if I can ever be bothered to move my next will likely be in the £600,000 bracket, longer term there is only one direction.
My colleague at work a few years ago sold his father's house, it was purchased in 1959 for £2,500, it sold for > £500,000, there had been shocks to the economy right through that ownership and the general direction of travel has always been up.
Both have zero chance imho.
The trouble about drama scenarios is often they do not happen, you often just get a bit of a drop, a bit of stagnation, a bit of wage inflation and then the march starts again. (The balloon with a small hole model)
Whilst nobody know everything I do work for a couple of people who started their property business in the 1970s, they have been plodding along ever since, we buy and keep, buy and flip, buy and get planning then sell, buy, get planning, build, all variants- we are not the biggest small operator in Edinburgh but we are not the smallest, we have obtained planning for hundreds of flats since I started in the 1990s, and in all that period, from the 1970s until now, someone has said this/that bubble would crash re property and in all that time they have largely been wrong, we get tremors, dips but the upward march is relentless.
They are as likely as one another as neither will happen, both have, imho, zero probability- change your percentages and I will change my answer.
Remember, supply and demand, with any dramatic fall in prices supply will reduce to a trickle which will then underpin prices, housing, like food is not discretionary , one either buys it (as owner or tenant) or one lives in a cardboard box.
There is if there is a regulator that snuffs out supply, that regulator is human behaviour.
Your percentage drop is too much for the house owning public to stomach so you will accordingly cease to have a functioning market well before you reach that sort of level of price drop, nobody, bar forced sellers, will sell.
The property uncertainty I see is that of demand with a reduction in overseas students (which with Brexit and the disputes with China many not be just one year) and potential a Brexit linked reduction in adult household demand. Otherwise bank forecasts tend to be in the realm of 10%.
One economic problem is that if the turnover goes down then the demand for turnover related goods (new bathrooms etc) also goes down. Hence I think the Stamp duty holiday is a good idea.
Do you more mean deposits in bank rather than more investment in banks?
Where does this money go if withdrawn from deposit?
What is your inflation driver, prices or wages or both? Do you really expect 10%, if so why?
My memory re the different inflation drivers are a tad ropey , 1982, when I last studied economics, is a long time ago now and all we learned was based upon the then recent 1970s Oil Price Shock and then the rampaging asset price inflation of the 70s and into the 80s with an under invested post WW2 economy- we were even, back then, still studying Bretton Woods etc, but life has moved on. IMHO you cannot just assume high inflation, what is driving it within your forecast model?
I do expect some inflation, I think a no deal exit from the EU could in part cause some of it, but that may well be more a one off shock (Tariffs hit) rather than a year after year upward sustained push, I can see wage demands pushing it but how does that work with high unemployment, are we back to considering our Phillips curve here?
As I said earlier, the drama shocks are rare, economies and their finances are much more evolved than say the 1920s/1930s, they are even evolved since the 1970s, my money is more on disruption, discomfort, managed chaos rather than crash.
Bit like driving a Fiat . (Though my wife's is nearly eleven years old and still soldiers on)
Perhaps instead of the Sex Pistols they put out a few slow waltzes for a few years, so the music does not so much stop as merely changes its tempo.
Justin, I do not disagree with your arguments re liquidity creation in Western economies, but where we differ is you seem to see a Big Crunch whereas I am not convinced one is needed.
I know, I read Richard North's post every day with my first tea/coffee at my desk, it does not look good (then again it never did- the whole idea was daft day one and the execution by the current lot is making it even worse)
http://eureferendum.com/blogview.aspx?blogno=87706
Edit- you think lawyers have it tough, I still help out my Brother in Law with his business, he is connected with the pharma industry with circa 80% of his clients elsewhere in the world and most with HQs in Europe- he has already created a permanent establishment in Malta and talked to the authorities there to see if that may, and I say may, give him a gateway to operating in the EU after 31 December, but if his qualifications cease to be recognised (which now looks likely) and he cannot sort anything then likely that will be it, the clients will walk to an EU supplier of similar services as his business is a regulated activity.
Even UK lorry drivers may not readily be permitted to drive in the EU, we may have them unhitching at Dover or Calais instead.
Gold as an investment has always completely puzzled me. I realise that empirically it does seem to serve a purpose in some portfolios, but still. It does seem like it needs collective agreement to believe in it, more so than most investments.
Apparently it actually physically can be lost, handling the bars can rub away a fraction (bit like whisky and the Angels Share)- I just dislike its lack of earnings. I tend to buy investments with a yield though I do make exceptions accepting very low yields or no yield (Scottish Mortgage/Fidelity China/Berkshire etc)
Still gold is better than the leafs in the HHGTTG
SMT has been something else, I know someone who in percentage terms is very heavily invested in them but I am not that brave. I think they are at something like 6-7% of my pension and whilst I may slowly use dividends/contributions to buy some more I doubt I would ever let any single holding get over 10% of the total.
May not be Warren, there are I think others with autonomy over segments of Berkshire's overall investments, Barrick could be , as I have seen suggested elsewhere, one of their plays rather than one of Warren's.
There was a bit about this on Lemon Fool fairly recently by Salvador Hardin.
https://www.lemonfool.co.uk/viewtopic.php?f=57&p=333474&sid=2b3e05c836d1...