Thanks to
By Bill Bonner
Mumbai, India
O, what a tangled web we weave
When first we practice to deceive!
– Sir Walter Scott, ‘Marmion’
“The trouble with today’s financial system,” we told a Bloomberg reporter, “is that it is based on fraud.”
“At the bottom of it is paper money – itself a kind of deception. It pretends to be real money. And it is real money – in the sense that you can use it to buy things. But it is prone to lie. All the feds have to do is to turn on the printing press and it will tell you that you are a lot richer than you really are.
“This sort of flimflam has been going on ever since the end of WWII. The feds systematically increased the amount of paper money... leading people to think they had more purchasing power than they really had. Today, a dollar is worth only about 3% as much as it was 100 years ago.
“But that’s just the beginning of the scam. They also systematically under-priced credit – in the belief that the key to prosperity is consumer credit and spending, rather than saving and production.
“The system has its architects and its operators – all quacks and mountebanks. They pretend that they can manage the currency and manage the economy. Yet they misunderstand the most basic elements of how a real economy works. Wealth does not come from consuming... it comes from producing.
“The managers claim to be able to manipulate the economy so well that they can actually improve its performance... that is, they say they can make the economy perform better than it would on its own... better than it has naturally for the past two thousand years. By eliminating the cyclical downturns, the feds told us that they would we all be richer... and free from the volatility that plagued us theretofore.
“So they fiddle and fake it... improvising... and making it up as they go along. The raise interest rates... and then they reduce them. They introducing more paper money when it suits them and change banking rules as their theories suggest.
“When anything ‘bad’ happens, defined as something they don’t like, they rush to fix it. But what can they fix it with? A little duct tape of monetary policy. A little fiscal baler twine too.
“Their fixes are not completely random or haphazard. They have a bias – towards more credit, more spending, more cash, and more speculation. If they tighten rates one month, they loosen them for two months. If they run a surplus in the federal accounts one year, they run deficits for the next five.
“Gradually, more and more debt, mistakes, bad judgments and cockamamie speculations build up. And then, the authorities are under pressure... running from one crisis to another... providing credit to one zombie... and bailout to another... and raw meat to a third.
“And then suddenly, the discipline and self-restraints that held them back gives way like a frayed old rope. Then the central banks and Treasury authorities are running free... abandoning themselves to the trickery and fraud inherent in their profession. The European Central Bank says it will provide “unlimited liquidity” to those who need it, in order to fend off a debt crisis in the Old World. In the New World, the Bank of Ben Bernanke is already bailing out big banks in North America as well as those of Europe. And everywhere, the feds are ready to support one another... and bankroll the IMF... with more paper money and more credit...
“...all of them desperate to hold the system together.”
And now they link arms – the Fed, the ECB, the EU and the US... and don’t forget Japan and the BOJ. And off they march – right off a cliff.
Friday, 3 December 2010
Thursday, 2 September 2010
Oh Dear What Can the Matter Be...
House prices fall for second month in August by 0.9%, following the 0.5% the previous month. Well no surprises for us in this 'so called' news.
When Mortgage lending is now so difficult to obtain, the money side demand for housing just had to fall away.
However link this to falling UK Manufacturing and there is surely a real depression here in both housing demand and business. Tie this to the bank's which generally have 'security' on directors main residence and the downward spiral must continue.
When Mortgage lending is now so difficult to obtain, the money side demand for housing just had to fall away.
However link this to falling UK Manufacturing and there is surely a real depression here in both housing demand and business. Tie this to the bank's which generally have 'security' on directors main residence and the downward spiral must continue.
Tuesday, 17 August 2010
Mortgage Arrears in the US - UK to Follow
Although mortgage rates have plunged to record lows, falling borrowing costs have failed to revive the US housing market. Indeed, the Washington deliberations, which will centre on what the level of government support for Fannie and Freddie should be, comes amid continuing pain for homeowners.
In the average congressional district, serious mortgage delinquency rates – defined as borrowers more than three months behind on their payments – are 9.4%, compared to 3.3% at the time of the election in 2008, according to a study by Deutsche Bank.
“That pace of deterioration alone should put housing and mortgage finance on most political radars,” said Steven Abrahams, managing director at Deutsche.
The problem remains concentrated in states such as Florida, California and Nevada. More than one in five borrowers (over 20%) are at least three months overdue on their mortgage payments in 23 congressional districts – including 13 in Florida, six in California and two in Nevada.
Will this malaise be found in the UK or is it already here?
In the average congressional district, serious mortgage delinquency rates – defined as borrowers more than three months behind on their payments – are 9.4%, compared to 3.3% at the time of the election in 2008, according to a study by Deutsche Bank.
“That pace of deterioration alone should put housing and mortgage finance on most political radars,” said Steven Abrahams, managing director at Deutsche.
The problem remains concentrated in states such as Florida, California and Nevada. More than one in five borrowers (over 20%) are at least three months overdue on their mortgage payments in 23 congressional districts – including 13 in Florida, six in California and two in Nevada.
Will this malaise be found in the UK or is it already here?
Tuesday, 10 August 2010
The Rape of Britain
Article courtesy of Nadeem Walayat
The Bank of England kept UK interests on hold at 0.5% last week as it continues its policy of IGNORING HIGH UK inflation that continues to stand above the Bank of England's 3% upper limit for the purpose of the BoE continuing to funnel tax payer cash onto the balance sheet of bailed out bankrupt banks as illustrated by the most recent banking sector profit announcements, most of which are fictitious as in actual fact the banks are not generating any profits because they continue to only partially write down bad debts.
The only reason why bankrupt banks are announcing profits is so as to allow them to pay their chief officers huge bonuses as a reward for succeeding in conning the tax payers by means of threats of financial armageddon as inept regulators with themselves having one hand in the cookie jar watch on as they intend to return to commercial banking themselves so as to have their turn at getting a piece of the tax payer funded bailout pie.
The ways and means by which these fictitious profits are being achieved are many, such as The Bank of England loaning the banks at 0.5% which they then run along and invest at zero risk in longer dated UK government stock at 3.5% and thus make a 3% risk free profit with the tax payers money, meanwhile the ordinary tax payers who have been saving hard all their working lives are seeing the value of their savings being stolen by means of the stealth inflation tax as banks drunk on central bank cash pay a pittance of less than 2% in interest whilst even the official doctored CPI inflation rages at 3.2%, well above the BOE target of 2%. And not to forget the government adding insult to injury by TAXING the pittance of interest received at 20% for basic rate and 40% for higher rate tax payers.
Similarly borrowers are not receiving anywhere near 0.5% for loans and mortgages as most mortgage borrowers will be lucky to see any rate below 4% with many on rates of as high as 6% which is resulting in huge profit margins for the banks that continue to penalise their customers for their own mistakes.
Where savers and borrowers are concerned Britain would be far better off with a nationalised banking sector that exists purely to service the loans and savings market rather than the bankster elite maximising the amount of money that can be stolen from tax payers, savers and borrowers by means of an officially sanctioned artificial banking system.
The Bank of England kept UK interests on hold at 0.5% last week as it continues its policy of IGNORING HIGH UK inflation that continues to stand above the Bank of England's 3% upper limit for the purpose of the BoE continuing to funnel tax payer cash onto the balance sheet of bailed out bankrupt banks as illustrated by the most recent banking sector profit announcements, most of which are fictitious as in actual fact the banks are not generating any profits because they continue to only partially write down bad debts.
The only reason why bankrupt banks are announcing profits is so as to allow them to pay their chief officers huge bonuses as a reward for succeeding in conning the tax payers by means of threats of financial armageddon as inept regulators with themselves having one hand in the cookie jar watch on as they intend to return to commercial banking themselves so as to have their turn at getting a piece of the tax payer funded bailout pie.
The ways and means by which these fictitious profits are being achieved are many, such as The Bank of England loaning the banks at 0.5% which they then run along and invest at zero risk in longer dated UK government stock at 3.5% and thus make a 3% risk free profit with the tax payers money, meanwhile the ordinary tax payers who have been saving hard all their working lives are seeing the value of their savings being stolen by means of the stealth inflation tax as banks drunk on central bank cash pay a pittance of less than 2% in interest whilst even the official doctored CPI inflation rages at 3.2%, well above the BOE target of 2%. And not to forget the government adding insult to injury by TAXING the pittance of interest received at 20% for basic rate and 40% for higher rate tax payers.
Similarly borrowers are not receiving anywhere near 0.5% for loans and mortgages as most mortgage borrowers will be lucky to see any rate below 4% with many on rates of as high as 6% which is resulting in huge profit margins for the banks that continue to penalise their customers for their own mistakes.
Where savers and borrowers are concerned Britain would be far better off with a nationalised banking sector that exists purely to service the loans and savings market rather than the bankster elite maximising the amount of money that can be stolen from tax payers, savers and borrowers by means of an officially sanctioned artificial banking system.
Tuesday, 13 July 2010
Housing Crash for 20 years
At last, at last, the bigger names who comment on the housing market have woken up to the reality of the banking crisis and what it will mean for house prices in the UK.
We have Price Waterhouse, The RICS (Royal Institute of Chartered Surveyors), the Council of Mortgage Lenders and Capital Economics all now becoming very bearish on property. It's about time, we here since 2006 have been sounding warnings.
Now we have worse to come. As house values fall, and they will fall as there is no more "irrational" lending to prop them up, what will the banks do who have used property as collateral for business loans? They will have to call them in or re-finance at terms less attractive. And that means more deflation.
We are entering a period when our standards of living will have to fall. After all our standards of living went up due to the availability of "easy" credit. That credit has gone. BUT, everybody still expects growth, they expect expansion. Well the opposite is going to happen. More banks will fail, many many more bankruptcies will occur.
In the USA delinquent loans over the $1m mark stand at 14% of loans. So at what percentage delinquency do banks fail their solvency tests? And this will come to the UK as well. The Buy to Let Boom will see the buy to let bust. But will it bring down any banks? We will await to see. As there is no chance of a bail out, it would mean a big bank failing. Confidence would then collapse in our entire property based system.
So be warned. Do not jump into property now thinking we are at the bottom. We are still on the way down.
We have Price Waterhouse, The RICS (Royal Institute of Chartered Surveyors), the Council of Mortgage Lenders and Capital Economics all now becoming very bearish on property. It's about time, we here since 2006 have been sounding warnings.
Now we have worse to come. As house values fall, and they will fall as there is no more "irrational" lending to prop them up, what will the banks do who have used property as collateral for business loans? They will have to call them in or re-finance at terms less attractive. And that means more deflation.
We are entering a period when our standards of living will have to fall. After all our standards of living went up due to the availability of "easy" credit. That credit has gone. BUT, everybody still expects growth, they expect expansion. Well the opposite is going to happen. More banks will fail, many many more bankruptcies will occur.
In the USA delinquent loans over the $1m mark stand at 14% of loans. So at what percentage delinquency do banks fail their solvency tests? And this will come to the UK as well. The Buy to Let Boom will see the buy to let bust. But will it bring down any banks? We will await to see. As there is no chance of a bail out, it would mean a big bank failing. Confidence would then collapse in our entire property based system.
So be warned. Do not jump into property now thinking we are at the bottom. We are still on the way down.
Not Much Chance of Bank Funding
Access to finance for businesses remains difficult, says IoD survey
Dated: 13 July 2010
New data released today by the Institute of Directors (IoD) reveals that businesses are still having difficulty accessing finance from their banks despite a fall in decline rates.
Key Findings
From a survey of 899 company directors carried out at the beginning of June 2010 the IoD can reveal the following data:
Applications and decline rates for finance
Security requested against loans
Commenting on the survey results, Miles Templeman, Director-General of the Institute of Directors, said:
“Although there is clear evidence of a drop in decline rates we’re still concerned that access to finance for businesses remains difficult. The survey indicates that some access problems relate to lending criteria becoming more restrictive with regard to the amount of security requested by banks. This raises a question about the functioning of the Government’s Enterprise Finance Guarantee scheme (EFG).
“The IoD would like the Government to clarify the relationship between the state-backed guarantee scheme and bank requirements for personal security. We continue to hear from IoD members who’ve had 75% of a loan underwritten through the EFG but who are still required by their bank to put up personal securities equivalent to over half of the loan value. Of course businesses should have some ‘skin in the game’, but this seems excessive.
“But we remain convinced that the best way to improve access to finance in the longer-term is getting a lot more competition into the banking sector. Only when firms can choose more easily where they can place their business and switch banks will we have a banking sector that is better focussed on the needs of business customers.”
New data released today by the Institute of Directors (IoD) reveals that businesses are still having difficulty accessing finance from their banks despite a fall in decline rates.
Key Findings
- 1 in 3 firms that applied for finance in the time period 1 January 2010 – June 2010 were declined by their bank.
- There is evidence that lending criteria have become more restrictive with regard to the amount of security requested by banks.
From a survey of 899 company directors carried out at the beginning of June 2010 the IoD can reveal the following data:
Applications and decline rates for finance
- 39% of IoD members’ firms applied for finance with a bank (applications include requests for renewals/extensions/new requests for overdrafts and loans) in the time period 1 January 2010 – June 2010.
- Of the 39% of IoD members’ firms which applied for finance in the time period 1 January 2010 – June 2010, 33% had an application for finance declined by a bank.
Security requested against loans
- 37% of IoD members stated that in the period 1 January 2010 – June 2010 they had noticed an increase in the amount of security being requested against any lending that their organisation sought.
Commenting on the survey results, Miles Templeman, Director-General of the Institute of Directors, said:
“Although there is clear evidence of a drop in decline rates we’re still concerned that access to finance for businesses remains difficult. The survey indicates that some access problems relate to lending criteria becoming more restrictive with regard to the amount of security requested by banks. This raises a question about the functioning of the Government’s Enterprise Finance Guarantee scheme (EFG).
“The IoD would like the Government to clarify the relationship between the state-backed guarantee scheme and bank requirements for personal security. We continue to hear from IoD members who’ve had 75% of a loan underwritten through the EFG but who are still required by their bank to put up personal securities equivalent to over half of the loan value. Of course businesses should have some ‘skin in the game’, but this seems excessive.
“But we remain convinced that the best way to improve access to finance in the longer-term is getting a lot more competition into the banking sector. Only when firms can choose more easily where they can place their business and switch banks will we have a banking sector that is better focussed on the needs of business customers.”
Wednesday, 7 July 2010
More Poor House Price Data
Fears are growing over the state of the recovery in the housing market after new figures showed property prices have all but stalled.
The average cost of a home edged ahead by just 0.1 per cent to stand at £170,111 during the month, following a rise of 0.5 per cent in May, according to Nationwide Building Society.
The annual rate at which house prices are rising also fell for the second month in a row, dropping to 8.7 per cent, down from a year-on-year rise of 9.8 per cent in May.
The drop reflected the fact that house prices were increasing at a faster pace this time last year.
Nationwide said unless there was a significant pick-up in house price growth during the coming few months, the annual rate of house price inflation was likely to continue to drift lower.
Today's figures add to a raft of gloomy data on the property market, with figures from the Bank of England, released yesterday, showing that the number of mortgages approved for house purchase had remained broadly flat in May, as activity in the housing market failed to pick up.
Earlier this week the Land Registry reported a 0.2 per cent house price fall in England and Wales during May, while property intelligence group Hometrack said prices edged ahead by just 0.1 per cent during June as demand from potential buyers stalled.
Recent surveys have pointed to an increase in the number of homes being put up for sale, but this is failing to be matched by rising numbers of buyers. As a result the mismatch between supply and demand is beginning to ease, reducing the upward pressure on prices.
Howard Archer, chief UK and European economist at IHS Global Insight, said: 'The marginal house price rise in June reported by the Nationwide adds to a recent flurry of soft data on the housing market and further fuels our belief that house prices will struggle to make significant gains over the coming months and may very well be only flat overall through the rest of the year.'
Ed Stansfield, chief property economist at Capital Economics, is more pessimistic.
He said: 'After outstripping income growth for over a year now, house price gains more or less stalled in June.
'The impact of the fiscal squeeze on incomes and confidence is likely to drive house prices back down again over the next 18 months.'
But the slowdown in house price growth is not necessarily a bad thing.
House prices have risen by around 12 per cent since their low point in 2009 but many economists think the pick-up in the housing market has got too far ahead of the recovery in the wider economy.
Martin Gahbauer, Nationwide's chief economist, said: 'Last year house prices increased by more than 10 per cent from the trough and household earnings growth was only about 2 per cent, and it was flat or negative for some households.
'House prices were getting ahead of household earnings and that is not healthy in the long term.'
He expects house prices to 'stagnate' for the rest of the year as the supply of homes on the market continues to increase.
But although the slowdown in house price growth may be good news for the long-term health of the housing market, it is bad news in the short term for housebuilders.
Shares in major housebuilders, including Persimmon and Taylor Wimpey, were down 4 per cent today following the publication of Nationwide's figures.
The average cost of a home edged ahead by just 0.1 per cent to stand at £170,111 during the month, following a rise of 0.5 per cent in May, according to Nationwide Building Society.
The annual rate at which house prices are rising also fell for the second month in a row, dropping to 8.7 per cent, down from a year-on-year rise of 9.8 per cent in May.
The drop reflected the fact that house prices were increasing at a faster pace this time last year.
Nationwide said unless there was a significant pick-up in house price growth during the coming few months, the annual rate of house price inflation was likely to continue to drift lower.
Today's figures add to a raft of gloomy data on the property market, with figures from the Bank of England, released yesterday, showing that the number of mortgages approved for house purchase had remained broadly flat in May, as activity in the housing market failed to pick up.
Earlier this week the Land Registry reported a 0.2 per cent house price fall in England and Wales during May, while property intelligence group Hometrack said prices edged ahead by just 0.1 per cent during June as demand from potential buyers stalled.
Recent surveys have pointed to an increase in the number of homes being put up for sale, but this is failing to be matched by rising numbers of buyers. As a result the mismatch between supply and demand is beginning to ease, reducing the upward pressure on prices.
Howard Archer, chief UK and European economist at IHS Global Insight, said: 'The marginal house price rise in June reported by the Nationwide adds to a recent flurry of soft data on the housing market and further fuels our belief that house prices will struggle to make significant gains over the coming months and may very well be only flat overall through the rest of the year.'
Ed Stansfield, chief property economist at Capital Economics, is more pessimistic.
He said: 'After outstripping income growth for over a year now, house price gains more or less stalled in June.
'The impact of the fiscal squeeze on incomes and confidence is likely to drive house prices back down again over the next 18 months.'
But the slowdown in house price growth is not necessarily a bad thing.
House prices have risen by around 12 per cent since their low point in 2009 but many economists think the pick-up in the housing market has got too far ahead of the recovery in the wider economy.
Martin Gahbauer, Nationwide's chief economist, said: 'Last year house prices increased by more than 10 per cent from the trough and household earnings growth was only about 2 per cent, and it was flat or negative for some households.
'House prices were getting ahead of household earnings and that is not healthy in the long term.'
He expects house prices to 'stagnate' for the rest of the year as the supply of homes on the market continues to increase.
But although the slowdown in house price growth may be good news for the long-term health of the housing market, it is bad news in the short term for housebuilders.
Shares in major housebuilders, including Persimmon and Taylor Wimpey, were down 4 per cent today following the publication of Nationwide's figures.
Tuesday, 6 July 2010
Mortgage Lending and Property Values
NATIONWIDE, Britain’s biggest building society, has warned that house prices could drop 5% this year because of the credit crunch.Make that more like 20%!!
It is the first of the big lenders to publicly say values could fall. Its official forecast, and that of rival Halifax, is that prices will be flat this year.
Fionnuala Earley, chief economist at Nationwide, said: “We have always thought there was a risk of falls of up to 5% if the financial unrest carried on for longer than anticipated.” The prediction comes amid widespread fears of a mortgage “famine” as lenders rein in their lending.
Michael Coogan, of the Council of Mortgage Lenders, said: “We have entered a substantially slower phase in the housing market and there will be problems in the mortgage funding markets unless the Bank of England makes new, broader-based attempts to improve levels of liquidity.”The CML is still sticking with its official forecast of 1% house-price growth this year, but it admits privately that it may need to look at the prediction again later in the spring.
Mortgage rationing has so far affected only borrowers with smaller deposits or black marks on their credit files, but brokers said there are signs it is spreading. In the past fortnight, Mortgage Express, part of Bradford & Bingley, suspended all lending through brokers for one week, while Scottish Widows closed its phone lines to brokers. Halifax, Abbey and Lloyds TSB have also restricted deals available via brokers. Small building societies have been hardest hit. Bath pulled all its deals last week except those at its standard variable rate, saying the mortgage market had come to a “standstill”. Cheltenham & Gloucester, meanwhile, has said that borrowers relying on bonuses of more than £100,000 must now be referred to underwriters.
Jane McLelland, 31, of Tunbridge Wells, Kent, was forced to borrow £18,000 from her parents or face punitive rates when she came to remortgage after lenders valued her home at less than she had been expecting. With a mortgage of £198,000, she believed the property to be worth £220,000 and therefore needed to borrow 90% of the value of the property.However, Abbey said the 2-bedroom flat was worth just £200,000, taking her mortgage to 99% of the property value – but it does not offer loans on such high values.
McLelland said: “I bought my home two years ago for £200,000 and it was valued in October at £215,000. I was really disappointed that they downvalued it. Luckily, I had the option of finding more money so that I could reduce my loan to £180,000, or 90% with Abbey.”
Richard Morea of brokers L&C, said: “Surveyors are coming under increasing pressure to tighten their valuations as the property market starts to cool.”Ray Boulger, of John Charcol, a broker, said: “We had one client looking to remortgage with a £111,000 loan who was turned away because she couldn’t verify her address on the electoral roll despite other proof. Her property was worth £227,500 and we didn’t expect any problems, but her lender, Accord, didn’t agree.”
The above examples are becoming endemic in this mixed up market. But what happens when lenders wake up to the fact that valuations (valuations for mortgage purposes that is) are still sliding? The scenario is such that negative equity issues will become noticable. Then some lender will want more security, but if home owners cannot provide it will they want their money back, or at least a part?
If property prices keep falling, and there is NOTHING to stop them doing so (especially as lenders are so much more reluctant to actually lend), then the unshakeable faith we have in the UK, the 'culture' of property as an asset will be put to the test.
It will be bloody, personal bankrupcies will rocket and lenders will collapse. How else do you see it?
It is the first of the big lenders to publicly say values could fall. Its official forecast, and that of rival Halifax, is that prices will be flat this year.
Fionnuala Earley, chief economist at Nationwide, said: “We have always thought there was a risk of falls of up to 5% if the financial unrest carried on for longer than anticipated.” The prediction comes amid widespread fears of a mortgage “famine” as lenders rein in their lending.
Michael Coogan, of the Council of Mortgage Lenders, said: “We have entered a substantially slower phase in the housing market and there will be problems in the mortgage funding markets unless the Bank of England makes new, broader-based attempts to improve levels of liquidity.”The CML is still sticking with its official forecast of 1% house-price growth this year, but it admits privately that it may need to look at the prediction again later in the spring.
Mortgage rationing has so far affected only borrowers with smaller deposits or black marks on their credit files, but brokers said there are signs it is spreading. In the past fortnight, Mortgage Express, part of Bradford & Bingley, suspended all lending through brokers for one week, while Scottish Widows closed its phone lines to brokers. Halifax, Abbey and Lloyds TSB have also restricted deals available via brokers. Small building societies have been hardest hit. Bath pulled all its deals last week except those at its standard variable rate, saying the mortgage market had come to a “standstill”. Cheltenham & Gloucester, meanwhile, has said that borrowers relying on bonuses of more than £100,000 must now be referred to underwriters.
Jane McLelland, 31, of Tunbridge Wells, Kent, was forced to borrow £18,000 from her parents or face punitive rates when she came to remortgage after lenders valued her home at less than she had been expecting. With a mortgage of £198,000, she believed the property to be worth £220,000 and therefore needed to borrow 90% of the value of the property.However, Abbey said the 2-bedroom flat was worth just £200,000, taking her mortgage to 99% of the property value – but it does not offer loans on such high values.
McLelland said: “I bought my home two years ago for £200,000 and it was valued in October at £215,000. I was really disappointed that they downvalued it. Luckily, I had the option of finding more money so that I could reduce my loan to £180,000, or 90% with Abbey.”
Richard Morea of brokers L&C, said: “Surveyors are coming under increasing pressure to tighten their valuations as the property market starts to cool.”Ray Boulger, of John Charcol, a broker, said: “We had one client looking to remortgage with a £111,000 loan who was turned away because she couldn’t verify her address on the electoral roll despite other proof. Her property was worth £227,500 and we didn’t expect any problems, but her lender, Accord, didn’t agree.”
The above examples are becoming endemic in this mixed up market. But what happens when lenders wake up to the fact that valuations (valuations for mortgage purposes that is) are still sliding? The scenario is such that negative equity issues will become noticable. Then some lender will want more security, but if home owners cannot provide it will they want their money back, or at least a part?
If property prices keep falling, and there is NOTHING to stop them doing so (especially as lenders are so much more reluctant to actually lend), then the unshakeable faith we have in the UK, the 'culture' of property as an asset will be put to the test.
It will be bloody, personal bankrupcies will rocket and lenders will collapse. How else do you see it?
Thursday, 1 April 2010
UK Property Too Fragile to Consider
Estate agents will tell you London is the key indicator for the rest of the country when it comes to property.
And sure, the capital HAS seen the bulk of price rises in the last year.
But they’re not telling you the true story.
For example, right now the centre of Manchester is a property landmine that could blow in up in our face at any moment... with disastrous repercussions for the rest of the country.
Let me explain why...
Take a walk through Manchester today and it’s awash with empty shells of property... commercial, flats and residential houses... utterly unlettable... many unsaleable.
The Government would never highlight this, but their own figures show...
- Three in every 50 homes across the city are empty...
- 7,179 homes have been empty for six months or more with a total of 13,251 empty homes across the city...
- And the Greater Manchester area has 26,970 homes empty for more than six months
It’s not only Manchester... it’s other major cities too, including Leeds and London. In fact, at last count there were 750,000 empty houses in Britain!
What’s this got to do with you? And what does it mean for UK house prices in 2010?
Here’s the thing...
It shows this ‘recovery’ in the property market hasn’t been caused by a surge in demand OR a shortfall in supply.
Instead, record low interest rates are easing the burden on overextended borrowers... enabling the owners of these ‘empty shells’ to keep ticking over... while seducing more and more buyers into taking the plunge…
But that’s about to change. Drastically.
And for once, we’re not the only ones who think so...
According to Danny Blanchflower, a former member of the UK’s Monetary Policy Committee:
“House prices have risen by about 6%... But the markets are thinly-traded, and that’s pushed up prices... I don’t believe the data and I think prices will fall a lot.”
We believe house prices won’t just fall... they’ll HALVE and take nigh on a decade doing it.
I’m deadly serious.
From peak to bottom, UK residential and commercial property prices could easily fall an eye-watering 50% before they even begin to truly recover.
When property slumps, GET OUT of these stocks
Of course politicians, the media and house sellers like to talk down this idea.
Why? Because that’s what people want to hear! When people’s houses are worth more they feel richer... they’re more likely to spend their money... and vote the ‘right way’ in the polls.
According to one of the UK’s leading estate agencies, Savills, house prices in the UK are set to RISE by 27% up to 2015... and the National Housing Federation agrees, saying the average house price will reach £274,700 over the next three years.
The mainstream media and industry spokesman always love to be optimistic about house prices.
But we’ve seen this happen before...
“House prices to recover next year,” reported TheTimes on 17 November, 1989... But it took another 7 years for UK property to reach rock-bottom.
Interest rates were cut in each and every one of those years and it didn’t make the blindest bit of difference. By 1996 the average home had lost more than 40% of it value!
Home repossessions went into a tailspin... and personal bankruptcies rocketed...
The same thing could happen again in 2010.
And it could blindside over-zealous buyers who were too quick to believe the rosy outlook handed to them by agents, lenders and politicians.
Thing is... it’s not just the price of ‘bricks and mortar’ this deception will crush...
Wednesday, 24 March 2010
Comment by Roger Bootle: Budget 2010
"Government needs first and foremost to look to its own failings. Incompetent and bloated government is one of the most serious factors holding the British economy back."
Wednesday, 6 May 2009
Licensing or Taxing
The Government is right now in the middle of another campaign of pure SPIN: The need to License Landlords.
With the advent of the hopeless deposit scheme, its administrative nightmares and the way it bends over backwards to help the tenant is filling us with such foreboding. One case had the tenant abscond after 10 months without paying the rent due. The deposit scheme made the landlord wait 4 months before the deposit was finally handed back to its rightful owner. And why? Because the authorities we waiting to contact the tenant to get their permission!! As they had done a runner with no forwarding address - a futile process.
Where do they get these people from who make such idiotic decisions?
Will this proposed licensing scheme be any better? No way.
The new scheme has identified "accidental landlords" (as a new source of tax revenue?) as a "problem" as they do not understand their obligation to the tenants.
Like any scheme from this vacuous Government it will reduce the supply of private rentals at a time when no amount of social housing providers can satisfy the demand for homes. And they [social landlord sector] still have serious problems with BAD tenants.
When will we have the suggestions for a tenent licensing scheme? I wonder.
Please make any comment as this area needs a balanced review.
With the advent of the hopeless deposit scheme, its administrative nightmares and the way it bends over backwards to help the tenant is filling us with such foreboding. One case had the tenant abscond after 10 months without paying the rent due. The deposit scheme made the landlord wait 4 months before the deposit was finally handed back to its rightful owner. And why? Because the authorities we waiting to contact the tenant to get their permission!! As they had done a runner with no forwarding address - a futile process.
Where do they get these people from who make such idiotic decisions?
Will this proposed licensing scheme be any better? No way.
The new scheme has identified "accidental landlords" (as a new source of tax revenue?) as a "problem" as they do not understand their obligation to the tenants.
Like any scheme from this vacuous Government it will reduce the supply of private rentals at a time when no amount of social housing providers can satisfy the demand for homes. And they [social landlord sector] still have serious problems with BAD tenants.
When will we have the suggestions for a tenent licensing scheme? I wonder.
Please make any comment as this area needs a balanced review.
Saturday, 4 April 2009
Dollar Denominated Property Under Threat
The coming financial storm no one is talking about
BY MANRAAJ SINGH
Dear Reader,
There’s a major trend that could have a devastating impact on the US dollar.
What’s shocking is that I haven’t come across a single other financial analyst who has fully grasped the implications of it.
This is crazy, given that it will affect anyone who owns dollar-denominated investments, whether it’s gold, international shares or commodities. In fact, even if you aren’t directly invested in them, there is very good chance your pension fund is.
That’s how big this is.
The thing is, though, you can turn this trend to your advantage, as we’ll see in a moment.
I’m talking about the planned creation of a single common currency in the Gulf States. A new monetary union just like the eurozone, but for oil rich countries.
That might not sound like a big deal. After all, who really cares what a bunch of Arab countries are doing with their currencies?
But this is going to have a colossal impact on the world economy. Let me explain…
Last Friday, I explained why the dollar’s long-term value is under threat as the US economy falters. But now let me show you the threat to the dollar that the rest of the world still hasn’t picked-up on…
The great petrodollar merry-go-round is about to break down
You see, right now the dollar receives a huge amount of support from being the standard currency for international trade. The international oil trade is a big part of that. Oil is priced in dollars on the international market. It is bought and sold in dollars.
What that basically means is that countries that want to buy oil need to have dollars. Countries that sell it are left holding dollars. That fuels global demand for the American currency. It props up its value…
Right now, the only major producer that sells in a different currency is Iran. They take their payments in euros and Japanese yen. But it is the Gulf Arab states like Saudi, Kuwait and the UAE that are at the heart of the global oil trade.
But now think of a situation where global oil production is increasingly concentrated in the hands of the Gulf Arab countries. And, as I explained in a recent special report, that is what is going to happen as non-OPEC production collapses.
Now consider what the impact on the dollar is going to be when those countries say they don’t want to be paid in dollars anymore. Once they’ve got a common currency you can bet they are going to price their oil in it. They will want to be paid in Dirhams or Dinars or whatever else it is that they eventually name it.
That is going to short circuit global demand for the dollar. Because oil importing countries won’t need to buy dollars to pay for their oil anymore. The Gulf countries won’t be left holding huge reserves of dollars which they then have to recycle into the US…
Right now the oil-exporting countries are the second-biggest holders of US government debt after China. That’s because they get paid for their oil in US dollars. A lot of that money then gets reinvested in US dollar-denominated assets. But if they aren’t being paid in dollars anymore, they won’t have to recycle them by investing in US government bonds. International demand for the dollar is going to plunge. And the value of the dollar is going to plunge with it.
Two years to D-Day?
The Gulf Co-operation Council (GCC) states have been talking about this for a long time. And they signed the first concrete agreements to implement it last September. Since then they have been moving ahead with their plans. By the end of this year, they should have a monetary council in place. This will be a precursor to the Gulf central bank. And it will decide on the name and value of the currency.
They had planned to have their new currency in place by 2010. I doubt they will manage it that quickly though. The way I see it, the impact of the financial crisis will force them to push it back by about a year.
But there is absolutely no doubt about it – the Gulf common currency is now on its way. And when it happens it is going to kick the legs out from under the dollar.
As I said though, there are ways that you could profit from this. An obvious trade is to go short on the dollar. There are listed funds that allow you to do that. And again, not all dollar-denominated assets will lose out. Whilst the value of US shares, for example, is going to be eroded, the value of certain dollar-denominated commodities like oil and gold rises as the dollar weakens.
Kind regards,
Manraaj Singh
For The Right Side
Editor’s recommendation: Manraaj Singh is Chief Investment Strategist at Profit Hunter. As he explains, when the dollar falls, oil goes up. Click here to receive his latest smart way to play the “oil rebound”.
BY MANRAAJ SINGH
Dear Reader,
There’s a major trend that could have a devastating impact on the US dollar.
What’s shocking is that I haven’t come across a single other financial analyst who has fully grasped the implications of it.
This is crazy, given that it will affect anyone who owns dollar-denominated investments, whether it’s gold, international shares or commodities. In fact, even if you aren’t directly invested in them, there is very good chance your pension fund is.
That’s how big this is.
The thing is, though, you can turn this trend to your advantage, as we’ll see in a moment.
I’m talking about the planned creation of a single common currency in the Gulf States. A new monetary union just like the eurozone, but for oil rich countries.
That might not sound like a big deal. After all, who really cares what a bunch of Arab countries are doing with their currencies?
But this is going to have a colossal impact on the world economy. Let me explain…
Last Friday, I explained why the dollar’s long-term value is under threat as the US economy falters. But now let me show you the threat to the dollar that the rest of the world still hasn’t picked-up on…
The great petrodollar merry-go-round is about to break down
You see, right now the dollar receives a huge amount of support from being the standard currency for international trade. The international oil trade is a big part of that. Oil is priced in dollars on the international market. It is bought and sold in dollars.
What that basically means is that countries that want to buy oil need to have dollars. Countries that sell it are left holding dollars. That fuels global demand for the American currency. It props up its value…
Right now, the only major producer that sells in a different currency is Iran. They take their payments in euros and Japanese yen. But it is the Gulf Arab states like Saudi, Kuwait and the UAE that are at the heart of the global oil trade.
But now think of a situation where global oil production is increasingly concentrated in the hands of the Gulf Arab countries. And, as I explained in a recent special report, that is what is going to happen as non-OPEC production collapses.
Now consider what the impact on the dollar is going to be when those countries say they don’t want to be paid in dollars anymore. Once they’ve got a common currency you can bet they are going to price their oil in it. They will want to be paid in Dirhams or Dinars or whatever else it is that they eventually name it.
That is going to short circuit global demand for the dollar. Because oil importing countries won’t need to buy dollars to pay for their oil anymore. The Gulf countries won’t be left holding huge reserves of dollars which they then have to recycle into the US…
Right now the oil-exporting countries are the second-biggest holders of US government debt after China. That’s because they get paid for their oil in US dollars. A lot of that money then gets reinvested in US dollar-denominated assets. But if they aren’t being paid in dollars anymore, they won’t have to recycle them by investing in US government bonds. International demand for the dollar is going to plunge. And the value of the dollar is going to plunge with it.
Two years to D-Day?
The Gulf Co-operation Council (GCC) states have been talking about this for a long time. And they signed the first concrete agreements to implement it last September. Since then they have been moving ahead with their plans. By the end of this year, they should have a monetary council in place. This will be a precursor to the Gulf central bank. And it will decide on the name and value of the currency.
They had planned to have their new currency in place by 2010. I doubt they will manage it that quickly though. The way I see it, the impact of the financial crisis will force them to push it back by about a year.
But there is absolutely no doubt about it – the Gulf common currency is now on its way. And when it happens it is going to kick the legs out from under the dollar.
As I said though, there are ways that you could profit from this. An obvious trade is to go short on the dollar. There are listed funds that allow you to do that. And again, not all dollar-denominated assets will lose out. Whilst the value of US shares, for example, is going to be eroded, the value of certain dollar-denominated commodities like oil and gold rises as the dollar weakens.
Kind regards,
Manraaj Singh
For The Right Side
Editor’s recommendation: Manraaj Singh is Chief Investment Strategist at Profit Hunter. As he explains, when the dollar falls, oil goes up. Click here to receive his latest smart way to play the “oil rebound”.
Wednesday, 18 March 2009
FSA to Destroy the Housing Market
Apparently, potential homebuyers will be banned from borrowing more than three times their annual salary, under new rules to be announced this week. And they'll have to stump up at least a 5% deposit.
The Telegraph reports that the tough new rules are part of a move by the Financial Services Authority (FSA) to change its regulation of the financial industry.
I'm not sure if anyone's told the FSA, but I think the new rules might have come a little bit on the late side…
The latest move to regulate the housing market shows the limitations of regulation. The FSA is talking about asking for minimum deposits of 5% when someone buys a house. But these days, most banks are asking for at least 10% minimum, and 40% if you want the best deals. And that's assuming they don't then find an excuse to get out of lending at all.
Why regulators waited until the bust came along
So why introduce the rules now? After all, during the good times, it was clear that housing was in a bubble. It should have been clear to anyone that lending at six times salary, the widespread use of interest-only mortgages, and 100% or higher loans, were a recipe for disaster when combined with historically high house prices.
And the truth is, it was clear to most people. They might be speaking with the benefit of hindsight, but when you talk to City workers, they all knew that the good times couldn't last forever. But while the music was on, they just kept on dancing.
So why not introduce the rules then? Well, like everything else in markets, it all comes down to human behaviour. During the good times, everyone gets swept up in the bubble mentality. The political pressure to allow bubbles to keep expanding is irresistible. Can you imagine the carnage if the FSA had introduced these rules a couple of years ago?
Mortgage lending would have dried up overnight. The housing market would have collapsed. And the FSA (and by extension, the government) would have been hit with the blame. It doesn't matter that popping the housing bubble prematurely may have left us in better shape for today's big crisis. No one would have won any popularity contests by being the ones to stand up and call a halt to the party.
So that's why regulators tend to wait until the bust comes along. They then try to cram in as much regulation as possible while everyone is still shell-shocked and not thinking straight.
New regulations are useless now
But the trouble with this is that you then end up with completely useless regulations. As we pointed out banning 100% mortgages is pointless now, because you can't get them anymore. The market has already done everything the FSA might want to happen, and more.
So the regulations made today will make life more difficult for tomorrow's mortgage borrowers and lenders. But they won't stop the next bubble. Because that'll inflate in a different area, one that the regulators haven't paid as much attention to. And when that bubble looks like it's getting out of hand, the regulators will just ignore it, because everyone's having fun, and they don't want to be seen as the party poopers.
Then it'll pop, and they'll make up a load of rules to try to prevent it from ever happening again, as always happens.
Of course, the other thing to ponder is how this chimes with the government's mission to "get the banks lending again". I have no problem with the principle of sensible lending – I just think it should be up to the lender to decide what that consists of – but if you're going to restrict loans to three times salary, then we'd really better get used to sharply lower house prices.
Property bargain-hunters look set to be disappointed
Rightmove reports that asking prices in England and Wales rose for the second month in a row over the last four weeks. Sellers are apparently having difficulty adjusting to reality, says the group's commercial director Miles Shipside.
Prices are still down 9% on last year, but with the average price sitting at £218,000-odd, that's well out of the range of your average worker, given that the average salary in the UK is around £25,000 (and I realise a lot of people outside London will think that's overstating it somewhat).
Bulls have tried to point to the fact that Rightmove has seen a 120% rise in the number of enquiries to its site compared with this time last year. However, it's no surprise that people are more interested in looking at properties – with all this talk of a crash, they're probably hoping to find some bargains.
But with sellers "still pricing wishfully high" as Shipside puts it, it looks like they'll be disappointed. Prices still have a good way to come down – Numis Securities reckons as much as 55%, as we noted last week (Read: Will Britain go bankrupt?). And by the time houses are genuinely cheap, we'll no doubt be obsessing over some other asset bubble.
The Telegraph reports that the tough new rules are part of a move by the Financial Services Authority (FSA) to change its regulation of the financial industry.
I'm not sure if anyone's told the FSA, but I think the new rules might have come a little bit on the late side…
The latest move to regulate the housing market shows the limitations of regulation. The FSA is talking about asking for minimum deposits of 5% when someone buys a house. But these days, most banks are asking for at least 10% minimum, and 40% if you want the best deals. And that's assuming they don't then find an excuse to get out of lending at all.
Why regulators waited until the bust came along
So why introduce the rules now? After all, during the good times, it was clear that housing was in a bubble. It should have been clear to anyone that lending at six times salary, the widespread use of interest-only mortgages, and 100% or higher loans, were a recipe for disaster when combined with historically high house prices.
And the truth is, it was clear to most people. They might be speaking with the benefit of hindsight, but when you talk to City workers, they all knew that the good times couldn't last forever. But while the music was on, they just kept on dancing.
So why not introduce the rules then? Well, like everything else in markets, it all comes down to human behaviour. During the good times, everyone gets swept up in the bubble mentality. The political pressure to allow bubbles to keep expanding is irresistible. Can you imagine the carnage if the FSA had introduced these rules a couple of years ago?
Mortgage lending would have dried up overnight. The housing market would have collapsed. And the FSA (and by extension, the government) would have been hit with the blame. It doesn't matter that popping the housing bubble prematurely may have left us in better shape for today's big crisis. No one would have won any popularity contests by being the ones to stand up and call a halt to the party.
So that's why regulators tend to wait until the bust comes along. They then try to cram in as much regulation as possible while everyone is still shell-shocked and not thinking straight.
New regulations are useless now
But the trouble with this is that you then end up with completely useless regulations. As we pointed out banning 100% mortgages is pointless now, because you can't get them anymore. The market has already done everything the FSA might want to happen, and more.
So the regulations made today will make life more difficult for tomorrow's mortgage borrowers and lenders. But they won't stop the next bubble. Because that'll inflate in a different area, one that the regulators haven't paid as much attention to. And when that bubble looks like it's getting out of hand, the regulators will just ignore it, because everyone's having fun, and they don't want to be seen as the party poopers.
Then it'll pop, and they'll make up a load of rules to try to prevent it from ever happening again, as always happens.
Of course, the other thing to ponder is how this chimes with the government's mission to "get the banks lending again". I have no problem with the principle of sensible lending – I just think it should be up to the lender to decide what that consists of – but if you're going to restrict loans to three times salary, then we'd really better get used to sharply lower house prices.
Property bargain-hunters look set to be disappointed
Rightmove reports that asking prices in England and Wales rose for the second month in a row over the last four weeks. Sellers are apparently having difficulty adjusting to reality, says the group's commercial director Miles Shipside.
Prices are still down 9% on last year, but with the average price sitting at £218,000-odd, that's well out of the range of your average worker, given that the average salary in the UK is around £25,000 (and I realise a lot of people outside London will think that's overstating it somewhat).
Bulls have tried to point to the fact that Rightmove has seen a 120% rise in the number of enquiries to its site compared with this time last year. However, it's no surprise that people are more interested in looking at properties – with all this talk of a crash, they're probably hoping to find some bargains.
But with sellers "still pricing wishfully high" as Shipside puts it, it looks like they'll be disappointed. Prices still have a good way to come down – Numis Securities reckons as much as 55%, as we noted last week (Read: Will Britain go bankrupt?). And by the time houses are genuinely cheap, we'll no doubt be obsessing over some other asset bubble.
Monday, 24 November 2008
The End of Property Finance as We Know It?
In case you hadn’t noticed, Chancellor Alistair Darling’s giving a bit of a speech this afternoon.
He’ll be laying out the Government’s plans for saving the economy from an even worse recession than it’s already facing.
It’s quite a clever way to sell it. Regardless of how bad things get in the future, you can always say: “Well, it would have been even worse had it not been for the quick-thinking actions of the dynamic Brown Government.” That’ll be the spin anyway.
But can the pre-Budget Report really make much difference to our economic plight? Of course it can. It can make things a lot worse…
This government encourages shopping and discourages working
The main thrust of the pre-Budget Report seems likely to be a 2.5 percentage point cut in VAT, which will fall to 15%. There’s plenty of other stuff being mulled over by the papers, and no doubt a few nasty surprises as well. But we’ll find out what he’s really got in store for us in a few hours, so no point running through all the eventualities here.
Let’s just focus on this VAT cut. I’m not going to complain about tax cuts. Lord knows, we’ve seen too few of them in the past decade. But it’s interesting to have a look at the thought process behind what’s being done here.
VAT is a tax on consumption. As taxes go, it’s not the worst one. It treats everyone equally and fairly - you pay according to the quantity of resources you consume. You could even describe it as a green tax.
Income tax, on the other hand, is a tax on production. The harder you work, the more you earn. The more you earn, the more the state takes out of your pay packet. And oddly enough, this effect is felt most strongly among the least-well off in British society. Because of the way the ridiculous tax credits system works, certain workers face a marginal tax rate of 70% once they earn above a certain amount. In other words, there’s a point at which they only end up getting an extra 30p for every £1-worth of work they do. For an apparently dour Presbyterian, Mr Brown sure doesn’t believe in encouraging the work ethic.
So effectively, the Government heavily favours consumers over producers. And the pre-Budget Report makes this very clear. Because it’s tomorrow’s producers who will pay for today’s consumer boost. According to The Daily Telegraph this morning, Labour plans to introduce a 45% tax rate on those earning above £150,000 after the next election.
Yet Britain’s big problem is that we’ve been doing too much consuming and not enough producing. How does encouraging more consumption, and discouraging production, help us get any further forward? The answer is simple enough. It doesn’t.
A recession is nature’s way of telling you that your economy is heading down the wrong path. A depression is nature’s way of saying the same thing – only a lot louder.
Britain needs a new set of economic props
As a nation, we’ve become too dependent on three things, all of which have been fuelled by the credit bubble. First there’s the financial sector. The finance sector is meant to allocate capital efficiently. It gets money from the people who have it, to the people who need it, with a minimum of fuss. That’s the nature of the value that it adds to the economy. But it’s not performed that role anywhere near as efficiently as we’d like to pretend. Were all those new-build buy-to-let properties an efficient use of capital? No, I don’t think so either.
The financial system’s ability to allocate capital efficiently has been badly undermined by central banks making it much harder to gauge risk clearly – more on that in the future. In any case, the end of the credit bubble also spells the end for the consumption bubble.
People used easy money and grossly inflated house prices to boost their consumption of everything from household furniture to shoes to computer games. That in turn meant more jobs in the services sector. But now that economic prop is being kicked away too.
The third prop has been rampant government spending. Fuelled by cheap borrowing and extremely healthy tax revenues, the government has splashed our money all over the public sector. But it’s not been spent on useful jobs, but on increasing the range of administrative and management roles in health, policing and education.
What will replace finance as our 'specialism'?
What can we do about all this? We need to consider what will replace the financial sector as our ‘specialism’. If we want to maintain a developed world standard of living, we need to contribute something to the global economy that can sustainably generate high-paying jobs. That means we need to have well-educated, skilled employees. But given the Government’s propensity to view any institution that promotes academic excellence with suspicion and hostility, the chances of turning around our education system any time soon is a major challenge.
And right now, this is a debate for another day, argues the “something must be done!” brigade. So will the VAT cut be effective? Well, it’ll make goods in the shops cheaper. But then, so will deflation. Shops are already slashing prices ahead of what they fear will be a miserable Christmas. And consumers are – rightly - already in ‘cut-back’ mode. It’ll take a lot more than a couple of percentage points off prices to make them blow their budgets this year.
So Mr Darling will have to have a lot more in his box of tricks if he wants to make a dent in this recession. We’ll find out soon enough – and give you the reaction on the MoneyWeek website later this afternoon.
Big Thank you to John Stepek
He’ll be laying out the Government’s plans for saving the economy from an even worse recession than it’s already facing.
It’s quite a clever way to sell it. Regardless of how bad things get in the future, you can always say: “Well, it would have been even worse had it not been for the quick-thinking actions of the dynamic Brown Government.” That’ll be the spin anyway.
But can the pre-Budget Report really make much difference to our economic plight? Of course it can. It can make things a lot worse…
This government encourages shopping and discourages working
The main thrust of the pre-Budget Report seems likely to be a 2.5 percentage point cut in VAT, which will fall to 15%. There’s plenty of other stuff being mulled over by the papers, and no doubt a few nasty surprises as well. But we’ll find out what he’s really got in store for us in a few hours, so no point running through all the eventualities here.
Let’s just focus on this VAT cut. I’m not going to complain about tax cuts. Lord knows, we’ve seen too few of them in the past decade. But it’s interesting to have a look at the thought process behind what’s being done here.
VAT is a tax on consumption. As taxes go, it’s not the worst one. It treats everyone equally and fairly - you pay according to the quantity of resources you consume. You could even describe it as a green tax.
Income tax, on the other hand, is a tax on production. The harder you work, the more you earn. The more you earn, the more the state takes out of your pay packet. And oddly enough, this effect is felt most strongly among the least-well off in British society. Because of the way the ridiculous tax credits system works, certain workers face a marginal tax rate of 70% once they earn above a certain amount. In other words, there’s a point at which they only end up getting an extra 30p for every £1-worth of work they do. For an apparently dour Presbyterian, Mr Brown sure doesn’t believe in encouraging the work ethic.
So effectively, the Government heavily favours consumers over producers. And the pre-Budget Report makes this very clear. Because it’s tomorrow’s producers who will pay for today’s consumer boost. According to The Daily Telegraph this morning, Labour plans to introduce a 45% tax rate on those earning above £150,000 after the next election.
Yet Britain’s big problem is that we’ve been doing too much consuming and not enough producing. How does encouraging more consumption, and discouraging production, help us get any further forward? The answer is simple enough. It doesn’t.
A recession is nature’s way of telling you that your economy is heading down the wrong path. A depression is nature’s way of saying the same thing – only a lot louder.
Britain needs a new set of economic props
As a nation, we’ve become too dependent on three things, all of which have been fuelled by the credit bubble. First there’s the financial sector. The finance sector is meant to allocate capital efficiently. It gets money from the people who have it, to the people who need it, with a minimum of fuss. That’s the nature of the value that it adds to the economy. But it’s not performed that role anywhere near as efficiently as we’d like to pretend. Were all those new-build buy-to-let properties an efficient use of capital? No, I don’t think so either.
The financial system’s ability to allocate capital efficiently has been badly undermined by central banks making it much harder to gauge risk clearly – more on that in the future. In any case, the end of the credit bubble also spells the end for the consumption bubble.
People used easy money and grossly inflated house prices to boost their consumption of everything from household furniture to shoes to computer games. That in turn meant more jobs in the services sector. But now that economic prop is being kicked away too.
The third prop has been rampant government spending. Fuelled by cheap borrowing and extremely healthy tax revenues, the government has splashed our money all over the public sector. But it’s not been spent on useful jobs, but on increasing the range of administrative and management roles in health, policing and education.
What will replace finance as our 'specialism'?
What can we do about all this? We need to consider what will replace the financial sector as our ‘specialism’. If we want to maintain a developed world standard of living, we need to contribute something to the global economy that can sustainably generate high-paying jobs. That means we need to have well-educated, skilled employees. But given the Government’s propensity to view any institution that promotes academic excellence with suspicion and hostility, the chances of turning around our education system any time soon is a major challenge.
And right now, this is a debate for another day, argues the “something must be done!” brigade. So will the VAT cut be effective? Well, it’ll make goods in the shops cheaper. But then, so will deflation. Shops are already slashing prices ahead of what they fear will be a miserable Christmas. And consumers are – rightly - already in ‘cut-back’ mode. It’ll take a lot more than a couple of percentage points off prices to make them blow their budgets this year.
So Mr Darling will have to have a lot more in his box of tricks if he wants to make a dent in this recession. We’ll find out soon enough – and give you the reaction on the MoneyWeek website later this afternoon.
Big Thank you to John Stepek
Sunday, 16 November 2008
Buyout USA Property for as Low as 5% of Value
There's a new "secret" that a lucky few have already found that's enabling them to literally buy houses that ordinarily sell for around $1 Million or more - but now for just $1,997 or LESS!
There are 3,141 counties in the United States, and each one possesses this exciting new opportunity whereby anyone with as little as $100 to seldom more than $5,000 can buy homes ordinarily valued from $30,000 to in quite a number of cases above $5 million! - and for just 1% to rarely above 5% their selling costs!
And the BEST part about this is that you can be located anywhere and still buy any home you want - even if you're 3,000 miles away or more!
But, you don't have to visit the county you buy the homes in - instead, you can do it all from the comfort and privacy of your home using just your tiny 'ole mouse!
This is what makes this such a wonderful opportunity, in that you can go online to some select websites, then pick and choose the properties you want, and then get them for between 1%-5% at most.
No matter what happens you make money!
You basically buy a homeowner's tax lien certificate because he or she wasn't able to pay their property taxes.
They by law must pay you anywhere from 16% to as much as 50% in interest - and in many cases they must pay you back within as little as 6 months.
But, if they can't pay you back, YOU own their home free and clear (and for what usually amounts to just 1% of the house's actually selling value!)
Now, at this point you can either keep the house for yourself, or you can swiftly turn around and resell it (in any economy, good or bad!) to banks, lenders or individual buyers answering your little classified ad! - and where you make a killing!
The site that has all the facts as to how you can do this from your laptop or PC is here:
http://www.watersons-mg.com/real-estate-bargains
But I wish to strongly encourage you to take action and go there as it's rumored that they are going to withdraw this exciting opportunity as soon as they reach the maximum number of "members" they can handle.
There are 3,141 counties in the United States, and each one possesses this exciting new opportunity whereby anyone with as little as $100 to seldom more than $5,000 can buy homes ordinarily valued from $30,000 to in quite a number of cases above $5 million! - and for just 1% to rarely above 5% their selling costs!
And the BEST part about this is that you can be located anywhere and still buy any home you want - even if you're 3,000 miles away or more!
But, you don't have to visit the county you buy the homes in - instead, you can do it all from the comfort and privacy of your home using just your tiny 'ole mouse!
This is what makes this such a wonderful opportunity, in that you can go online to some select websites, then pick and choose the properties you want, and then get them for between 1%-5% at most.
No matter what happens you make money!
You basically buy a homeowner's tax lien certificate because he or she wasn't able to pay their property taxes.
They by law must pay you anywhere from 16% to as much as 50% in interest - and in many cases they must pay you back within as little as 6 months.
But, if they can't pay you back, YOU own their home free and clear (and for what usually amounts to just 1% of the house's actually selling value!)
Now, at this point you can either keep the house for yourself, or you can swiftly turn around and resell it (in any economy, good or bad!) to banks, lenders or individual buyers answering your little classified ad! - and where you make a killing!
The site that has all the facts as to how you can do this from your laptop or PC is here:
http://www.watersons-mg.com/real-estate-bargains
But I wish to strongly encourage you to take action and go there as it's rumored that they are going to withdraw this exciting opportunity as soon as they reach the maximum number of "members" they can handle.
Friday, 14 November 2008
Lower Interest Rates to Come?
In its quarterly Inflation Report, the Bank of England forecast that national income could shrink by one to two percentage points over the next few quarters and growth would probably be flat by the end of next year. Consumer price inflation, which at its last reading registered an annualised rate of 5.2 per cent, will fall to its target rate of 2 per cent by the middle of 2009.
In remarks at a press briefing Mervyn King, Bank of England governor, said interest rates could fall much lower than their current 3 per cent and declined to rule out cutting rates to zero.
“We are certainly prepared to cut Bank rates again if that proves necessary,” Mr King said.
Asset Value Falls bring Down Investor Sentiment
Great Article from Money Week showing how falling asset values are affecting sentiment in not just the property markets
Governments love capitalism. As long as asset prices are rising, that is.
When prices are rising, governments will do anything to keep them up there. You want free money? We’ll keep interest rates low. You want light-touch regulation? We’ll give you off-balance sheet finance.
The deal between banks and governments in the past decade or so has been simple. “You lot keep the voters happy and feeling rich,” says the government. “And we’ll give you a nice cosy, risk-free world to play in.” Of course, capitalism without risk, is not capitalism at all. What we’ve had is sugar-daddy socialism, with the financial industry frolicking freely, safe in the knowledge that there’s always a bail-out around the corner.
But you can’t buck the market forever. And even though there have been plenty of bail-outs, prices just keep on falling. Yet governments don’t seem to learn…
Chaos in emerging markets
Yesterday I pointed out how Hank Paulson’s U-turn on the Tarp highlighted the dangers of government interference in the markets (to read about this click here: The pound has nowhere to go but down) . But you can get a much clearer idea of how the state can make a bad situation worse by looking at the havoc in emerging markets.
Like Western investors, investors in emerging markets came to believe that asset prices could only ever go up. And so when they fall, they start looking around for someone to blame.
That’s why Kuwait’s stock market (which has fallen by more than 40% since late June) was shut down yesterday. According to The Telegraph, an investor had filed a claim “over the heavy losses he had suffered on the exchange.” So the court stopped it from trading until Monday, finding that “the bourse management failed to take any measures to boost a flagging market.”
I imagine that the management didn’t realise that this was part of their remit, any more than the owner of a fruit and veg stall’s pitch would expect to have to keep the price of apples high.
The dangers of too much government intervention
But the plight of Russia probably demonstrates best the dangers of too much government intervention. The Russian Micex market has been the worst performing in the second half of this year so far, reports The Telegraph. Stocks have fallen by 75% since May.
A key problem for Russia is that it is massively dependent on oil. Its 2009 budget only balances if oil is trading at an average $95 a barrel. I can’t see that happening. So its markets, and the rouble, have come under pressure with falling oil prices. And of course, as an emerging market, it has taken a hit as investors pull their money out and repatriate it to the “safe haven” of the US.
But the state’s attempts to prevent the crisis with brute force, have only made things worse. The central bank has already had to spend $120bn of its reserves on defending the rouble, which analysts reckon is now 30% over-valued. This is just a waste of money. When a country, particularly a politically risky country like Russia, starts defending its currency, it’s a sure sign to the market that said currency is over-valued. No central bank in the world has enough reserves to defend against a forex market set on helping a currency to find its “real” worth.
Let's hope our governments learn to accept falling prices
The state is also making the stock market plunge worse than it has to be. They keep shutting the market because it keeps falling so hard. But a big part of the reason that it keeps falling so hard is because every time they open it, investors think “Quick! Let’s sell before they shut it again!”
If you limit the trading that can be done, you increase the liquidity risk. Anyone who is scared they might need cash at short notice, isn’t going to be happy to hold stocks that can only be easily traded as and when the government says it’s OK to do so.
All these measures rattle investor confidence further, and make it even harder to price genuine risk. At some point, most assets of any real value at all will reach a price at which fundamentals suggest they are worth buying. But if you have to worry about the government’s random reactions to such falls as well, it becomes impossible to make any kind of judgement based on these fundamentals.
So we’d better get used to falling prices – and let’s hope our governments learn to accept them as well.
Governments love capitalism. As long as asset prices are rising, that is.
When prices are rising, governments will do anything to keep them up there. You want free money? We’ll keep interest rates low. You want light-touch regulation? We’ll give you off-balance sheet finance.
The deal between banks and governments in the past decade or so has been simple. “You lot keep the voters happy and feeling rich,” says the government. “And we’ll give you a nice cosy, risk-free world to play in.” Of course, capitalism without risk, is not capitalism at all. What we’ve had is sugar-daddy socialism, with the financial industry frolicking freely, safe in the knowledge that there’s always a bail-out around the corner.
But you can’t buck the market forever. And even though there have been plenty of bail-outs, prices just keep on falling. Yet governments don’t seem to learn…
Chaos in emerging markets
Yesterday I pointed out how Hank Paulson’s U-turn on the Tarp highlighted the dangers of government interference in the markets (to read about this click here: The pound has nowhere to go but down) . But you can get a much clearer idea of how the state can make a bad situation worse by looking at the havoc in emerging markets.
Like Western investors, investors in emerging markets came to believe that asset prices could only ever go up. And so when they fall, they start looking around for someone to blame.
That’s why Kuwait’s stock market (which has fallen by more than 40% since late June) was shut down yesterday. According to The Telegraph, an investor had filed a claim “over the heavy losses he had suffered on the exchange.” So the court stopped it from trading until Monday, finding that “the bourse management failed to take any measures to boost a flagging market.”
I imagine that the management didn’t realise that this was part of their remit, any more than the owner of a fruit and veg stall’s pitch would expect to have to keep the price of apples high.
The dangers of too much government intervention
But the plight of Russia probably demonstrates best the dangers of too much government intervention. The Russian Micex market has been the worst performing in the second half of this year so far, reports The Telegraph. Stocks have fallen by 75% since May.
A key problem for Russia is that it is massively dependent on oil. Its 2009 budget only balances if oil is trading at an average $95 a barrel. I can’t see that happening. So its markets, and the rouble, have come under pressure with falling oil prices. And of course, as an emerging market, it has taken a hit as investors pull their money out and repatriate it to the “safe haven” of the US.
But the state’s attempts to prevent the crisis with brute force, have only made things worse. The central bank has already had to spend $120bn of its reserves on defending the rouble, which analysts reckon is now 30% over-valued. This is just a waste of money. When a country, particularly a politically risky country like Russia, starts defending its currency, it’s a sure sign to the market that said currency is over-valued. No central bank in the world has enough reserves to defend against a forex market set on helping a currency to find its “real” worth.
Let's hope our governments learn to accept falling prices
The state is also making the stock market plunge worse than it has to be. They keep shutting the market because it keeps falling so hard. But a big part of the reason that it keeps falling so hard is because every time they open it, investors think “Quick! Let’s sell before they shut it again!”
If you limit the trading that can be done, you increase the liquidity risk. Anyone who is scared they might need cash at short notice, isn’t going to be happy to hold stocks that can only be easily traded as and when the government says it’s OK to do so.
All these measures rattle investor confidence further, and make it even harder to price genuine risk. At some point, most assets of any real value at all will reach a price at which fundamentals suggest they are worth buying. But if you have to worry about the government’s random reactions to such falls as well, it becomes impossible to make any kind of judgement based on these fundamentals.
So we’d better get used to falling prices – and let’s hope our governments learn to accept them as well.
Thursday, 6 November 2008
Can We Afford to Re-finance Banks or Have a Recession?
As the Banks sit there wringing their hands in anguish at the problems they are in, let's step back to see what they are actually causing in the rest of the economy.
First we have to understand about the "paradox of thrift", the concept introduced by that great British economist John Maynard Keynes, who has been very much misrepresented over the years. This concept states that if we all start saving too much, then we are not spending. This will then causes a slow down in the economy as goods and services are not being purchased in the same volumes.
Now lets consider what the banks are doing right now in their misguided attempts to correct the real problems that they have caused and with their desperate need for refinancing from Governments and Sovereign Wealth Funds. Yes, they are taking money out of the production cycle for debt re-financing. And as they are reducing the amount of lending, they are deflating global economies.
Are they mad? They are only concerned with their own survival, but it seems at the expense of the rest of the economy. Because they have got everybody's bank accounts online they are now indispensable/compulsory [just try to do without one, your tax office will go ape]. Worst luck. We need an alternative to bank accounts. An alternative that will not try and gear up your money to fund their profits and then pocket your cash when they screw up. How else can we interpret their actions.
At best a bank is only a marginal business. How can it possibly make money from holding our money? They do it by using our money for their own gain. But when their assumptions and their miscalculations mean that they have lost our money, its only natural that we the customers are going to feel a bit angry. No wonder there are "runs on the bank". No bank can survive a loss of confidence in the system. That's why we have problems now - we have lost confidence in "the system".
The only solution is to re-build that confidence, hence massive inter-governmental support, or to come up with alternatives. Well Governments are doing their bit but....
So lets as responsible business folk with creative minds come up with some alternatives to the traditional banks.
First is the internet concept of ZORPA
Next is anybody's best guess. Please lets come up with some solutions.
Over to you.
John Burke, Ecadamist, and International Worrier!
First we have to understand about the "paradox of thrift", the concept introduced by that great British economist John Maynard Keynes, who has been very much misrepresented over the years. This concept states that if we all start saving too much, then we are not spending. This will then causes a slow down in the economy as goods and services are not being purchased in the same volumes.
Now lets consider what the banks are doing right now in their misguided attempts to correct the real problems that they have caused and with their desperate need for refinancing from Governments and Sovereign Wealth Funds. Yes, they are taking money out of the production cycle for debt re-financing. And as they are reducing the amount of lending, they are deflating global economies.
Are they mad? They are only concerned with their own survival, but it seems at the expense of the rest of the economy. Because they have got everybody's bank accounts online they are now indispensable/compulsory [just try to do without one, your tax office will go ape]. Worst luck. We need an alternative to bank accounts. An alternative that will not try and gear up your money to fund their profits and then pocket your cash when they screw up. How else can we interpret their actions.
At best a bank is only a marginal business. How can it possibly make money from holding our money? They do it by using our money for their own gain. But when their assumptions and their miscalculations mean that they have lost our money, its only natural that we the customers are going to feel a bit angry. No wonder there are "runs on the bank". No bank can survive a loss of confidence in the system. That's why we have problems now - we have lost confidence in "the system".
The only solution is to re-build that confidence, hence massive inter-governmental support, or to come up with alternatives. Well Governments are doing their bit but....
So lets as responsible business folk with creative minds come up with some alternatives to the traditional banks.
First is the internet concept of ZORPA
Next is anybody's best guess. Please lets come up with some solutions.
Over to you.
John Burke, Ecadamist, and International Worrier!
BOE Cuts Rates by 1.50%
After one of the most hotly debated rate decisions in recent times, the Bank of England delivered its largest interest rate cut in 15 years today, slashing the UK base rate by a full 1.50% to 3.00%, in an effort to shield the ailing British economy from the fallout of the global credit crisis. The move follows on from last month’s coordinated 0.50% cut with other major Central Banks, as the credit crisis increased its stranglehold on the global economy.
Faced with mounting evidence that the UK economy is headed for recession, the Monetary Policy Committee has come under increased pressure to take more decisive action. Earlier this week Britain’s service sector, the backbone of the UK economy, was seen contracting at its sharpest rate on record while factory output posted its longest decline since the 1980’s recession, heralding further job losses. However, the most influential of recent developments was the sharp contraction in third quarter GDP, confirming the UK economy is on the brink of a recession, sharply reducing consumer and business confidence for the coming year.
Recent comments by Governor Mervyn King stating that “it now seems likely that the UK economy is entering a recession” signals further monetary easing is in the pipeline.
Major Interest Rates
Major Interest Rates
US Fed Fund Rate 1.00% 29th Oct 2008
EU Min. Bid Rate 3.75% 8th Oct 2008
UK Base Rate 3.00% 6th Nov 2008
Source: HIFX Financial Services Ltd
Faced with mounting evidence that the UK economy is headed for recession, the Monetary Policy Committee has come under increased pressure to take more decisive action. Earlier this week Britain’s service sector, the backbone of the UK economy, was seen contracting at its sharpest rate on record while factory output posted its longest decline since the 1980’s recession, heralding further job losses. However, the most influential of recent developments was the sharp contraction in third quarter GDP, confirming the UK economy is on the brink of a recession, sharply reducing consumer and business confidence for the coming year.
Recent comments by Governor Mervyn King stating that “it now seems likely that the UK economy is entering a recession” signals further monetary easing is in the pipeline.
Major Interest Rates
Major Interest Rates
US Fed Fund Rate 1.00% 29th Oct 2008
EU Min. Bid Rate 3.75% 8th Oct 2008
UK Base Rate 3.00% 6th Nov 2008
Source: HIFX Financial Services Ltd
Friday, 24 October 2008
Empty Property Tax is Hurting - No Suprises there!
Call to end tax on vacant properties
A group of the largest property owning companies have called on the government to scrap or amend legislation covering business rates on empty properties in the pre-Budget report.
Companies began paying full rates on vacant properties for the first time this year, following an initial grace period. It has been criticised as an extra financial burden on an already struggling property sector.
Many companies and organisations outside the sector also own real estate, including pension funds. Local councils have suffered as they also pay tax on empty properties. Campaigners say the tax is stifling regeneration.
The letter to Gordon Brown has been signed by companies with a combined market capitalisation of £370bn.
These include companies from AstraZeneca and McDonald’s to Next, Tesco and Nokia, as well as Land Securities, British Land and Canary Wharf.
Segro and Brixton, among the other supporters of the letter, which was collated by the British Property Federation with Property Week magazine, estimate that the tax will cost them £8m and £5m this year respectively.
The letter asks for a 50 per cent relief on the tax for shops and offices for two years, and an indefinite stay on industrial buildings.
The government scrapped a former relief for empty properties in April. It estimates the move could generate up to £1bn in extra revenue.
The Communities and Local Government Department said: “There are no plans to reverse the changes to empty property rate relief introduced on April 1. However, as with all taxes the position is kept under review and the government has engaged with industry and local authorities to understand how the reforms are working overall.”
Ian Coull, chief executive of Segro, said: “This outrageous piece of taxation is hitting the whole of the British economy at a time of severe downturn.”
Source: FT; By Daniel Thomas
Published: October 23 2008 22:47 | Last updated: October 23 2008 22:47
A group of the largest property owning companies have called on the government to scrap or amend legislation covering business rates on empty properties in the pre-Budget report.
Companies began paying full rates on vacant properties for the first time this year, following an initial grace period. It has been criticised as an extra financial burden on an already struggling property sector.
Many companies and organisations outside the sector also own real estate, including pension funds. Local councils have suffered as they also pay tax on empty properties. Campaigners say the tax is stifling regeneration.
The letter to Gordon Brown has been signed by companies with a combined market capitalisation of £370bn.
These include companies from AstraZeneca and McDonald’s to Next, Tesco and Nokia, as well as Land Securities, British Land and Canary Wharf.
Segro and Brixton, among the other supporters of the letter, which was collated by the British Property Federation with Property Week magazine, estimate that the tax will cost them £8m and £5m this year respectively.
The letter asks for a 50 per cent relief on the tax for shops and offices for two years, and an indefinite stay on industrial buildings.
The government scrapped a former relief for empty properties in April. It estimates the move could generate up to £1bn in extra revenue.
The Communities and Local Government Department said: “There are no plans to reverse the changes to empty property rate relief introduced on April 1. However, as with all taxes the position is kept under review and the government has engaged with industry and local authorities to understand how the reforms are working overall.”
Ian Coull, chief executive of Segro, said: “This outrageous piece of taxation is hitting the whole of the British economy at a time of severe downturn.”
Source: FT; By Daniel Thomas
Published: October 23 2008 22:47 | Last updated: October 23 2008 22:47
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