The Finance Thread

[Zag zig]

12 minutes ago, GboroRam said:

Aha! Caught you making up words! This whole thread is just a long prank, yes?

Course it is Malcolm. D'ohh found me out 

Clinky, linky for better explanation than my O'level English allows me 

http://www.etf.com/etf-education-center/21018-why-you-cant-buy-spot-oil-a-guide-to-contango-and-backwardation.html

Quote

That could wipe out any gains in the spot price, or similarly, exacerbate any losses in the spot price.

 

[SillyBilly]

http://www.telegraph.co.uk/news/uknews/12175490/Bankers-have-not-learnt-the-lessons-of-the-Great-Crash.html

Posted this same link in European referendum thread but it is perhaps more relevant here.

Have cut out what I think are the key bits:

In Mervyn King’s mind, the credit crunch was brought about by something profoundly wrong. Bankers had been encouraged to take enormous risks with the customers’ money, enrich themselves and then dump the losses on the taxpayer. Huge pay increases for senior executives had produced a ‘very unattractive culture when clever people started to say to themselves: “I’m smart, I can make money out of people who don’t understand this”.’

Backs up the principle of socialising the debt which is what I talked about a few posts ago. Also, have discussed previously that the complexity of this financial system is a deliberate means of extorting wealth from a general population who hasn't got a clue.

The fundamental problem, he thinks, is that money and banking are the faultiest bits of the capitalist system, failing to allow for ‘radical uncertainty’ about what could happen:

His reference to money is very, very interesting IMO. Clearly, the likes of King and Greenspan would never say such a thing while in office. That should make us worried as privately they are obviously concerned by this fiat currency experiment yet in office they are forced to the make the obligatory positive noises as they acknowledge only confidence supports the currency. And confidence is fragile. Make of it what you will by his statement there.

Britain - without a proper ‘bank resolution regime’ which, says King, ‘could have solved the problem of Northern Rock in a weekend, without fuss’ - was enormously vulnerable. Whereas US banking sector assets were worth only 80 per cent of its GDP, Britain’s were worth 500 per cent, a terrifying ratio.

It is worse now. Nothing has been fixed yet we pretend everything is fine.

The banks resisted at first and ‘The politicians [Gordon Brown’s government] were susceptible to pressure from the banks’

Interesting statement there. So, insider acknowledgement of what we all know, the banks lean on government and government listens.

[SillyBilly]

On ‎11‎/‎02‎/‎2016 at 22:52, SillyBilly said:

3 banks to watch out for:

CitiGroup - US

Barclays - UK

Deutsche Bank - Europe

If I was with Barclays I would be transferring my account to another bank. Noises aren't great from some people I know in the City.

Barclays shares were suspended today. Least secure bank of all British majors going into this. Wouldn't bank with them personally!

[GboroRam]

1 hour ago, SillyBilly said:

Barclays shares were suspended today. Least secure bank of all British majors going into this. Wouldn't bank with them personally!

If a bank goes under is it better to have savings with them or debt?

[LesterRam]

Savings are covered by the government.

[SillyBilly]

1 hour ago, GboroRam said:

If a bank goes under is it better to have savings with them or debt?

The debt doesn't disappear that is for sure! An administrator would be appointed who will sell the debt to another financial institution. Not sure whether the new lender would just transfer you to their SVR or something or whether a certain period of time on your existing rate would be honoured.

As LR says savings are backed by government.

In other news anyway, ECB likely to go even further negative in March (MINUS 0.4%) and/or expand its asset purchase program by another 10 billion Euro/month. Vote EU for strong financial security folks! Rumours around of going into corporate bond market as may be running out of government debt to buy! German bonds are pricing in for it already:

Germany Bund 2 Year Yield

-0.57%

Germany Bund 5 Year Yield

-0.39%

Germany Bund 10 Year Yield

0.14%

Germany Bund 30 Year Yield

0.90%

This is getting beyond silly. The 10 year is not far off negative and the 30 year is less than 1%! Up to 5 years...what can you say? ECB permanently bidding with funny money. How long can this charade realistically last? I really don't know, seems negative rates have no bounds now.

I am hearing/reading increasingly that the big American banks avoided debt write downs in the O&G (& commodities) sector in Q4 2015 (for full year reporting). Wouldn't be surprised to see these booked in Q1 this year to clear the decks. Wouldn't touch a bank stock with a barge pole at the moment.

Stock buy-backs were the highest in Q4 last year since just before the collapse in the last recession. Ominous sign. The stock market buying is essentially corporations buying their stock not far off a market high funded by debt. Enter at your leisure but they have a habit of ramping this up at just the wrong time - placating shareholders when the arse is falling out of their markets and ticking over the stock options for the board. McDonalds $18 billion in the red and returning $20billion to shareholders via share repurchases - putting a permanent bid under its own stock. Nice work.

Silver recently peaked at 84:1 price ratio to gold, can count 3 very brief periods in the last 3 decades when you can find that opportunity. Either gold comes down harder than silver or silver will outperform gold on the upside.

PMI data (manufacturing performance indicator) for February was bad for the UK. Down from 52.9 to 50.8. Below 50 = contraction. 

[GeneralRam]

@SillyBilly Would you say this was the wrong time for me to be buying a house? I've seen one of which I'm tempted to pull the trigger on. I am not going to be shooting myself in the foot if I buy it now and everything crashes will I?

[LesterRam]

19 minutes ago, GeneralRam said:

@SillyBilly Would you say this was the wrong time for me to be buying a house? I've seen one of which I'm tempted to pull the trigger on. I am not going to be shooting myself in the foot if I buy it now and everything crashes will I?

I was saying this to my new neighbour, "welcome to the neighbourhood and are you mad paying out that much"

you can view historical data from here

[GeneralRam]

5 minutes ago, LesterRam said:

I was saying this to my new neighbour, "welcome to the neighbourhood and are you mad paying out that much"

you can view historical data from here

I myself will be paying £170k.......

 

£145,000Terraced, Freehold02 Sep 2013

£133,000Terraced, Freehold12 Mar 2004

£130,000Terraced, Freehold27 Feb 2004 

£121,950Terraced, Freehold 05 Jul 2002 

 

[Stive Pesley]

I'd say it depends on how long you plan to stay there and how much deposit you have. If you're buying for the long term then house prices don't really matter, but if you want to move on in a few years then (depending on your deposit) you could end up in negative equity quite quickly if house prices start to slide

Bear in mind that the sale in 2004 was heading into the top of the market for house prices. They slumped in 2007/08 and have been on a slow rise back ever since, yet already the price now is way above that

I blame the Estate Agents - devils the lot of them

[GeneralRam]

5 minutes ago, StivePesley said:

I'd say it depends on how long you plan to stay there and how much deposit you have. If you're buying for the long term then house prices don't really matter, but if you want to move on in a few years then (depending on your deposit) you could end up in negative equity quite quickly if house prices start to slide

Bear in mind that the sale in 2004 was heading into the top of the market for house prices. They slumped in 2007/08 and have been on a slow rise back ever since, yet already the price now is way above that

I blame the Estate Agents - devils the lot of them

The house seems reasonably priced and wouldn't need much doing to it.

For comparison I could get a 1 bedroom house in the centre of Rugby for £130k... And this is in a cheaper area than the 3 bed house!

[Ramarena]

59 minutes ago, GeneralRam said:

@SillyBilly Would you say this was the wrong time for me to be buying a house? I've seen one of which I'm tempted to pull the trigger on. I am not going to be shooting myself in the foot if I buy it now and everything crashes will I?

It's down to your personal circumstances and ability to service the debt (if you have one), how secure is your job, etc. However personally I would not touch the housing market with a barge pole at the moment. 

This year is the first year of BTL restraint, no-one really knows how this is going to pan out, many are predicting falling prices as BTL merchants dump their stock on the market. On the flip side, we have the government doing all they can to keep the bubble inflated with HTB and other policies, which along with BTL up until this year has led to crazy house price increases returning. 

The future of house prices seems very uncertain in the next 5 years. Personally I want them to slide, as it will be good for not just people like me, but the country at large. However, there will be a lot of resistance from the vested interests who will not want a correction/crash. 

[LesterRam]

49 minutes ago, GeneralRam said:

I myself will be paying £170k.......

 

£145,000Terraced, Freehold02 Sep 2013

£133,000Terraced, Freehold12 Mar 2004

£130,000Terraced, Freehold27 Feb 2004 

£121,950Terraced, Freehold 05 Jul 2002 

 

you have to weigh up low interest rates versus so called rising prices, I was looking at this property here

I was in two minds because it was lower now than in 2005 and was it heading in a downward trajectory, maybe you could leave a bid before the referendum, the prices should be unstable and the owner might feel right to cash in before the result, obviously we are not going to leave the EU but uncertainty will be detrimental to the housing markets.

 

[SillyBilly]

10 hours ago, GeneralRam said:

@SillyBilly Would you say this was the wrong time for me to be buying a house? I've seen one of which I'm tempted to pull the trigger on. I am not going to be shooting myself in the foot if I buy it now and everything crashes will I?

If you're aware and comfortable you're buying into an artificially pumped up bubble, near to the top, then at least you know the risks. I understand its a situation people can't do much about, rent and get shafted or buy at a market top. I think housing is a disgrace and what government has done for the young is nothing short of selling them into slavery (while pretending they're helping).

London and the SE is going to fall hard, I haven't got a crystal ball but I'd bet it won't continue for much longer. I've said before it looks like we're in late 80's Japan mode (they're ahead of us in this game by a generation), prices going to the roof having only ever gone up for decades. This sets a strong confirmation confidence bias as people (within living memory) only believe houses can go up, like its asset with some kind of special dispensation. Fact is some economic trends last decades. This cycle of house price increases is merely a 40 year credit cycle (from the time the world became fully fiat and fractional reserve banking took off). This credit cycle is now peaking (max debt) and wants to turn deflationary which is natural. House prices are determined by the credit extended against them. We are already at the limits of what people can borrow to buy a house for. That is confirmation we are at or very near the top.

It is a classic bubble and every single bubble in history pops. Japan popped big in 1989 and it killed a lot of property speculators betting on Toyko (as they do London now). Classic idiots buying at a top, assuming that the previous 30 year performance is the next 30. It is often the opposite.

If you look at the graph below you will see you that that Britain's average house price is distorted by London and the SE (fairly moot point but it demonstrates the scale). Forget nominal house prices, IMO you judge the cost of a house by its multiple of the median salary in the area. Its a local market at the end of the day. I tend to think:

3 or less - Fair value/Cheap

3-4 - Affordable

4-5 - Overpriced

5-6 - Bubble (hard landing)

6+ - You will be financially ruined in the goodness of time

The North, Scotland and Wales is generally reasonably priced. The Midlands is in the overpriced category in my view and a but bubbly in certain areas. SE/London bats**t crazy.You just have to know that probably at least 20% or so of the "value" of your £170k house is by virtue of a sick economy on 0% interest rates and ridiculous government intervention like "Help-to-Buy" (and even Housing Benefit which is a landlord investment subsidy). Is this sustainable? Take your bet.

"Help-to-Buy" is merely a money transfer from buyers to owners and is responsible for the bulk of the increase in prices since the recession. Help-the-Boomers it should be called - young people get into debt to cash out a very lucky owner's unearned paper wealth. Remember to thank Dave for your slavery.

Its going to be a generational thing I am afraid. People who bought houses from the 60's onwards have been very fortunate. You need somewhere to live and you need to buy now or within the near future...what can you do? I think its a personal decision at the end of the day and wish you well in it, either way. You're intelligent enough to know whether its affordable.

FWIW I really don't like analysing housing in an economic sense actually- I am a believer that housing is not an investment vehicle but a basic human need. Just a pity that so many people's income/pensions in the U.K are invested in extorting as much wealth as possible from others for an essential need. I welcome GO's reforms, it was getting a bit too much like feudalism with boomers cashing in equity from house purchases of years gone by and leveraging up on a portfolio to the misery of all their frivolous tenants. Astonishing business acumen to pull off, I think we'd agree.

[SillyBilly]

I see our housing market like a currency peg. You lose eventually. A peg is an admission that fair value based on a market of buyers or sellers can't be allowed - so you fix it to give you what you want. We do the same with housing - manipulate interest rates and underwrite FTB's deposits with government money. It basically fixes the market by putting a bid price under it with cheap borrowed money. Up until the point of affordability that is. Or interest rate shock (rout on government bonds?). All currency pegs fail (Saudis will too, just like everyone before it) and so will our housing market. Basically you run out of money to support the peg or fix. The U.K government might try to underwrite an ever increasing % of the mortgage market to keep the market up but eventually you run out of ammunition - then the free market will destroy all that effort in a single afternoon when a buyer meets seller at fair value or exchange. They never learn!

 

[Zag zig]

1 hour ago, SillyBilly said:

FWIW I really don't like analysing housing in an economic sense actually- I am a believer that housing is not an investment vehicle but a basic human need. 

Cut everything else out, that's pretty much all you really need to say.

When people start regarding property as a home and somewhere to live, rather than an investment, some normality will come back into the housing market.

Mortgage affordability should be judged on perceived personal income creation of whatever form and the need to live somewhere within such means. Buying property to make money is totally different to the home is my castle concept of home ownership. One is pure speculation, the other is setting down roots and therefore what happens to house price movements becomes less relevant, so long as you can continue to service any mortgage debt. Even better if you don't need mortgage debt because then the rise or fall of your home is largely irrelevant, providing you are setting down roots.

[SillyBilly]

41 minutes ago, Zag zig said:

Cut everything else out, that's pretty much all you really need to say.

 

Damn - could have saved myself 20 minutes!

I do think though that its a combination of government policy, a lecherous banking system and rife property speculation, all contributing in broadly equal measure to insane prices. Perfect storm really. Ironically I think immigration is actually a side-show to the former 3 in setting prices which shows how out-of-kilter it is! Only skim-read earlier posts but agree with whoever said about waiting to see what happens after GO's landlord tax relief reforms - makes good sense. Might be a storm in a tea-cup, might be some real selling from those who are heavily leveraged (no sympathy). I have seen the calcs demonstrated quite aptly elsewhere of what some of these foolishly indebted souls stand to lose. Free meal ticket might be ending for some of them.

[SillyBilly]

12 hours ago, StivePesley said:

I'd say it depends on how long you plan to stay there and how much deposit you have. If you're buying for the long term then house prices don't really matter, but if you want to move on in a few years then (depending on your deposit) you could end up in negative equity quite quickly if house prices start to slide

Bear in mind that the sale in 2004 was heading into the top of the market for house prices. They slumped in 2007/08 and have been on a slow rise back ever since, yet already the price now is way above that

I blame the Estate Agents - devils the lot of them

I agree, prices are ridiculous but apart from the SE/London the rest of the country is generally not in a bubble as we were in 2007. You can't compare nominal prices in our financial system as currencies don't stay static to allow them to be made. Adjust for inflation and:

2015 Q4 £197,044 £197,044

2007 Q3£184,131 £231,141

So nominally the average was £184,131 but in real terms it was £231,141 in today's money. So we're behind the peak, in theory this could get much worse if the London bubble is exported nationwide.

Just for interest to show how context of prices depends on what you value it in (picked random date):

In Q4 1975, average house price was £11,288. The price of gold averaged $139/ounce in 1975. Or about £58/ounce at the prevailing currency exchange rate at the time. So it would cost you 194.6 ounces of gold (£58*194.6) to buy a house in 1975.

Q1 2016. Gold closes today at £880.43. So if you had held those 194.6 ounces of gold all those years you'd now buy £171,332 of house today. In other words, it buys you broadly the same in 1975 as it does today. Gold doesn't lose value (it will fluctuate up and down against currencies so sometimes a little more or less) but it holds its purchasing power. Compare that to your £11,288 that bought you a house in 1975 and what it buys now, not even a new car!

That is how destructive inflation is and why you can't even compare back 5 years without running the calculations. It is the slow stealth task. And you can also probably see why there are lots of gold bugs around when our currencies are basically becoming more worthless by the day. 

[Zag zig]

34 minutes ago, SillyBilly said:

Damn - could have saved myself 20 minutes!

 only skim read myself, that one sentence stood out in my world.

Dont get me wrong, I've speculated in holiday lets, but more for income generation and I wouldn't spend insane amounts to fund purchases; largely self generated. My main point though is if people stop classing the place they live as an asset, then price movements should not worry them, providing they can sustain their lifestyle through whatever income they generate.

[Shang]

It's going to be hard to change decades of thinking that houses are assets rather than essential to live.

So ridiculous.