I promise that I had no idea about this story yesterday, when I wrote my previous post about why the recent increases in house prices were based on very low volume and would not last very long at all. As if by magic, today we see a report from leading property website, Rightmove, which claims [...]
So, that was it. The worst recession in living memory is, if you believe the latest government think tank reports, now over. The recession that Alistair Darling said would be the worst for 60 years (and he recently revised that estimate upwards to 100 years) has passed with nary a whimper in real terms.
True, if [...]
This is an article that I could have written a few months ago, when the Bank of England stated its intention to begin ‘queasing’. But it has become rather more relevant now that one of the pronouncements of the G20 summit is that the International Monetary Fund (IMF) will itself begin to ‘print’ additional SDRs (Special Drawing Rights, effectively the IMF’s own currency) which its contributor countries can draw down in the shape of dollars, euros, etc.
Note my use of the word ‘print’ in the above paragraph. The days when first world countries used the printing press to increase the volume of money in circulation have long gone, assigned to eras such as Weimar Germany. Paper and ink are still heavily in use in Zimbabwe, of course, but for countries like the UK, where the notes and coins in circulation account for only about three percent of the total ‘money’ in the system, we’re really talking about digits on a computer screen.
Even so, while the phrase ‘quantitative easing’ sounds nice and strategic, in reality it has a similar effect to printing addition bank notes and throwing them out of the Bank of England’s window into the street.
To take a step back for a moment, let’s look at the main blunt instrument used by policy-makers to control the velocity of money and the rate of growth of an economy: interest rates. Set the base rate low, goes the received wisdom, and people will ‘invest’ their money rather than leaving it idle in a bank account earning nothing (or, depending on the level of true inflation, less than nothing). If the economy starts to run away from itself and bubbles form in a particular investment market, interest rates can be raised, increasing the appeal of saving and reducing the relative gains to be made by investing in speculative markets.
According to the British Bankers Association, the number of mortgages approved by major banks rose in February for the third consecutive month. Happy days are here again! Not quite, despite the rise, mortgages approvals are still close to historic lows and down over 30% on the same period for last year, so we’re not out [...]
The UK property market remains in freefall, with figures from Righmove.com showing the average price of a home in England and Wales has fallen by a shade under 5% over the past twelve months (although Halifax and Nationwide put that figure at 12%). According to the Council of Mortgage Lenders, UK mortgage lending has dropped [...]
According to the most recent figures from the Land Registry’s House Price Index, the average price of a house in the UK fell by 1% in June, leaving current prices just 0.1% higher than they were 12 months ago. At this rate of decline it seems certain that next month will see house prices showing [...]
The big news today is, of course, that mortgage lending has dropped so far through the floor that it’ll soon be burrowing its way to the centre of the earth. No surprises there, houses are still far too expensive for most people and even if you were brave enough to clamber onto the property ladder [...]
Usually on this site I write features about various aspects of the financial system, leaving Lance to concentrate on the current affairs opinion pieces. But it’s becoming increasingly difficult to remain dispassionate.
The financial system is having a bit of a wobble at the moment, rather like that earthquake that hit the UK recently, knocking a few glasses off the shelves and knocking a few minor celebrities off the front pages, at least for a day.
What has been called a ‘credit crunch’, and ignorantly predicted to be ‘over by Christmas’ (though, like the war, nobody states which year), is actually something rather more serious: in all probability it’s a return to normality. Risk is now being priced back into investments, default spreads are widening and, in general, everybody’s paying more for their money.
Which is as it should be. The last five years or so have seen a collective delusion on the part of economists, central bankers (with some exceptions), financial journalists, house buyers and consumers.
Of course interest rates will stay low (never mind inflation). Of course house prices always go up by 10% a year when wages rise by 3% (never mind the impossibility of the maths). Of course it’s different this time (no, it never is). Of course the UK has a miracle economy based on selling financial products and ever more expensive houses to each other, and doesn’t need manufacturing (unlike the Germans, for example).
To use the vernacular for a moment, it was all bollocks.
If you can keep your head while all around you are losing theirs, you’d probably make a good investor.
Times of turbulence on stock markets can be times of opportunity for the savvy investor. Picture the scene last week. City traders losing X billion pounds a day and having to cancel the order for that third gold-plated Porsche. Pension fund managers taking one look at their huge losses and… shrugging because it’s not their money. Uninformed media sources proclaiming the end of the world. Meanwhile, you could have been quietly sitting at your computer, raking in the cash.
Most people are aware that to be successful at investing you should buy low and sell high. What fewer people know is that you don’t have to do it in that order.
Buying low and selling high means that you are ‘long’ a particular entity. For example, if you buy shares in Skullcrusher’s Friendly Bailiff Debt Grabbers Plc at a price of 10p, in the expectation that they’ll reach 50p on the back of increasing debt defaults, you are long that trade.
But you could also sell high and buy low. If you think Skullcrusher doesn’t have much of a future because there’s no money left to collect, you could short the trade; borrowing the shares, selling them at 10p and hoping to buy them back at 2p, for example. In this case you would be short Skullcrusher Plc.