Economics and Finance for donkeys

Rents are too expensive, according to Shelter. And STILL they cannot make the most basic correlation

2011-10-13T08:40:00.000+01:00

One of the "hot" topics in the news this morning was the Shelter report on unaffordable rent. See BBC story
Despite stating the bleeding obvious - rents are too expensive for "hard working families" - nobody dares mentioning the big white elephant in the room again: housing costs.

The general direction of the comments is correct, but it is as if there is a collective conspiracy in the media which prevents from mentioning high house prices as a BAD thing, and instead focus on the opposite:

Rents are too high? Lets' cut red tape for landlords. Wonderful! As if speculators need any more help.
People can't afford rent? It's because the nasty tories cut housing benefits. Nothing to do with housing benefits ending in the pockets of speculative landlords and rising up prices in the first place, of course.
Not enough houses around for rent? Let's build more. Great! That's what the government should do. Except, they are inviting the big builders to the party and only "some" - we are not allowed to know how many exactly - of the 100,000 houses which will be built between now and 2015 will be assigned to social housing or rental schemes. A tiny drop in the ocean. I guess you can't displease the NIMBYs.

Some 38% of the people interviewed claimed they have to buy less food in order to pay the rent.

And instead of using the freshly-printed money to create adequate social housing, the government (and the Bank of England, of course) decide to give it to the banks.

Amazing.

Greece defaults, but let's just call it something else

2011-06-28T08:18:00.001+01:00

FT's Martin Wolf this time made me spit my coffee by explaining that Greece is not "technically" defaulting, but needs substantial help now, especially with paying for real goods and services. He seemed to suggest that buying time was the only option other than letting Greece go straight into depression. As for what to do after the (very expensive) time bought runs out? Nothing. Just the usual tripe about improving the internal economy and setting up themselves for growth. Which everyone knows it's not going to happen. 80% of the Greek people want to default now. Let them have it.

The reality is that no one is really interested in the Greek people. That much is clear. After all, the public sector workers there are enjoying pharaonic salaries, early retirement, perks and very little work to do. Why would they want to change? Economic illiteracy is rife in Wall Street, so no surprise it's the same in Athens.

The finger is on the pulse of the banks - German and French for that matter - which are the holders of the gigantic Greek debt and are not able to sell it to anyone, let alone willing to roll it over without guarantees from the EU-IMF.

Martin Wolf is right on one thing. No one will buy new Greek bonds. Their interest is higher than a very expensive credit card. So the only choice is to perform some "Burden Sharing", which means that the entire circus - that is private banks, pension funds, governments and some private holders - are (forgive my graphic description) having each other by the balls, in circle. In that case, no one can really squeeze.

This means that, de-facto, the debt will be rolled over with the hope that Mr. Papandreu and his team can modernise Greece and align its public sector with the best-run in Europe. This means, for Greek people, to accept German ways of running the public thing and a seismic cultural shift. It looks like the Greek PM has only days to achieve that.

Will he succeed? The markets think otherwise.

Cheers

Help for First Time Buyers? Not quite. Let's call it "help for Failed Troubled Banks (and Builders)"

2011-03-23T08:33:00.000Z

The news is that George Osborne is about to unveil a rather minuscule (£250m) plan to "help" First Time Buyers obtaining a mortgage and keep the construction industry going. Some interesting thoughts are being expressed on Ian Cowie's Personal Finance Telegraph Blog , and they seem to focus on the fact that the easiest way to help a house buyer is to allow prices to fall. That's market forces, for you and I.

However, the dragon has not been slain yet. Many people are still brainwashed into thinking that ever-rising house prices are a good thing. Perhaps the same people whose jobs are being exported to Poland by Kraft (once Cadbury), hope for rising house prices and do not see that the site where they used to think they had a future will be closed so that someone can build 600 houses on the land.

Osborne's plan is no more than a token gesture, albeit a potentially dangerous one for those involved. The levels of personal debt in the UK are staggering already, and are certain to get much worse with the higher university costs and lower wages imposed on the economy by foreign-based competition.

So, why wasting money to saddle these people with more debt (up to 20% of the value of the asset) than the banks think they can afford? Why not let the banks take the risk? Obviously, if the lender is not prepared to offer more than 75% of the value of the house, this means they are assessing a risk and they believe it's not worth going any further.

I believe the reasons behind this plan are mostly political. Osborne knows the housing market is not going to recover any time soon, but also knows he needs to appease a certain demographic. After all, when the data will show houses have kept collapsing in price until they are really affordable again, he will be able to say he did all he could to keep the market going.

Cheers

Don't call it Inflation, then!

2011-02-25T11:49:00.001Z

To the typical economist, or specifically, the members of the Monetary Policy Committee, Inflation is an abstract concept which is broadly associated with the amount of money supply present in the economy. To give you an example, In this Guardian Article, Mr. Adam Posen seems to strongly disagree with Andrew Sentance on the inflationary risks approaching the UK, simply because "wage growth is set to stay low for the next two years".

It is staggering that someone in his position still misses the elephant in the room, which is that Inflation (or what shall we call it? cost of living, disposable income, money left before next payceck?) is a function of BOTH the rise in prices AND wages, BUT these are only remotely correlated if you look at where the cost increases come from. It's not rocket science.

Commodity costs are NOT driven by wages in the UK. Raw material costs are neither. Unfortunately, in the 2011 global markets world, they are not even pulled by wage levels. To summarise this in layman's terms, if petrol rises in prices wages will not follow. Is this not inflation?

This all boils down to interest rates levels, of course. The MPC (until now) has ignored inflation for the last 2 years waiting for the banking system to be recapitalised. During this time, the banks have taken public money and, in the absence of the subprime bubble, have instead focused their speculative efforts on commodities. This is why your petrol and your bread cost more. We are a lot poorer than we were in 2008. This, in my dictionary, is inflationary (or theft, but let's not digress).

Bottom line: raise the bloody interest rates. Purge the system. Liquidate and allocate resources where they can be productive. Reward savers. Milking a dead cow is not good practice.

Cheers

Welcome the inter-generational mortgage. What could possibly go wrong?

2011-01-12T08:43:00.000Z

Nice, this is an inter-generational debt load. Very good. Hopefully now Cameron will be satisfied with the fact that the banks are lending again.

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/8253567/Hitachi-to-offer-50000-loans-to-parents-of-home-buyers.html#

The truth behind this is that the Bank of Mum and Dad is bankrupt due to property prices returning to a normal level and there is no equity to be withdrawn for the offsprings' deposit. Well, Hitachi is nice enough to lend it to the boomerss. What could possibly go wrong?

Another bite-sized evidence of the Media waking up to reality

2010-10-26T08:24:00.000+01:00

As I gave a quick glance to the "I", the new condensed version of the "Indie", my eyes caught the headlines and this article Mortgage Approvals and the Double Dip , where David Prosser tries to understand the staggeringly-bad BBA mortgage approval figures for September 2010

The analysis is just usual drivel: Double dip, Government cuts, Regulation, blah blah blah. However, there is a glimmer of hope that reality is finally dawning on the Media (except the BBC embargo on bad news, we can't have that, Sir).

When referring to falling house prices, the autor reflects, "Is this necessarily a bad thing? After all, it would make houses more affordable, and that might be welcomed by a generation which is going to emerge from higher education with mortgage-sized debts (if they can get in in the first place) and the pain of having to pay for the mistakes their parents made. Many of them will be retiring on index-linked, final-salary pension schemes that are now history in the private sector (and probably won't last long in the public sector). "

Thank goodness for that!

Naturally, the article reverts to form with a very unnecessary clarification that the housing market has a huge impact on confidence, as it affects Retailing and it's an important part of the British Economy. There it is, the National Spirit, in all its glory. Please people, keep drowning in debt to keep houses unaffordable. That's what I read from it.

Anyways, it's a small sign. Let's see what the Nationwide and Land Registry figures bring us this Thursday.

Cheers

A film I really want to see "Inside Job"

2010-10-21T08:30:00.000+01:00

As I quickly scan the morning online papers (Religiously - Telegraph, Repubblica, Corriere, FT, Housepricecrash.co.uk and so on) I noticed this article about a film which was screened at the 2010 Cannes Festival and I think I found something interesting: I am referring to "Inside Job", where the 2008 financial crisis is seen from the point of view of the "lack of prevention", or more accurately, the deliberate establishment of a bubble-ridden system.

According to Slant Magazine , the film is well worth watching, and described as "essential viewing".

Well, since I have been railing about the connivence between the US Government and its Financial Regulators with the big-wigs a the main banks in the bubble-creation experiment of the latest decade, I will certainly enjoy this movie/documentary.

I shall post my comments afterwards.

Cheers

The Crash Cometh

2010-10-07T21:19:00.000+01:00

It is with immense pleasure that I comment the latest Halifax HPI release Link .

If you don't live in a cave or are an Estate Agent in denial, you'd know by now that the September HPI figure was a staggering -3.6%, or to quote the telegraph, " The UK housing market has suffered a shock as figures from the Halifax revealed the average price of a property dropped more than £6,000 in September".

This is great news, as the fall happened in a month where normally there is quite a lot of activity in the market. If this is representative of the future, brace yourselves.

I've been saying for a long time that the market is over inflated and prices are unaffordable. What we are seeing now is just the inevitable knocking at the door.

So, Nick Clegg, is debt good or bad? You're confusing us

2010-09-21T08:37:00.001+01:00

As I watched the news last night, I was mildly reassured by Nick Clegg's remarks on debt, and how the Country must reduce its spending because it's criminal to pay some £70bn in interest payments alone (should the Labour spending plans have gone ahead according to him). I thought "good", this is on the money, and off I went watching a very fine Chuck Norris film on another channel (It was the Cold-War propaganda-led "Missing in Action", with massive chest hair, beard and all) and thought nothing of it.

This morning, as I briefly scanned the Telegraph web page, I read this

http://www.telegraph.co.uk/news/newstopics/politics/liberaldemocrats/8014054/Councils-to-be-given-powers-to-borrow-millions.html

To summarise, Clegg suggests that Councils are given borrowing powers to fund infrastructure and other "big" projects. All I can see is a repeat of the US model whereby hundreds of Local Authorities are going bankrupt or on the verge of it (To name one, Los Angeles).

The fact is, if you allow them to borrow, they will almost certainly borrow too much, as it happened in every single case study.

The inevitable result would be the increase in local taxes. Yes, our beloved Council Tax. I deliberately avoided to mention the funding method of-choice, which is "Loans would be secured against the increased income from business rates expected to be generated by the large-scale schemes", because it seems obviously impracticable.

I simply cannot see Gateshead Council embarking in Aerospace infrastructure or a Biotech campus. What this will do is to fund another mini commercial building bubble which will result in even more commercial empty space. Look around your trading estates and tell me if you feel the need for more infrastructure...

Bad idea Clegg. And please go revise the principles of Economics.

Essential viewing

2010-09-04T17:59:00.003+01:00

Overdose

Enjoy

Bernanke and the printers' flawless logic

2010-08-27T15:33:00.000+01:00

A short post to summarise "Helicopter" Ben's approach to the miserable failure of the Printing Money Programme, Round 1.

In synthesis, QE1 failed. Thence roll on QE2. What makes them think it will work?

I shiver when I hear the policymakers refer to "non-conventional methods". I know this means impoverishment for most, through push-inflation.

To make an analogy to the "print money-method", I would say that trying to cure a debt problem by creating more debt equals to trying to cure a drug abuse problem by prescribing more drug.

It will end in tears.

Inflation? What Inflation?

2010-08-12T08:35:00.001+01:00

It appears Mervyn King has now decided to stop treating us with contempt and come out clean about inflation. For the past four years he's been commenting on "immediate spikes of inflation with a tendency towards deflation in the medium term". Well, something along those lines. Remarkably, out of 52 months worth of forecasts, he managed to get it wrong 42 times. That is quite an achievement.
Except, I believe he has done this deliberately.
Bear with me on this one, please. If you decide to undertake a gigantic programme of Quantitative Easing (print money), bail out the banks (swapping their toxic assets for more printed money) and slash interest rates to the lowest level ever, you must choose your words carefully when you try to reassure everyone (Markets, People, Governments) that this is not the equivalent of planting the seeds of Hyperinflation.
I believe Merv knew all too well the Pound was going to lose some 25% of its value quickly, and possibly more, as well as the fact that importing inflation was inevitable and it would have to be managed somehow.
That's why you have a list of inflation forecasts that scream for vengeance. If you multiply the real inflation with the forecasted one, you'll see how much we have been impoverished by.
He has now admitted inflation will stay "somewhat high". Thanks for telling us. But do not be fooled by this. Watch his hands and do not listen to what he says, as the man is planning another massive round of money printing and further bailouts for financial institutions which have continued to operate as if nothing happened in the summer of 2008.
I expect the economy to hit the buffers again around Q1 next year, just in time for the 2011 bailout.
After all, the FED across the pond has already started.

Cheers

Surprise! An article in which it is finally understood that falling house prices are a good thing!

2010-08-11T10:53:00.002+01:00

Well done Tracy Corrigan, for finally stating the bleeding obvious in this article in the Telegraph.

Although it still misses some of the key points, it is still on the money.

Could we possibly have just witnessed the turning point in the Media, whereby the mantra has changed from "house prices soar = good, house prices fall = doom"? Not quite, but the oil tanker has stopped and its nose is starting to point in a different direction.

Let's hope this gathers momentum.

Cheers

A Reality Check? Here comes the "unexpected" Double Dip.

2010-08-10T09:12:00.001+01:00

Predicting the incoming "new hangover" for the global (especially Western) economy was as difficult as predicting rain for August in Newcastle; not very.

Considering the amount of stimuli most governments have applied to the global econlomy, it was a given that at some point the effect would wane off and the bad news would come back to the surface.

Very few of the core issues have been tackled. The elephant in the room, getting bigger by the day, is still DEBT. I write it in capitals because lower case is not sufficient.

Krugman & co. believe they can print they way out of misery, basically forgetting they are dealing with human beigns whose actions can always be rooted back to the two basic functions of our behaviour: Escape from pain and the search for joy. A bit binary, I concede, but it all boils down to that.
This morning many Britons woke up and had to face news of falling house prices, which for the average person is nearly fatal, as they see their houses as nest eggs and a compound for their pension.

According to the RICS, demand for houses is falling, and that means falling prices. This should be reported as good news, considering that high house prices are the main hindrance to a competitive economy, together with excess taxation and too much red tape.

Instead, the usual commentators inevitably link a negative HPI figure with a negative outlook for the society at large. If people do not spend on big-ticket items they show no confidence in the system and are showing a negative outlook towards their future wealth.

This is, pardon my French, crap. The reason they do not buy houses is because they can't raise the finance. The only ones buying now can be summarised in the following categories:

Cash buyers
Above-average earners
Recipients of the "Bank of Mum and Dad" deposit gift
Buy-to-let dreamers

The rest of the potential buyers cannot get a mortgage for an acceptable house because they have CCJs, huge credit card debts, student loans and no cash deposit saved.

The market will correct until these people have some cash saved and prices are within their reach. Or better, within the criteria for which an old-fashioned bank would decide to give them a mortgage.

Daily Mail - Good comments.

Megadeth - Foreclosure of a Dream

"I saved your neighbour from foreclosure by destroying your pension, vote for me!"

2010-08-09T08:16:00.000+01:00

Could this be the biggest moral hazard ever?

From Reuters Obama to pay underwater mortgages

No comment.....

Let's all wait for the next round of "printy printy".

"Shortage of buyers" makes house prices fall. Nothing to do with the prices being too hig, surely.

2010-07-29T10:02:00.005+01:00

While I was listening to Radio4 this morning, I heard the commentator mentioning a "shortage of buyers" to justify the much-anticipated (see all my previous columns or http://www.housepricecrash.co.uk/) fall in property prices for the latest Nationwide HPI index http://www.nationwide.co.uk/hpi/.

This seems to me a perfect mirror reflection of the mantra which was pretty much en-vougue during the price rises, "shortage of properties", that is.

As I mentioned in this blog previously, the Housing Market in the UK is not solely reflective of the pure law of supply and demand. Price and availability of credit are equally important, and most of all, the people's perception of acquiring an asset which is not going to lose them money (let alone not making them paper-rich).

I am quite confident this is the start of the next leg down in the price-slide. There isn't a single factor to support rising prices now (except perhaps the all-time low interest rates, which can only go higher, and boy will they go higher once inflation kicks in), and having a negative number in June is a massive signal. What ever happened to the "spring bounce"?

For the few readers of this blog, please do spread the word that these are THE good news. Housing costs are the main hindrance for a competitive Britain. A cheaper house makes the next one up the ladder cheaper for you to get to, as the gap would be narrower (remember my post about humans and their incapacity to comprehend the exponential function?).

Cheers

The Stress-less Stress Test

2010-07-21T11:51:00.002+01:00

It appears the Banks and the BCE went through the much-anticipated stress test Bloomberg link, without really considering any "nasty"scenarios.

They seem to have avoided testing the eventuality of a Nation defaulting, which, in my humble view, is an absolute certainty - yes, I am referring to Greece.

What does this mean? Could it be the stress test was just a window dressing exercise to appease the markets and buy some more time?

Never!....

Krugman-Wolf or Bonner-Schiff?

2010-07-20T09:54:00.002+01:00

Apologies for the cryptic title, but I am quite fascinated by the two opposing schools of thought on how to tackle the current worldwide financial crisis.

On the one hand, Nobel Prize Paul Krugman and FT's big shot Martin Wolf (plus Mr. Helicopter Ben Bernanke) are in favour of further stimuli to avoid the so-called Double-Dip. To try and give a quick and dirty explanation of their theory, they want the US and all major economies to print money and inflate the problem away. Their biggest fear is a deflationary spiral, in which everything loses value and consumers, governments and companies chase prices down, divest and ultimately end up trading pebbles or golden teeth for firewood. They seem to believe that injecting further stimulus (in other words, increasing the existing debts) will not result in a debt-based apocalypse. They never got round to explain this sticking point thought.

On the other hand, you have those whom seem to advocate Austerity, or, if you prefer to look at it from a detached economist's point of view, pure capitalism. They do not fear the deflationary Maelstrom, as they sustain it will self-correct once prices reach what people are able to pay with their own money, after they have cleared enough debt. They see debt as the main hindrance to economic recovery, and support policies designed to de-leverage the overburdened consumer and countries and wish for a fresh re-start.
That's where the views of Peter Schiff (currently running for Senate in the US) and Bill Bonner of the Daily Reckoning seem to be firm on.

Considering that historically, with the exception of the 1990's Japan (which is only relevant to some point), all debt crises have been tackled with more debt until default, it is difficult to see how the Schiff-Bonner school of thought can be put into practice by the Policymakers.

This is, in my view, unfortunate, as delaying the pain will only cause bigger problems down the line. The Greek debt is not repayable, nor is the Hungarian one. Ireland, despite "draconian" cuts, just received a downgrade.

History teaches us humans are only able to take a step change once they are in absolute peril. We're not quite there yet. Yes, jobs have been lost and houses have been repossessed, but the party is still going. The band in the ballroom of the Titanic is still playing waltzer for the 1st class passengers. But the hull is sinking further into the cold waters...

To summarise this post, I expect more debt to be created until it can't be serviced anymore. At that point, we'll have a global default. Some gold hoarders will be very happy, most will suffer, humanity will get through this and perhaps take a small evolutionary step and we'll be off again chasing another bubble, still failing to understand the exponential function

Cheers.

A few thoughts on the Budget. As that Slayer song goes "Here comes the Pain"

2010-06-23T09:37:00.001+01:00

One of the basic techniques in Neuro-Linguistics-Programming (Wikipedia definition) works around the principle of "reverse expectations". For example, if somebody told you you’d won the lottery and were about to pocket 10 million Pounds, you'd be well annoyed to find out the price was in fact "just" 100,000 quid. Along the same lines, if you get summoned by a Court of Law for a nasty speeding offence, and expect a ban and a few grand worth of fines, you'd be chuffed with your 3 point deduction and 200£ fine.

It appears George Osborne knows this well, and employed this technique for the build-up to his first budget as a Chancellor.

The axe came down all right, but, except for the "unavoidable" VAT increase, there was no 50% Capital Gains Tax or too many other draconian measures which would have caused mayhem between civil servants and the like.
Still, his very generic 25% departmental budgets cut plan looks scary enough. Who'll be getting the chop?
The other point is the approach to inflation. I believe Osborne knows he won't be able to manage the inflation target, or better, Mervyn King and he both know this. With inflation at - say - 4% and a lot of public spending capped at 2%, he'll be cutting budgets in real terms by quite a lot.
Moving on to other areas, there could be some "unexpected" repercussions on housing, as the CGT tax hike to 28%, coupled with the cap on housing benefits could persuade a fair number of Buy-To-Let speculators to head for the exit. With inventories rising, this could mean more good news for house prices, as they might start to deflate even faster than they were going to do anyways.
The critics have been eager on the "save the recovery" argument, and railed on the danger of a "double dip" recession caused by the austerity. As I mentioned previously, today's GDP growth is not organic, but driven by years of excess and debt build-up. Yes, Paul Krugman's acolytes would have probably managed to keep the boat afloat for another few years, but the final bill would have been even greater.

The mythical Recovery cannot be locked-in

2010-06-09T08:49:00.001+01:00

One of the main arguments against immediate public spending cuts is the risk to damage the recovery, or, in other words, the deliberate decision to send various GDPs tumbling back into the red.

In principle, the argument stands: as a en economy falters, the government - any government - introduces various stimuli such as car scrappage schemes, boiler renewal programmes and even resort to print money through quantitative easing. That, in theory, jump starts the economy and in no time voila', we're back in black, with maybe just a little bit of inflation, which does not hurt anyone.

The problem nowadays is that western economies are no longer functioning according to the classic fundamentals of supply and demand, and, with the partial exception of Germany, rely massively in cheap imported goods and ultra-cheap credit to buy these goods.

Private and Public levels of debt are now so high that any attempt to cure a debt problem with a money shot is due to fail. As the patient becomes gradually more tolerant to the medicine, the dose needs to be increased until it becomes counter-productive. Looking at the eponential growth in size of the recent bailouts, we are getting there very quickly.

What is being described as recovery by media and government bodies is basically the effect of the money shot. It's the high after the drug injection. None of that is structural, organic return to economic growth, as the growth we've seen from 2001 onwards has been artificial itself.

The crucial point is that, no matter what politicians do now, the double-dip will happen anyway. The only way to avoid that on paper is to print so much money to hide the disaster through inflation. But that would be even more painful than sending government departments through the equivalent of the diet Ronnie Coleman used to go through before winning his 8 Mr.Olympias.

The human aspect of this is of course critical, but we should not forget why we are here in the first place. The global economic model based on cheap goods and credit was unsustainable.

It still is.

So, where's the hype on the Halifax May House Price Falls in the media?

2010-06-04T13:27:00.000+01:00

It is no mystery that the entire UK media is obsessed with reporting a rosy picture of the UK housing market, no matter what happens in the real world, and I am never surprised by the amount of spin the usual reporters put on any given set of figures.

What baffles me is the bovine stupidity of their readers/viewers/listeners, whom seem to be only willing to listen to "good" news.

Leaving the "house prices increasing = good" fallacy aside for a minute, I would like to focus on the latest reports by the two big mortgage lenders, Halifax and Nationwide.

Yesterday, Nationwide reported a monthly 0.5% increase in house prices in the UK for May, and all the media industry was on it immediately like a rash, as if it was an absolute priority to report this negligible piece of information.

Today, Halifax reports a -0.4% fall in HP for the same month and - guess what? - barely any sign of it in the media.

I guess the Express reader does not like to read about his "nest egg" or "pension innit" getting devalued.

I, for one, am quite annoyed about this.

Cheers

UK Housing Market still dead slow. Let's play the spin game

2010-06-02T10:16:00.000+01:00

According to Yahoo, the Mortgage Approval data for last month appears to ba still weak, with the addition of the decrease in unsecured lending.

I expect the spin to be focussed on the General Election, but would like to play a little game and offer some tips to the usual spinmeisters: this is how you can spin low figures all year sorted, here you go:

Jan/Feb/Mar - it was the snow

APR - It's the run up to the election

May - It will be the election again

June - Poor debtors-would-be scared of bad George Osborne's budget and the world cup

July - It was the budget and the world cup

August - People are on Holiday

Sept - The tories have brought a double dip recession

Oct - It's the Rain/Uncertainty of the Euro

Nov - normal low seasonal activity

Dec - nobody buys before Christmas

Jokes aside, the levels are still very low, and that's with the lowest historical interest rates ever. I expect carnage as the ConDem axe falls on the public sector workforce.

But as Nassim Taleb says, 'if you're found with cancer, you don't mind the pain of the operation to remove it, if that saves your life'.

So far, our policymakers have been only prescribing ever-increasing doses of morphine. We all know that at some point it will stop working.

Cheers
Yahoo Finance

Off topic - RIP Ronnie James Dio

2010-05-17T09:15:00.000+01:00

For once, I won't be whinging about finance and the way the world is run, as I want to remember and celebrate the great Ronnie James Dio.

Despite all the sadness, I am happy that he left us while still at the top of his game, but will miss the man.

Good bye Ron, I will play Holy Diver all day today

Predictions for Emergency Budget

2010-05-13T11:22:00.000+01:00

So, the shotgun wedding seems to have been consumed and the honeymoon period has started. Let's see if it lasts.

One of the first things the Con-Lib (or Con-Dem as some sharp tongues re-named them) will need to do is to release an Emergency Budget (before July) in which they would try to reassure the markets about the disastrous state of the UK public finances. It's clear already that Capital Gains Tax will be raised to 40%. This is great news, as it discourages speculation or malinvestment and favours channeling resources to value-adding activities. The losers here will clearly be buy-to-let speculators and professional property flippers. The housing market will be even more under pressure, which will possibly improve things for buyers, as prices will inevitably gather downwards pace faster.

I also expect VAT to be increased to at least 20%. It's a "no choice" tax, which will inevitably affect everyone but will be collected very easily.

As for the cuts, it's anyone's guess. ID cards are gone, which is a good thing. It would be even better if they decided to cull the QUANGOS and some of the behemot IT projects.

These, I believe, are just the appetisers. The main course will be paid by the long term unemployed and the not-so-hard working families through benefits cuts et cetera.

Cheers

ECB agrees to print money - to what effect?

2010-05-10T11:01:00.000+01:00

Ok, so after the UK and German elections, the ECB got together - dragging Alistair Darling along - and decided to "protect" the Euro with a +700€bn package.

Is this printed money? -If you don't want to be splitting hairs, yes.
What will they do with the money? -Protect bond prices, stock prices and currency (read: rig the markets)
What is the assumption on which this is supposed to work? - Growth. (and here's the elephant in the room)

In order for this excess amount of debt (for this is what it is, in the end) to be repaid or even properly serviced, the economies need to follow a growth path. Now, we all know that since 2001 all Western economies only grew thanks to credit expansion and all the growth was basically governmental+private debts. On this assumption, one could argue that if we (governments + public) have already maxed out on our collective credit card, surely the best option is not to offer us any more debt?

Before every single country defaults, I would strongly recommend the UK first time buyers to snap up one of those amazing new 90% mortgages with the incredibly low tracker (!) rate at just base rate +4%.

Are we really that stupid?

Answers on a postcard

Cheers