Charismatic

It's been about...what 5 years since the last market crash? Housing bubble was about 5 years, .com bubble was about 5 years, the Japanese asset price bubble was about 5 years. A QE driven bubble has seen the S&P 500 to a new high over the last 5 years...

There are more academic arguments as well involving average growth and GNP to market capitalisation ratios of course.

On the other hand which of us would dare move to cash after the last 5 years? What would even trigger a flight to safety or at least move the stop losses right up?

Charismatic

Globally.

The Dean

I think talk of recovery anywhere is a complete misreading of current events........... the worst is yet to come in my view............

OleJanx

I wish I could say that you're a pessimist, but having looked closely at the situation, I think that currently a 'dead cat bounce' ( horrendous term) is the best that can be said for what is happening at the moment. The only way is down...

scrubbedexpat141

Why?

Maxima

There seems to be a trend globally, or at least in countries like the UK, UAE, USA, Singapore of :

1) Declining wages when adjusted against inflation
2) House prices increasing a lot, often due to foreign investors; e.g. Dubai, London, Miami
3) Corporations reducing workforce even after doing relatively well
4) Governments trying to either import dirt cheap workers (Singapore), or tring to legalize illegal dirt-cheap workers (US)

Millhouse

spot on.

The 'recovery' is a QE fuelled mess. When the QE stops and we come to our senses, bingo - people will go hungry.

scrubbedexpat141

Isn't the problem with any situation like this the fact that nobody really knows?

I mean, go back 5 years and it was conflicting views from all angles on how long, how bad, what's going to happen etc. I bet the percentage of people correctly predicting the state of various markets in 5years (today) is tiny.

Now, don't get me wrong, the likes of you and The Dean are going to know more about things than the likes of me, which is why I'm always interested to see what people have to say, BUT...fundamentally, isn't it just educated guesswork from all directions ending in the result they can't too accurately predict?

Millhouse

You are right. It is guess work. We would be rich if we new the answer.

The recession 5 years ago was never really allowed to run its course. A large amount of money was printed to prevent it happening. This money is only on screen and the printing has to stop at sometime (quite soon, I guess).

We are seeing acceleration in housing and equity markets for no reason - people are not earning more and their costs are going up. Clearly that is not sustainable. When and how it bursts is anyone's guess. If it doesn't burst we will simply be locked into a long-period of stagflation (in my opinion).

Look at it this way. Why is an expensive house when you don't have a job a good thing?

scrubbedexpat141

Can you not separate the issues, ie; housing in the UK is one of the most classic examples of supply/demand. There isn't enough in the key locations (apparently)...so surely prices will not fall much in the best places, but lots in the shittest. When people feel safer (which I'm sure a lot do), or when they thought/think the market had/has bottomed out they are going to buy a new place or upgrade etc.

Now, take that and put it next to, say what's happening with the pound. Then what's happening with jobs (even break that one down regionally, tie it in with the regional changes in housing etc).

It's so massively complex (and interesting to me, I wish I'd turned up to more Economics lessons) that even in a small country the variances and influences in different regions combine, I assume, to create the overall picture you portray...

QE is one thing, you're right, it has to end someday or we'll be buying bread with wheelbarrows of 50quid notes.

Is one of the issues that nobody really knows the full extent of the possible problems so can't possibly begin to fathom a reasonable response / solution?

If QE has helped so far, would it be ultimately wiser to just cut it, see what happens and go from there? Or is that a government just waiting to be punted from cabinet?

The West always seems to strike me as a bizarre sort of democracy. It's all about people voting and selecting their representatives to run the country, but I always get the impression (probably like many) that staying in power is more important than perhaps anything else. Policies are produced to help the economy, to fight the bankers, to help the needy, but ultimately, they don't all work or provide the results. Long term things are generally not successful because any new government will just chop and change their predecessors initiatives to make something new themselves, to appear busy and useful.

Incoherent ramble over.

weasel decentral

If QE was to end then the currency regains its value again, so you would expect the flow into housing and shares to stop. I would have thought in a period when currency was inflating people were looking at these two items to preserve value or to beat the cash inflation. Similarly to the gain (and crash) in gold prices.
I think (imo) there will be a large stock crash, plus a house price crash especially in London. People who say oh but London is different are falling into the classic excuse model housing has always had.

Maxima

Yet you will hear people claiming that the rising housing market shows that the economy has improved

Ethos83

Some will say that but most of us are pragmatic enough to know it isn't the case. Rising house prices in London and the SE is largely due to the influx of overseas money and that overseas money is chasing housing in areas it previously hadn't gone before. I read about this new build flats in Cambridge where all but one unit was immediately sold to overseas investors.

A lot of grumbling in London about it. Many of the investors simply park their money into the property and don't bother renting it out and use it only a few weeks a year, if that. The overseas money distorts the housing picture because it's an independent variable unrelated to the rest of the UK economy.

I'm normally a free marketer but the London housing market is seriously out of whack and I wouldn't be opposed to introducing restrictions on overseas money buying up London property especially if they don't use it or rent it out. You know things are due for a correction when bog standard 2-bed flats in Maida Vale are going for £1.5 mm.

Dumbo

Hmm or maybe you are just kidding yourself that you can afford to live so close to Mayfair. Maybe stop being an arse and lower your expectations. Go and live in East Ham I bet you will find a 2 bed for less than 200k.

Ethos83

Why don't I do even better and move up north and commute? I hear you can get a 4-bedder in the Toon for under 100k....

I suppose one of the benefits of the booming market is that it's pushed people into places like Shoreditch, Stoke Newington and Hackney and points further east, bringing rapid gentrification with them.

The other downside is that the working classes have been priced out of their old habitual neighbourhoods just as the middle classes are being priced out of their old habitual neighbourhoods and the merely rich out of Kensington. You're right, why cry for someone forced to buy in Hackney because he can't afford Islington, but at least he can still buy *something*. The real losers are the working/lower middle classes who simply cannot afford the kind of property they might have grown up in through the early 1990s as they simply can't afford to buy anything in London anymore.

What's also really quite remarkable is how rapidly London property prices have escalated. Certain boroughs are reporting a 30% year to year increase in the past year alone.