Lets cut costs ... ... and race to the bottom.
http://www.bbc.co.uk/news/business-29734598
Who is going to be left with a job ?
imho
UK ECONOMY
(266 posts) (11 voices)-
Wild13, the puzzle is who is paying these prices?
Wages are flat in real terms, credit is tight, and yet house prices are spiralling upwards.
The thought occurred to me a few days ago, that this is similar to the last Conservative property boom in the 1980s which ended with substantial falls followed by 7 years of zero growth.
JMK
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House prices & rent,when the bubble burst's things will get ugly.Also wait for the next revolution with robots.
http://www.bloomberg.com/news/2014-03-12/your-job-taught-to-machines-puts-half-u-s-work-at-risk.html
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In a word - immigration!
Here in London, there is practically no floor in terms of salary. There are sufficient numbers of migrant workers who will work for less than the minimum wage, perhaps as low as £20 pd.
Wealth has been directed at the asset holder, the banker, the CEO and the result IMHO is a more uneven society.
Whilst wages have increased meagrely for the low paid, house prices have now tripled since the depths of 2009.
JMK
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I used to be a big of the Panorama program. I think it's a bit lightweight compared to what it used to be.
This one was pretty depressing. I saw it last night ...
http://www.bbc.co.uk/iplayer/episode/b04l6x1k/panorama-workers-on-the-breadlineimho
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What do they know ???
http://www.theguardian.com/business/2014/oct/06/savings-limit-1m-pounds-bank-of-englandlol
rsj -
If they included people traffiking, corruption and all illegal immigrant work then we could really see the gdp bounce. Its an obvious way to bring own your debt to gdp nos so surely it cant be long away. It will allow much more debt/stimulus so a step in the right direction i suppose.. (?)
Unfortunately even after the latest statistical methodology "improvements" (commonly known as statistical rigging) debt to gdp ratios worsened yet again. You have to ask yourself what will happen to the nos on the next cyclical downturn?
"And under the ONS's new methodology, public sector debt as a percentage of GDP, excluding banks, now stands at 79.1% compared with 76.5% using the old system."
Rich
p.s. in spite of the unemployment rate dropping to mod 2008 boom time levels the deficits are higher and the pay down, in real terms.. Onwards we march..
http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/september-2014/statistical-bulletin.html
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Q2 UK GDP revised up to 0.9%
Drug dealing and prostitution contribute £10bn pa to the economy.
http://www.bbc.co.uk/news/business-29422267
JMK
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A raft of poor data in the last few days..
Uk public deficit widened by +6% compared to the prior 6 months. Tax receipts were +3%.
https://mninews.marketnews.com/content/uk-analysis-august-borrowing-rises-year-date
Housing market weakening from prior very strong price appreciation.
Retail sales better today.
https://mninews.marketnews.com/content/uk-retail-sales-growth-slows-september-still-strong-cbi
More house prices and GDP data next week.. GDP should be strong.. at +3% or more.. unfortunately we get the current acc data same day which could be disastrous.. the market is however getting used to disastrous current acc data from the uk so perhaps we can brush that under the carpet so long as the gdp is compelling!
Note Carney yesterday.. Mirroring the fed's yellen on rate rises.
https://mninews.marketnews.com/content/boe-carney-first-rate-hike-getting-closer-timing-unsure
Rich
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I missed the actual data point itself though it was widely reported..
Here:
Whats very clear in all our practice is this is not in itself a timing data point but it is as plain as the nose on our faces that there is a significant mean reversion that needs to occur. That in trading speak technical correlating instruments to house price capital appreciation are almost uniformly pointing the other way. The underlying is several (probably +5) std to the mean and therefore either nominally or relatively the gap will be closed in the coming years. Usually mean reversion moves are quick and correct more rapidly than they were created. Therefore if the current std of +5 (circa) was created over 4 decades then we should assume (without government meddling) the mean reversion move should occur over half a decade or so. Of course with government meddling trying to prevent the mean reversion it could slow the process down to several decades.
Rich
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Good post Rich!
The UK has absorbed 7.9 million immigrants.
Basic economics equals supply UP, wages down!
If you want unskilled labour, here in London, it's no problem. You will get an East European to work for £50/£60 a day (many will work for less) and they will work hard and diligently. Things are beginning to change, in that the indigenous unskilled population is beginning to wake up to the fact that there are benefits to working;)
Businesses that would not have been viable previously are now, owing to this influx of labour.
However, one of the side effects IMHO, is that there is a constant downward pressure on labour prices.
See here:
Fighting over food, no running water and forced to live in hole-ridden tents... but still more migrants head to Calais' 'Jungle 2' camp as they hope to enter the UK
It is ironic that the last Labour government encouraged immigration effectively suppressing wages for unskilled labour.
JMK
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An incredible data point this..
Nominal wage rates fall in the uk, in real terms they are collapsing as inflation at close to 2%. I wonder how the neo keynesians spin this positively or rather where they place the blame.. Doubtless world trade and china exporting deflation is to blame. Better for economic growth to move to protectionism and increase stimulus i suppose. Raise minimum wages. Yes this is the neo keynesian solution.
Note the gap between house prices and incomes grows ever larger. Tick tock on that mean reversion..
Rich
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The uk's current acc and trade deficit nos are a disaster. Ever so slightly improved on the latest number but barely. So long as prices rise and money supply of gbps expands they can continue to run these deficits as in effect they fund it for as long as the gbp stays strong. When that strength ends all the chickens will come home to roost.
God forbid the day when the boe has to support the gbp and or rely on external funding. When that occurs the consumption boom of foreign goods will end dramatically as will low interest rates and the golden boy of the world economy could quickly reverse to become the idiot. Of course such reversals are exactly what we financial speculators require, emphasis ADDED!
All the best
Rich
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One way or another the uk is on top of the world. she is booming. But how is the boom being achieved? Is it fixing the structural issues or deepening the problems?
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Qe interest 'special transfer', prostitution and drug dealing, massaging inflation stats, etc etc.. all this fiddling and the result is.. all this does is perpetuate the problem and kicks the can down the road a little. on and on until.. You tell me.. Fiddling and masking issues never fixes the deep structural issues..
https://mninews.marketnews.com/content/uk-analysis-underling-may-public-borrowing-down-15-year
Rich
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As so often in life and finance we must judge and invest/trade according to policy maker actions NOT their words..
So folks Carney this week raised the spectra of an increase in interest rates in the uk sooner rather than later and the boe has been apparently talking tougher lending criteria on multiples of income and the government is awarding more powers to enforce this.
Ok this all sounds very reasonable and tightening of liquidity as the bubble rages..
BUT..
We must look at the actions not the talk.. as talk is cheap and actions are what we are paid on, normally.
Action, from the FT.
"The Bank of England has decided upon a significant extension of the range of institutions it is willing to lend to as it responds to the rise of shadow banking and the rapid evolution of the financial system.
On Thursday night Mark Carney, the BoE governor, said he was ready to extend the scope of the BoE’s liquidity facilities to the UK’s biggest broker dealers and to central counterparties, taking its “sterling market framework” beyond its traditional ambit of commercial banks."
In plain English Carney is following through on his plans to expand financial services balance sheets to 900% of gdp, in the greatest credit experiment the world has yet seen.
Carney is desperate to expand lending and is willing to do so via the shadow banking system if necessary. This is good consumption as the shadow banking system usually funds consumer durable type products.
And read this..
“Just as there will be times when central banks must backstop the banking system, there are also times when they should backstop core markets in a way that supports their contribution to the real economy but doesn’t encourage excessive risk taking.” Carney
"back stop core markets" translated..
The central bank should act to make asset prices rise and prevent market corrections to ensure that leveraged speculators are rewarded for their contribution to expanding credit/money supply!
Yes.. really this is what he is saying very clearly here. Its impressively transparent stuff and for speculators is a dream! Carney for world president, if you are a speculator of course.
Finally..
"On Thursday night Mr Carney said the BoE will be examining whether it needs to further extend its capacity to lend in currencies other than sterling given its status as a global financial centre."
Carney is busy working with the fed to increase global ms. He is taking the opportunity to try and make sterling a global funding currency by flooding the world with pounds and zero rates.
In spite of the rhetoric of higher rates implying a tightening of pound liquidity carney is following the very reverse policy. IE an expansion of sterling liquidity to back fill and more the gap created by a tightening of mortgage liquidity.
He is a very sophisticated slippery character this man that has a very strong ideological perspective. A shark on a mission compared to the more transparent and less ideological king.
Rich
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Britain's record current account balance was not an immediate cause for alarm, but it was only sustainable to borrow from abroad to fund investment, not consumption, he added
"Excessive reliance on consumption or non-tradable sectors, such as housing, all financed by borrowing abroad at an over-valued exchange rate, would prove only temporarily satisfying," he said.
http://uk.reuters.com/article/2014/06/13/uk-britain-boe-carney-idUKKBN0EO0GF20140613
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Its another way of solving the slow inflationary correction of the ratios. This helps pull the ratios in the right direction.
Never have we massaged the statistics in the way we do nowadays. From unemployment to inflation to gdp its change change the numbers.
Confidence is what its all about in a fiat currency system though really, moving the deck chairs around the deck doesn't actually save the ship, unfortunately.
http://uk.reuters.com/article/2014/06/10/uk-britain-gdp-idUKKBN0EL12J20140610
rich
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Government steps in.. Naming and shaming employers who are under paying.. Better they pay more and employ less i suppose.
rich
p.s. How to bump up your gdp by +0.7% is becoming very popular.. now Italy and Ireland also increasing economic activity accordingly. 2014 could be set to beb a stellar growth year accordingly! Given the positive effect on growth for drugs and prostitution i wonder if it may encourage the legalization of these boom industries?
http://www.marketwatch.com/story/how-sex-drugs-may-not-pay-in-tallying-up-gdp-2014-06-09
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Divergence ever wider..
http://www.tradingeconomics.com/united-kingdom/balance-of-trade
vs
http://www.tradingeconomics.com/germany/balance-of-trade
Watch the current uk current account deficit! The clock on this time bomb grows ever louder but look at the eurgbp today. Pound continues on her trend as she has momentum here and now. The trend will over extend and then snap back. Dont misunderstand me, im long the pound and have been for some time and what a wonderful trade it has been but the macro data is starting to diverge from the trade price momentum and on price momentum divergence at extremes i will be existing the currency as the downside risks are becoming increasingly immense.
Taking a step back this is all very normal. All asset markets move like this as it is on volatility that a margin is made for speculators. It is a part of the system to produce and manufacture these swings in price so we should not be surprised at all.
Rich
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‘London is now a country of its own in housing terms’: Cost of a home in capital leaps £108,000
JMK
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To infinity & beyond..
http://www.capitalsynthesis.com/wp-content/uploads/2014/04/kf-ukhouseprices-18-4-14.pdf
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UK wise..
http://www.ft.com/cms/s/0/274f519a-b418-11e3-a102-00144feabdc0.html#axzz2zQFUe9DP
http://uk.reuters.com/article/2014/03/28/uk-britain-economy-idUKBREA2R0H520140328
So many different structural issues swirling the uk. The policy team are running on a wire here. Lets hope they pull it off but there so many different risks to what they are doing. Its knife edge stuff. I have some excellent reports on these issues coming. The latest pension changes will badly compound the current acc deficit over the coming years. The pension changes are the most significant for hundred years.
Rich
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The uk moves from one of the worse g7 economies, even g20 to the best, as forcast at capsyn btw.
Creating a ahort term boom is the easiest thing to in a fiat currency economy. Question how this is being achieved folks.
For speculators its perfect. Booms & busts are great for business if u are a speculator!
Rich
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Construction data today from the uk a little weak due to the floods.
But from yesterday, in case you missed it..
"The Bank of England reported gross UK mortgage lending was Stg14.8 billion in February, an 8% fall compared to January, but 40% higher in value than February last year."
Its slowed a little but 40% growth in lending from a year ago is a pretty conclusive trend and on relative terms is blistering. Vs europe is about 45% growth as europe's mortgage market is declining.
Divergence in the extreme and note, from a higher level. Ie the uk is not playing catch up here, she started this latest trend well ahead in terms of debt load on housing related themes.
If its possible that super high house prices to incomes can create wealth the uk will be the wealthiest country in the world soon as the trend is so strong. If policy makers are wrong the fall out will be unimaginable. Its a massive experiment. Prior evidence of similar strategies is not promising. It has never worked but perhaps this time will be different?
Rich
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On the medium term the uk is a buy again. The latest pension changes provide more short term stimulus for the domestic boom.
http://www.marketwatch.com/story/uk-retail-sales-surprise-with-17-rise-2014-03-27?dist=beforebell
These latest changes support consumption and general consumer confidence. The BTL sector will see large inflows underpinning the entire market and compressing yields still further.
Its a completely insane mono line domestic consumption approach to economic policy akin to burning your furniture to give you some heat. Its totally insane but the boom they are busy trying to create could become truly impressive. My only question is whether the Israel effect takes hold. Ie all capital and excess incomes are purely channeled into housing related themes. Consumption on other items is limited and investment capital does not flow to business as the returns are less than housing themes. This would be a logic consequence of the boom. Why consume when returns are so great in uk housing and why invest in capex for corporates when uk housing returns dwarf corporate returns? When you direct all capital to one non producing asset class like this you will create all sorts of unintended consequences.
It would be irony indeed if far from being a wealth creator it was a wealth black hole.
Rich
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I haven't commented on the pension changes but it is a truly incredible policy shift this. Especially at a time of large public debt and annual deficits and worsening demographics. I'm at a loss to explain this in fact.
In terms of a more simple analysis ie who are the winners and losers here?
Stocks are the winner.
Housing is a big winner inc BTL, again.
Bank deposit savings bonds also.
Government bonds are the big loser, especially the long end. (The long end determines fixed rate mortgage rates rather than variable rates. A key risk to the UK economy, Note!)
Bad for ife and pension cos. Their cozy annuity businesses will suffer.
Also government tax revenues as when we die our annuity policy transfers to the government almost in its entirety.Now to the harder bit. Why?
Ignore the consumer choice aspect and free markets rhetoric? a political smoke screen, surely.
1) Support for the housing market? But does it need it? TI&B?
2) Support for the stock market? But does it need it?3) Winning the next election? Only this one makes sense. The Tories got a decent upswing after the news. Many pensioners have been forced in recent years to take horribly low annuities policies due to financial repression and whats worse the income from cash is a total disaster so they have been doubly punished. The transference of wealth has been needed of course. You cannot create new capital by increasing the money supply you simply transfer wealth and this group have done the lions share of the transfer thus far.
Now pre election the tories appear to be trying to appease this group. And whats more Labor are agreed with the move. But this is short sighted indeed.
In a country where mortgage rates are variable not fixed like the rest of the world it doesn't matter short term what occurs at the long end of the bond yield curve. In the US such a change would immediately negatively impact the housing market as rates would jump as they are determined by the 10 yr plus yield curve. UK mortgages are variable so no big effect short term. But the risk here is what occurs when rates at the short end jump and everyone is on variable mortgages. The downside risks have just been increased enormously by this policy change. (Short term up draft). The Uk sees house prices to incomes at great stretch (England = average house at 10 x average salary!). The UK public deficit is large and growing. The UK is an island where no freddie or fannie system exists for under writing mortgage debts. If it did could the gov underwrite it?
All in all short term gain to increase the medium term risks considerably. An amazing change at this time. When public deficits are high systems usually increase the commitment of their pensioners to buy public debts ie as in world war II but this cycle we are, so far, seeing polarizing strategies. The US is following the normal pattern. She is imposing paper bureaucratic capital controls via disclosure of international accounts and forced pensions etc. The UK and Japan are following the opposite model of freedom from owning public debt. The printing presses have replaced the need for public ownership of government debt for now. The central bank is the buyer of public debt freeing up the consumer to buy assets with their pension.
This is the system for now. If asset prices fall will the governments and central banks bail out the pensioners from their losses on private assets? I doubt it. A cynic might also suggest that this wave of new buyers are entering private asset markets on the buy side at one of the highest levels to incomes and gdp in history. That these same markets are generally displaying low or thin volumes. Their buy side will provide liquidity to some on the sell side to allow them to exist their positions and book the paper proceeds.
That would be a cynics observation. I leave you to your own conclusions.
Rich
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