Stock market is a "fully-fledged epic bubble" and will burst
Discussion
Welshbeef said:
Re currency devaluation and govts all printing cash there are very few main currencies which have not done this so in essence it’s parity isn’t it.
You need to consider local markets as well as international equivalency.Think in very crude mathematical terms: if the GBP supply doubled then you've halved the value of each pound. If USD supply doubled then you've halved the value of each dollar. In such a scenario the ratio of GBP to USD wouldn't be changed but you'd still need twice as many of each to transact.
Obviously there are broader factors too that impact FX and technicalities that would cause an economist to go nuts, but I think the general point is pretty clear.
ATM said:
All assets are over valued now because no one wants to hold cash so everyone is chasing gains elsewhere = risk taking.
Presumably you mean excess gains? Not everyone are chasing those, I know I'd be happy to just keep up with inflation.NRS said:
Do we have a reduced toolkit? I'd agree it's perhaps more restricted on interest rates going down, but that's less of an issue with inflation appearing. Of course if they go up those with debt will be worse off, but take the biggest impact for many - a huge chunk of houses are already paid off, and if rates go up it will likely allow new people to enter the market who were priced out earlier by the asset price as lower interest rates impacted the monthly costs. It's just a transfer of wealth between different parts of society in effect - if a crash in house prices does occur it impacts the older and middle aged people who own now, but helps discount prices for new buyers and in general young people.
We also have the tool of either increasing or decreasing government interventions too, which is a powerful tool as we see now. It's being used to 'create "growth" (by devaluing money so it looks like there is growth in the west - useful to try and keep people happier), used to devalue the currency (helps exports if you want that), used to buy back government debt and so makes borrowing for the country much cheaper and so on.
Yes! For years HMG has, amongst other things, been encouraging people into home ownership. Governments often don't (as others have said) always take a long view of the future but they do tend to have long memories (and know that the public do) of the past. Pulling the rug out from underneath people who are heavily leveraged as a result of recent government schemes and seeing a return to the repos/negative equity of the past would be political suicide. I just don't see significant interest rate rises anytime soon.We also have the tool of either increasing or decreasing government interventions too, which is a powerful tool as we see now. It's being used to 'create "growth" (by devaluing money so it looks like there is growth in the west - useful to try and keep people happier), used to devalue the currency (helps exports if you want that), used to buy back government debt and so makes borrowing for the country much cheaper and so on.
Likewise, I wouldn't rely too much on other government interventions. GFC saw major interventions, likewise COVID but the root causes were different. HMG have recently been signalling (rightly in my view) that people shouldn't rely on them to solve all market/pricing issues. I agree that some devaluation may be helpful, but a lot of debt has inbuilt inflationary protection for purchasers so inflation doesn't make it all magically go away.
(PS - As for the art deal being "random", I thought it was interesting due to the short timeframe from auction to heavily "discounted" sale.)
bmwmike said:
ATM said:
Scootersp said:
Right now "cash is trash" but if most have no excess then a turn in sentiment or a whiff of crash, even if in one asset class, then where will the buyers come from and that could give a quicker price decline, or a decline from another asset to reinvest, so a sort of contagion, which all crashes are I spose.
There are plenty of the very wealthy holding cash because they have been exiting at the highs. But the average Joe is all in and the only money they will have available is their rainy day fund and their income from wages. We all know rainy day funds have been dwindling recently so there is not much to play with here. Then add in that everyone is maxed out on Mortgages so their monthly outgoings are high. If we get a little bit of an interest rate hike then that will be very bad for most people with big mortgages and if house prices have been rising rapidly then that means we have lots of buyers so there are probably plenty of people with bigger mortgages than this time last year or 2 years ago etc. The elastic is getting stretched and stretched and the more it stretches then the more it snaps back. The longer a bubble is inflated then the sharper the pop.bmwmike said:
Surprised to read somewhere recently that the majority of £1m mortgages are interest only. Would love to know if thats true. Certainly around here 800-1.4m properties seem to have become more prevalent in the last couple of years.
Most likely. If you're paying around 1-2% on a mortgage, and can earn around 4-7% on average in the stock market for example then unless things have a big swing it makes a huge amount of sense to have as big a loan as possible and be in shares with that money instead. Of course riskier, but if you've been doing that for 15 years even a huge crash in stocks is not going to wipe out your profits. ATM said:
Scootersp said:
Right now "cash is trash" but if most have no excess then a turn in sentiment or a whiff of crash, even if in one asset class, then where will the buyers come from and that could give a quicker price decline, or a decline from another asset to reinvest, so a sort of contagion, which all crashes are I spose.
There are plenty of the very wealthy holding cash because they have been exiting at the highs. But the average Joe is all in and the only money they will have available is their rainy day fund and their income from wages. We all know rainy day funds have been dwindling recently so there is not much to play with here. Then add in that everyone is maxed out on Mortgages so their monthly outgoings are high. If we get a little bit of an interest rate hike then that will be very bad for most people with big mortgages and if house prices have been rising rapidly then that means we have lots of buyers so there are probably plenty of people with bigger mortgages than this time last year or 2 years ago etc. The elastic is getting stretched and stretched and the more it stretches then the more it snaps back. The longer a bubble is inflated then the sharper the pop.The interest rates will be bad for people who are new buyers for the first time, who could get squeezed when they are at their period in life with the least spare cash typically, and highest debt. It would benefit the person in almost the same situation though but who has not bought. It basically makes different winners and losers in the housing market. But a lot less losers than you indicate.
LooneyTunes said:
Yes! For years HMG has, amongst other things, been encouraging people into home ownership. Governments often don't (as others have said) always take a long view of the future but they do tend to have long memories (and know that the public do) of the past. Pulling the rug out from underneath people who are heavily leveraged as a result of recent government schemes and seeing a return to the repos/negative equity of the past would be political suicide. I just don't see significant interest rate rises anytime soon.
Likewise, I wouldn't rely too much on other government interventions. GFC saw major interventions, likewise COVID but the root causes were different. HMG have recently been signalling (rightly in my view) that people shouldn't rely on them to solve all market/pricing issues. I agree that some devaluation may be helpful, but a lot of debt has inbuilt inflationary protection for purchasers so inflation doesn't make it all magically go away.
(PS - As for the art deal being "random", I thought it was interesting due to the short timeframe from auction to heavily "discounted" sale.)
See the post above - a lot less people than you'd expect are heavily exposed to mortgages. If prices drop you'd open up the chance to new people to buy in too (although they'd be less likely to directly link the thanks to the government compared to those who blame the government). Likewise, I wouldn't rely too much on other government interventions. GFC saw major interventions, likewise COVID but the root causes were different. HMG have recently been signalling (rightly in my view) that people shouldn't rely on them to solve all market/pricing issues. I agree that some devaluation may be helpful, but a lot of debt has inbuilt inflationary protection for purchasers so inflation doesn't make it all magically go away.
(PS - As for the art deal being "random", I thought it was interesting due to the short timeframe from auction to heavily "discounted" sale.)
The causes might be different, but printing money seems to be the solution to everything now basically. MMT to a greater or lesser extent being played out in practice. One of the "interesting" things seems to be due to the far more globalised economy and all countries doing the same trick some of the predicted failures haven't appeared yet - runaway inflation etc. If just the UK prints money = runaway inflation is much more of a risk. If everyone does it then all countries devalue relatively equally.
ATM said:
There are plenty of the very wealthy holding cash because they have been exiting at the highs. But the average Joe is all in and the only money they will have available is their rainy day fund and their income from wages. We all know rainy day funds have been dwindling recently so there is not much to play with here. Then add in that everyone is maxed out on Mortgages so their monthly outgoings are high. If we get a little bit of an interest rate hike then that will be very bad for most people with big mortgages and if house prices have been rising rapidly then that means we have lots of buyers so there are probably plenty of people with bigger mortgages than this time last year or 2 years ago etc. The elastic is getting stretched and stretched and the more it stretches then the more it snaps back. The longer a bubble is inflated then the sharper the pop.
I'm not saying it's my view per se just that the "cash is trash" line is just one of the buzz phrases right now and it's been right for previous years, but having some cash is I believe is sensible.NRS said:
See the post above - a lot less people than you'd expect are heavily exposed to mortgages. If prices drop you'd open up the chance to new people to buy in too (although they'd be less likely to directly link the thanks to the government compared to those who blame the government).
Obviously it's not only mortgages that would be impacted by increasing interest rates. Interest rate rises would be just as emotive in SME land (and elsewhere) if firms go to the wall as a result of significantly increased rates.Anyway, back to mortgages and house prices. If you have falling prices, negative equity, etc, the natural response from lenders is likely to be to tighten their lending criteria and insist on higher LTVs to protect themselves from potential losses in a falling market. If that were to happen, how do these people who can't buy today (presumably because they don't currently meet the deposit/affordability criteria) suddenly manage it?
As for £1m i/o mortgages. Not sure if it's still the case, but they used to be popular with people who were expecting to pay down big chunks with their bonuses whilst living off the salary.
ATM are you trying to convince us or yourself?
There is always the chance of a correction, no matter the level. Full blown catastrophes less often, name one from which we didn't recover.
Actually recoveries have happened so much faster than they did in earlier decades.
In our present bull market of ten plus years we have seen unprecedented growth, mostly in the second half. Most have seen their investments double in the last four years. Do we care if we get a 20% drop, not really, most will sit tight because of the recent speed of recovery. Also, the horse has already bolted. Whacha gonna do....sell your positions for inflation bound cash. Many will, and then curse the market for the next 20 years.
I saw earlier in the thread that some don't want cash because of fear of inflation. I don't think that is wise, although I don't think Armageddon is the horizon it doesn't mean I am right. As the markets increase so does my cash, along with my line of credit it puts me in strong position should there be a xxxxxxxxxx
Also some less insular thinking might help, there is a world outside of the FTSE 100 (and the S & P)
Ignore the value of your house it is not relevant, but don't ignore your outstanding mortgage. that is millstone on your NAV, clear what you can while interest rates are low. Ain't gonna last forever.
There is always the chance of a correction, no matter the level. Full blown catastrophes less often, name one from which we didn't recover.
Actually recoveries have happened so much faster than they did in earlier decades.
In our present bull market of ten plus years we have seen unprecedented growth, mostly in the second half. Most have seen their investments double in the last four years. Do we care if we get a 20% drop, not really, most will sit tight because of the recent speed of recovery. Also, the horse has already bolted. Whacha gonna do....sell your positions for inflation bound cash. Many will, and then curse the market for the next 20 years.
I saw earlier in the thread that some don't want cash because of fear of inflation. I don't think that is wise, although I don't think Armageddon is the horizon it doesn't mean I am right. As the markets increase so does my cash, along with my line of credit it puts me in strong position should there be a xxxxxxxxxx
Also some less insular thinking might help, there is a world outside of the FTSE 100 (and the S & P)
Ignore the value of your house it is not relevant, but don't ignore your outstanding mortgage. that is millstone on your NAV, clear what you can while interest rates are low. Ain't gonna last forever.
LooneyTunes said:
Obviously it's not only mortgages that would be impacted by increasing interest rates. Interest rate rises would be just as emotive in SME land (and elsewhere) if firms go to the wall as a result of significantly increased rates.
Anyway, back to mortgages and house prices. If you have falling prices, negative equity, etc, the natural response from lenders is likely to be to tighten their lending criteria and insist on higher LTVs to protect themselves from potential losses in a falling market. If that were to happen, how do these people who can't buy today (presumably because they don't currently meet the deposit/affordability criteria) suddenly manage it?
As for £1m i/o mortgages. Not sure if it's still the case, but they used to be popular with people who were expecting to pay down big chunks with their bonuses whilst living off the salary.
Alternatively some well run companies might benefit if zombie competitors who have just been living off cheap debt to survive while those at the top are stripping out any cash they can as wages and bonus go under. It seems crazy to think people are thinking interest rates are going to be ‘high’ at say 2%. What happened to trying to increase rates again to give us room to drop rates in the next crash for example? Anyway, back to mortgages and house prices. If you have falling prices, negative equity, etc, the natural response from lenders is likely to be to tighten their lending criteria and insist on higher LTVs to protect themselves from potential losses in a falling market. If that were to happen, how do these people who can't buy today (presumably because they don't currently meet the deposit/affordability criteria) suddenly manage it?
As for £1m i/o mortgages. Not sure if it's still the case, but they used to be popular with people who were expecting to pay down big chunks with their bonuses whilst living off the salary.
It will help as once things start to open up again then the prices will be lower for those wanting to buy in.
The main point though was ATM’s comment was completely fantasy world in terms of saying most people are loaded up on huge mortgages. Instead it’s less than 28%, as around 1/3 have no house ownership, a bit over 1/3 have their house paid off fully, and so of the remaining 28% quiet a few will also be in a comfortable place with monthly costs, even if they rise.
Edited by NRS on Monday 11th October 14:25
bmwmike said:
Ah yes, well that would make sense. Thanks
I think people buying expensive houses generally have their cash working for them elsewhere earning far more than the <1% it costs to borrow today. Certainly of high end property in Surrey, a lot of it is on I/O basis (multi million type stuff) I am told.okgo said:
I think people buying expensive houses generally have their cash working for them elsewhere earning far more than the <1% it costs to borrow today. Certainly of high end property in Surrey, a lot of it is on I/O basis (multi million type stuff) I am told.
I've heard that too - if most of your wealth is in non-GBP assets then having a GBP mortgage against UK property is a sensible FX hedging strategy.Jambo85 said:
jeff m said:
ATM are you trying to convince us or yourself?
Considering his vested interests his posts are starting to have more and more in common with the shysters of yore on iii declaring at 3pm on a Friday that they wouldn't want to be out of this one over the weekend! A view I support.
So I am making comments about that.
If you don't understand that's how these Internet forums work then perhaps you can learn something here.
Generally it's bad form to start throwing accusations around in these threads about what someone might or might not be.
So perhaps instead you could enlighten us on your views and what you think about this subject - which is the title of the thread just in case you get confused.
ATM said:
This is a thread on the Internet about the stock market being in a bubble.
A view I support.
So I am making comments about that.
If you don't understand that's how these Internet forums work then perhaps you can learn something here.
Generally it's bad form to start throwing accusations around in these threads about what someone might or might not be.
So perhaps instead you could enlighten us on your views and what you think about this subject - which is the title of the thread just in case you get confused.
Not sure why you think I'm confused but I apologise for my bad form.A view I support.
So I am making comments about that.
If you don't understand that's how these Internet forums work then perhaps you can learn something here.
Generally it's bad form to start throwing accusations around in these threads about what someone might or might not be.
So perhaps instead you could enlighten us on your views and what you think about this subject - which is the title of the thread just in case you get confused.
My only investments these days are letting a selection of funds do their thing over a long period. And I subscribe to the view that others have expressed over the last couple of pages that cash has devalued significantly during the pandemic and that is responsible for the 'gains' we have seen in equities, and accordingly there will be no significant bubble bursting.
I have been wrong before however.
GriffoDP said:
I'm very much an amateur in this world, so: how useful is this page?
https://money.cnn.com/data/fear-and-greed/
I occasionally remember it exists and try to make sense of the various inputs they use!
I just don't see how it's of any use whatsoever given that successful investing tends to be about filtering out the noise and focusing on returns over long timescales.https://money.cnn.com/data/fear-and-greed/
I occasionally remember it exists and try to make sense of the various inputs they use!
okgo said:
bmwmike said:
Ah yes, well that would make sense. Thanks
I think people buying expensive houses generally have their cash working for them elsewhere earning far more than the <1% it costs to borrow today. Certainly of high end property in Surrey, a lot of it is on I/O basis (multi million type stuff) I am told.Gassing Station | Finance | Top of Page | What's New | My Stuff