Did They Really Say Those Things, No, Did They Really?

By Andy Shaw | January 23, 2010

Originally Posted 17th July 2008

Hi,

I thought you’d like to see some email correspondence I’ve been having with an economist friend of mine.

My email to him:

There’s been a couple of moments when I thought I was dreaming in the last couple of days so thought I’d write you for a reality check…

Did Bernanke really say that he doesn’t know which way to send the rates!

Did King really say that current monetary policy is not having much of an effect on inflation?

I only heard both of these comments 2nd hand, if they are right do you interpret Bernanke as someone telling the truth or just incompetent. And is this Mervyn’s way to be able to lower rates while holding onto the fact that he can still say his mandate is just inflation?

Maybe this is his lead in to change his mandate to include the economy?

His response:

Great to hear from you.  I miss our chats.  There are few people that are as interested in monetary policy.  There is no one who is as controversial as you.

Central Bankers have got a problem.  Oil and food costs are pushing inflation way above tolerable limits which means central bankers should raise interest rates to quell the flames. So when the ECB raises rates and the dollar depreciates and the price of Oil goes up (as it does when the dollar goes down) then raising interest rates might actually accelerate inflation!  How about this….raising rates dampens consumer spending but it has no consequence on fuel or food.   In my view, raising rates will do nothing, at best, or makes things much worse.  Have Bernanke give me a ring.

The real problem is the financial crisis.  People I respect anticipate another bank failure/rescue and are much more afraid of a deflationary spiral rather than the reverse.  Central Bankers and Chancellors of the Exchequer should be taking steps to avert recession and subordinate inflationary concerns for the moment.

My Reply:

Of course they should, something I have been saying since Nov, Dec last year when the Fed made their fools play. Even though by the intellectual world it was considered a fools play, yet still America is technically avoiding a near certain recession because of it.

Personally I think Oil and other commodities have gone beyond where they should be and I think we’ll see food dropping back as more farmers start to farm their land with the most profitable crops. I also think that the supply and demand equation for oil will result in a fall back as in my view there is an over supply, and I am hearing that tankers are effectively being parked as there are not enough buyers.

I think Mervyn’s comments are a lead in to managing the economy rather than the hitherto unbelievable policy of just managing inflation and I can actually see rates coming down by between 0.5 & 1% by the end of the year.

The question is – will the banks lower their rates to match (comfortable now with the fact that they are having their pound of flesh) or will they keep rates on hold and raise their criteria (which of course removes the benefit of a rate cut)?

The biggest concern I am seeing is job cuts as that really kills the economy and if they do not work on the economy soon then we are heading for a recession, but my opinion is that banks will lower rates and this will open the market back up nicely. This will also give exports a boost if the value of the pound falls, which I think like the Dollar will actually go on to be stronger later if they make the rate cuts, even though this goes against conventional thinking, but we’ll see.

I know you remember my comments towards the intelligence of Mervyn King earlier this year and we disagreed about his ability. In hindsight, I think you are right, he is ‘galactically clever’, he is far cleverer than me at being able to analyse to death all of the data. However, I saw all the way through that the fools play was the right move and even before they moved to do this I said that they (The UK & the US) needed to start regularly cutting rates, which is why the US (which was headed for near certain recession) is now keeping up the good fight and the UK (which was looking like it would avoid it) is now looking like it is about to start playing a game of, ‘well we’re not technically in a recession yet!’

Lowering rates was the right move then, even though it did not appear to be, and when I get frustrated with other people’s lack of vision on this sort of thing it is because I am not eloquent enough to be able to fully explain my understanding of it. Mervyn King is smart and that is what is holding him back. He does not take risks and sometimes (especially in today’s sort of economy) boldness of action can make things happen. This is where I question his ability.

Best Wishes

Andy

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We’re In The Silly Season Where Supply And Demand Fundamentals Are Ignored

By Andy Shaw | January 23, 2010

Originally Posted 16th July 2008

We’re In The Silly Season Where Supply And Demand Fundamentals Are Ignored

The good fight that the Bank of England and the ECB are fighting against inflation to the detriment of the economy could very well all be just a waste of time that actually keeps the economy in a recession for a lot longer than is necessary.

Now before I start on this article, which paints a pretty poor picture of the way it’s likely to be, you should remember that this is merely a market cycle and just means a different set of rules apply, because the market is going a different way than usual.

Read the rest of this entry »

Topics: Property, The Economy | Comments Off

Key Points Of Today’s Property Market

By Andy Shaw | January 23, 2010

Originally Posted 15th July 2008

What is today’s market?

Stated another way the question is – ‘Is there really a property market?’

The media would have you believe that ‘THE MARKET’ fell by a X percent last month and it has fallen by X percent since this time last year. So what does that actually mean? It means that those who still have property for sale on the market and must sell are willing to slash prices, and those who would sell in the ideal world but are not that concerned if they don’t, are simply staying put. So if only 5 or 10% are in a position that they must sell, are they speaking for the entire market? The media would have you believe so.

If you say that of all the people who would want to sell (being ‘THE MARKET’), 20% of those people had to sell, and 80% don’t, but would like to. Well currently the 80% have all gone home leaving the 20% (this is an exaggerated figure, it’s probably nearer 5 – 8%) to set the market price. So what is ‘THE MARKET’ then, the 20% or the 80% or the collective 100%?

If we said that it was 20% that had to sell and the market fell by 10% then effectively that could be made to read that the market has really fallen by just 2% as a whole. At the end of the day I think it was Mark Twain who said it best, ‘there’s lies, damned lies and statistics!’ Frankly, that is not as important as the next point.

The whole point being it is a buyers’ market right now, and the value of a property is what someone is willing to pay for it when the other person is ready to sell it. As for actual value well, that’s a different story and is still down to how we structure our valuations.

Where to focus your main efforts

For the last few years I have been proving to countless people that there really are deals around all over the place and that you really can buy property extremely below perceived market value prices. People would come to see me, still not believing it was possible, and then leave with seeing me find property right beneath their own noses that they had looked at before and still didn’t recognize as a deal.

In today’s market anyone should be able to identify a motivated seller, but for those who can’t, they are the ones sitting on their roofs contemplating whether or not to jump! Today the territory has changed shape somewhat, people are finding deals more easily, but that doesn’t mean they are able to get their money out.

And frankly, in times of potentially rising rates, this is a very dangerous time to be taking too many risks, which is why I have said in several articles to really push the vendors down on price. As what can really look like a deal today, even though it is £20 – £40k cheaper than a year ago, may still not actually be a deal as the real deal to be had was at £60 – £70k discount and actually the £30k discount which they bought on was really £10k above the price they should have paid…

If they need to sell, then they will cut their prices – just remember don’t offer too much to start with; you can always go up but if you try and go down that’s when bad feelings can really start to cause problems.

Today the real skill is getting your money back off the table at an interest rate that you aren’t so scared of that you wait with baited breath on the first Thursday of each month to see if they’ve kept the rates on hold! What we are doing is knocking money off of the vals we think we can achieve and wherever possible using a 75% remortgage lender and making it work from there. This is to try and protect ourselves from the unexpected 9 months in from when the sale is agreed.

In today’s market with a severe lack of available products you cannot risk taking on a deal without having at least a very good exit strategy for your cash (there is far, far less certainty in the exit route for cash than there was at this time last year, which is why this area needs real care). If you have ended up getting cash tied up then look at it as if it is just part of business and direct all your efforts to raising extra cashflow to protect your exposure. When you have done that return to solving the problem of tied up cash, possibly by buying a property so cheaply that it will release enough excess cash to recover the original tied up sum, i.e. your aggregate over two properties will be that there is no cash tied up.

So if you are starting out, then you simply have to do great deals (they are even easier to find than they were 12 months ago, believe me!). If you have cash exposed, then you need to focus on cashflow and other deals to use aggregate mortgaging to release exposed cashflow.

Re-programming the negative anchor

One of the hardest of all the battles you have to fight is this one. Frankly it is the real barrier we all have to get over before we can see clearly. I was fortunate enough a few years ago to be able to see the media for what it was, and watch how it affected my opinion of things without a care to the outcome of my life.

In today’s world it is impossible to turn on the news without hearing a negative about the property market, I even find myself being sucked by this energy vampire. After each negative news update, we are all told that it’s really, really bad news. Pretty soon we believe it! So each of these is a negative anchor which we must clearly see for what it is and re-programme our minds.

Now here’s where neuro-linguistic programming comes into play, so that you can use it to see the positive from these situations and use the law of attraction to get what you want.

When a news item explains why something is bad, instead of accepting it at face value, why not look at how you can exploit the problem for the benefit of yourself and your family? As with every problem the seed to the solution lies within the words being used to describe the problem. So if it’s bad news for you then it’s probably worse news for someone else, so you can therefore help them out of their problem for a profit.

You need to position yourself as the solution to all of those people with problems, and therefore every time you see a negative news item then realise that this is good news for you and your family as it is helping you to find more problems that you can solve for people at a profit.

In a nutshell, if it’s bad news on the TV then that is good news for you and your family. Your job is just to identify why and then figure out how to use it.

Finally…

Did you know that last month while mortgage lending fell to an all time low, or thereabouts, personal loan borrowing went up by £1.6 billion and credit card borrowing went up by £600 million.

Does anyone know why?

A bottle of champagne to the first person who gives me the right answer (that is if anyone gets it, of course :-) ). I’ll give you a clue; it has something to do with a falling knife.

Best wishes

Andy

PS Just in case you missed it that means it’s a good time to apply for credit, just not mortgages.

Topics: Free Content, Property | Comments Off

Will they raise the base rate? Part 2

By Andy Shaw | January 23, 2010

Originally posted 3rd July 2008

These people know what they are doing so if you are going to America shortly then I would change your money before Thursday at 12.00pm as it stands at $2.015 for just £1. Me, if I was a betting man would be looking at putting a short in place on the currency as the whole market seems to be pointing towards a rate rise then this would make staying static a contrarian bet.

In other words I think that the rate is likely to remain the same which will mean the pound will fall marginally against the dollar. Only a cent or two which seems like nothing to you or me, but to the currency players this could be a good pay day.

This is obviously assuming I’m right and the chancellor doesn’t want an interest rate rise in his first full week as PM. Not that he has any influence of course :-)

I also think that the bank will be thinking well there are signs emerging that the economy is showing signs of the rate rises and as such they will decide to wait and see for another month. I think this would be a much more sensible approach, then when you add into it that this may do the new PM a favour and they do like to do things against what the market thinks then I’d say the rates are today looking more likely to stay on hold, but that’s only because I see things from a weird perspective.

Then there was a bit about how the terrorist attacks have made Gordon’s approval rating ’soar’ in a poll. And that 77% of people now see him as a strong leader.

When I studied 20th Century history I learnt that a leader when faced with economic trouble at home would always try and take the countries attention off of the worsening scenario by going to war with another country instead. That’s a generalisation of course but the tactic of misdirection has been used in politics to devastating effect.

For Example the Falklands war breathed new life into Mrs Thatcher’s conservative government and this in itself was the Argentine leader’s way of misdirecting his people from their economic troubles.

So all Gordon needs is a few terror attacks and our security forces to do very well in stopping further problems and that should mean that he can call an early election next year. Still that’s only a guess at this stage though.

Andy

Topics: Free Content, Government, Property, The Economy | Comments Off

Will they raise the base rate? Part 1

By Andy Shaw | January 23, 2010

Originally posted 2nd July 2008

There’s a hell of a lot of chat about interest rates this week. I’m left undecided as to which way they are going to go, but my best guess is at the bottom. I think there are a lot of factors to take into consideration. Before I go into them though I think that raising rates at a quick pace without waiting to see the effects of previous interest rate rises is foolhardy.

But then I am only speaking from the position of the property investor, and I have a vested interest in the rates staying low. Well actually that’s not entirely true either as if the rates go up, I have to pay more (and when you own as many properties as I do, it’s quite a lot :-) ), but equally the unrest in the market offers me more deals, and at this time of year an interest rate rise or even two could really help me acquire quite a few properties throughout the summer.

I’m personally looking at things from a way off perspective and I think there is a lot more going on than meets the eye. If I was Gordon Brown, what I’d be thinking was, how can I stamp my authority on this role, give people a boost to make them feel good and then get down to a quick election before David Cameron starts to make it too difficult for me to win.

So the last thing I’d want after coming to power was an interest rate rise in my first full week as PM. Furthermore, with the country feeling in their pocket another one or possibly two rate rises after that before I had a chance to get elected next May. I would be thinking, ‘cor I wish I had some influence on the bank base rate, so that I could keep it down for a while!’

Then I’d also be thinking, if we can keep rates down and more inline with Europe then in about 2 years time the economic conditions could be just right for us joining the Euro. A quick election in May 08 followed by a sustained PR campaign and also hopefully avoiding a referendum then I could be the PM who introduced the Euro.

Don’t misunderstand me I’m neither for or against the Euro at the moment as I haven’t fully evaluated the impact of it, I think long term it would be very beneficial but it’s the damage it will cause in the process that worries me.

I saw on the news this morning that Business was calling for no rate rise this month as the economy is suffering because of the recent rate rises. Home loans were down apparently last month as well, and I think there are distinct signs that all the recent rate rises are having an effect on the economy. However, I think the desired result they wanted which was also to cut further house price inflation is something a little too tricky for just a few rate rises to solve.

The trouble is that I think they are viewing house price inflation the wrong way, and as such they are mistakenly calling normal growth a boom.

In conclusion I think that the PM’s recent ascension to the throne will be just the tipping point needed to keep rates on hold this month, and a chance for the BOE to see some more of the effect that recent rises have had on the economy.

Best Wishes

Andy

Topics: Free Content, Government, Property, The Economy | Comments Off

Limits on workers migrating from Eastern Europe may end

By Andy Shaw | January 23, 2010

Originally posted 25th June 2008

The cap that the Home Secretary put on levels of immigration last October may be relaxed or end altogether shortly.

If this happens then this will increase the upward price pressure on property and provide a low cost work force that will help the economy grow.

However, they are thinking of coming up with a regional skills shortage and therefore hope to direct the immigrant workers to the right place. This should be easy to enforce LOL

Best wishes

Andy

Topics: Free Content, Government, Property | Comments Off

Just One Reason Why The UK Will Not Crash In Prices

By Andy Shaw | January 23, 2010

Originally Posted 16th June 2008

There are a lot of people quoting parallels between the US and the UK property market and citing Spain as a warning of what there is to come. There is also the declining market in Ireland which again, after its rapid price correction, is now not really much of a surprise that it overshot the mark. However, one real reason for this more recent slow down is detailed below.

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Is There A Property Market At The Moment?

By Andy Shaw | January 23, 2010

Originally Posted 11th June 2008

The BBC brought out a wonderfully useless statistic yesterday and used it for their main headline, whilst they had struggled all day with different ways of presenting the info and different editors thinking maybe they were getting it wrong, therefore resulting in changing the figures several times, e.g. “1,000,000 in negative equity“, “2,000,000 in negative equity“, eventually settling on “23,000 people took out 100% mortgage and the price of the market has fallen therefore they are ‘probably’ in negative equity.”

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Why Investors Are Now Selling And How You Can Avoid Being One Of Them

By Andy Shaw | January 23, 2010

Originally Posted 19th May 2008

In times of market rises and easy money all you have to do is be ‘in’ something to profit from it. However, I see some of the basic risks that the uneducated have gotten wrong which is why in times of uncertainty they seem in a rush to protect their money. Knee-jerk reactions of course are more than often the worst thing to do!

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How Do I Know The Credit Crunch Will Be Fixed?

By Andy Shaw | January 23, 2010

Originally Posted 12th May 2008

I’m going to cover first how and why I know the credit crisis will be fixed and then I’ll go on to cover why it will continue to be such a great time for the contrarian investor.

How Do I Know It Will Be Fixed?

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Topics: Government, The Economy | Comments Off

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