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ssaines
|  12 Aug '07 18:22 : 0 recs : edited 1 time : last edit 12 Aug '07 18:23
I also don't believe Armour-gettin' will occur.
Let me remind posters that Australia's last 'House Price Crash' was seven years of stagnating prices. Hardly Armageddon. More like getting stuck in the mud.
But to pretend that the present Crunch isn't hurting, and spreading beyond the immediate sector is just plain fantasy.
Slowed GDP Growth in the US and probably the UK is almost a given. That, however, is still buffered by the fact that China is trying to put on the brakes, and the World Economy still grows at an impressive rate.
The real shame of the situation is not whether risk can be eliminated or not (nobody in their right mind is stating that), but that it could easily have been *minimizedf*!
People seem to have short memories. It was the US herself (Clinton to be precise, with Greenspan at the Fed helm) that had hoped to have eliminated the 'Boom-Bust' scenario. |
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owl
| 12 Aug '07 16:07 : 0 recs : edited 1 time : last edit 12 Aug '07 16:42
Waterloo Sunset
Of course risk cannot be eliminated.
I'm just uncomfortable with the weight put on risk management- it has become a euphemism for risk avoidance.
And is sold as such to retail punters.
Whilst the FSA's warnings are delphic and late.
I do agree, though, this is not Armageddon. |
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prudence
| 12 Aug '07 16:03 : 0 recs
WS ............ I would say it is still very early days to be so sure that things will not turn really ugly. Time will tell................ |
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Waterloo Sunset
| 12 Aug '07 15:58 : 0 recs : edited 1 time : last edit 12 Aug '07 16:00
risk can be managed, not eliminated.
Your (and many of the current) questions dont directly say this but do explicitly assume it.
No, risk cannot be eliminated. Welcome to the world of grown ups
That risks have generally been managed well is shown by the fact that this huge correction will probably have relatively few casualties and relatively little effect on the real economy. Given the size of the losses, they do seem to have been fairly well spread to me - cue baboon comment about company X who is really in an awful way - i said GENERALLY. If you cant get that dont even try to think about risk management
WS
p.s. What is your 3%? 3% chance in a day? In a month? In a ayear? In a decade?Hpw many market events have we had like this one since say, 1950 then? Has there been one every say 13 years? Errrr..... |
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prudence
| 12 Aug '07 15:55 : 0 recs : edited 1 time : last edit 12 Aug '07 15:56
<<In an inflationary scenario, residential property - if in a normal, not over-supplied, location - is a pefectly good inflation hedge. Loans are easier to service, mortgage-rents tend to become relatively cheaper...........>>
the problem with this is that the housing market is highly dependent on credit availabilty.
For prices to go higher, lending will have to be as freely available as it has been Is that likely.
Also income rises will havae to at least match inflation. So far - in terms of real inflation - I doubt this has been the case. Economic recessions are not conducive to strong wage risses......... |
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owl
| 12 Aug '07 15:09 : 0 recs
Ming Too
Apologies, it was.
Waterloo Sunset
Interesting that your explanation of last month, about the way risk models work, by assuming 3% risk of meltdown, doesn't seem to have done much good for the Banks who've already defauted or frozen asset-funds.
Any thoughts? |
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MingToo
| 12 Aug '07 14:59 : 0 recs
owl:
Ming Too
Interestring that your explanation of last month, about the way risk models work, by assuming 3% risk of meltdown, don't seem to have done much good for the Banks who've already defaukted or frozen assets.
mmm, I think that might been Waterloo not me.
Ming |
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owl
| 12 Aug '07 14:41 : 0 recs
Hoog
Thank you.
You could say that, heads I win.
And tails Mervyn helps me to stay afloat. |
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Hoog
| 12 Aug '07 14:07 : 0 recs
owl,
A period of inflation (and perhaps negative real interest rates) sees property as arguably one of the best inflation hedges.
A global deflationary meltdown (the Great Depression, Japan in the 1990’s) would probably see residential property prices collapse. In these circumstances, you would probably be better to invest in say Treasuries (as Doom Monger Large and Small did, before he went bust).
Nonetheless, given that central banks can seemingly increase the money supply when they wish to, I personally don't think it is likely that they will choose to facilitate a global deflationary meltdown.
We will see!
Rgds,
*Hoog*  |
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owl
| 12 Aug '07 13:43 : 0 recs : edited 1 time : last edit 12 Aug '07 13:50
Goel
I think you meant "evitable"
Hoog
How does the common man cope with your expected dispossessions?
In an inflationary scenario, residential property - if in a normal, not over-supplied, location - is a pefectly good inflation hedge. Loans are easier to service, mortgage-rents tend to become relatively cheaper.
In a deflationary world, where money increases in value, what's wrong with bricks-and-mortar - again in an under-supplied market? |
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Hoog
| 12 Aug '07 09:05 : 0 recs : edited 1 time : last edit 12 Aug '07 09:10
The Great Gonzo Goel, you ask:
"Did anyone ever argue that they should or would simply walk away and allow the entire system to collapse?"
Yes, you did (and the other deflationists).
I take your point that this financial fall-out (as with previous crises such as the savings and loans crisis, LTCM et al) will last a long time. I suspect that the losses will be redistributed in drip feed fashion to the common man over the coming decades. Perhaps the common man's pension scheme won't be as generous in real terms in decades to come as they hope it will be at the moment? We will see...
The deflation/inflation debate is crucial, because an error in this forecast could result in you becoming as destitute as Doom Monger Large and Small.
So be it...
Rgds,
*Hoog* |
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Goel
| 12 Aug '07 08:58 : 0 recs
Saines just posted this link on the house price strand:
City sources said problems spiralled when top investment banks including Goldman Sachs, Lehman Brothers and Merrill Lynch - whose prime brokerage arms act as lending banks to the hedge funds - insisted that the funds settle a greater proportion of their debts at the end of the day than they had done previously.
Other banks are said to have followed suit. "Everyone has hiked margin calls and anyone who says they haven't is lying," said one banker.
The increased payments forced hedge funds to sell assets to cover their losses. One London banker said both Thursday and Friday were characterised by remarkably light but very volatile trading in London with those who didn't have to sell staying at home while those who were forced to sell were badly punished.
"This is a one-in-a-100-year event in which there are extremely unusual correlations that no one prepared for," warned one banker. "We are in a situation where everyone is very scared."
But it isn't a 'one-in-a-100-year event' - it is an entirely inevitable event, unless central banks mean to precede over an increasingly complex, fragile and heavily geared financial system over which they enjoy less and less control, and which can only either inflate at increasingly rapid rates or bust.
In fact, it is the same model as the UK housing market, where the limits to such a system become increasingly apparent.
A bust is in. The central bankers mean to manage this bust as best they think they can.
Did anyone ever argue that they should or would simply walk away and allow the entire system to collapse?
G. |
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Goel
| 12 Aug '07 08:44 : 0 recs
The problems are not suddenly solved, Hoog.
Some take the view that central banks are simply facilitating the massive unwinding of geared positions and the 'stabilisation' of toxic funds without the entire financial system imploding.
Its hardly an argument for the inflationist viewpoint.
G. |
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Hoog
| 12 Aug '07 07:47 : 0 recs
The humble Hoog has always seen the debate here as fundamentally being between inflationists and deflationists.
For example, Comrade zorro and the humble Hoog always considered that under a system of global fiat currencies inflation was more likely; doom mongers such as Wealth Gambler Large and Small and Ming the Merciless advocate a global deflationary meltdown as being probable.
Let me be clear – there are huge and very real losses being suffered at the moment. Although a small percentage of these losses have been suffered by blue chip investment banks (for example Bear Stearns), most of the losses have been suffered by by the usual suspects – muppet banks, pension funds and insurance companies. The common man will foot most of the bill for the poor trades, but will be none the wiser that this is what they are doing. Insurance companies will recoup losses through higher premiums, pension funds will recoup losses through lower payouts, banks will recoup losses via higher margins, and the central governments will recoup losses via higher taxes. This process is hidden by constantly shifting relative prices and money supply growth, which is not transparent to the common man.
The central banks’ response has not surprised Hoog – a massive injection of high powered money is what I expected. Normal service is resumed...
Rgds,
*Hoog* |
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owl
| 12 Aug '07 06:47 : 0 recs
As I've posted before, the emperor's clothes have morphed away.
Pricing.
Pricing of derivatives using financial models.
Themselves based primarily on the future aping the past.
Except that, when the ever so-rare 1 in 100 occurrence turns up, it disrupts the whole system.
And yet as I've just posted with my Weather correlation, 1-in-100 is really 1-in-20.
And my instinct (unprovable of course) is that we're moving to 1 in 7.
In my real world, a belief in 1 in 7 means that one must keep a much bigger cash buffer to ride out the event.
Ming Too
Interestring that your explanation of last month, about the way risk models work, by assuming 3% risk of meltdown, don't seem to have done much good for the Banks who've already defaukted or frozen assets.
I'd be interested in your lucid rationale for that.
Mine? No system cannot be corrupted by greed or fear. |
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owl
| 12 Aug '07 06:36 : 0 recs
It's the weather.
Go back to October 1987.
Out of nowhere, a Hurricane disrupts the South of England.
We then have a huge Stock Exchange correction.
Back to July 2007: once-in-a-hundred-years floods deluge England.
We then have a huge Stock Market correction: the blue chips I sold in 98 to buy bricks are back to their price then.
Watch out for academic papers next year "proving" my theory. |
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Merlin
| 11 Aug '07 20:16 : 0 recs
There is no doubt that the technology causes exaggerated responses.
But the market is what it is.
The whole thing floats on a sea of debt, If that debt is didgy the whole edifice wobbles.
Been in cash for a while now. Will reinvest when FTSE hits 5500. |
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Thoughtful
| 11 Aug '07 17:08 : 0 recs : edited 1 time : last edit 11 Aug '07 17:10
Volatility is a function of the technology and ease of trading!
Were markets as volatile in years gone by when global 24hr trading was something for the future? |
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