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Overvalued, overrated, over there.
Jun. 20th, 2007 09:08 amAbout 18 months or so ago, I recall reading on certain blogs how the property boom in the US (particularly in Las Vegas) was "different this time". Older cynics like us commented that "they always say that".
This morning's Bloomberg refers to the US housing market currently being a bloodbath. Not only have the bottom-of-the-barrel borrowers, some of whom apparently got rates of 1% for a couple of years, interest only, and have therefore seen their repayments more than quadruple (the "exploding ARMS" tale), got into trouble, but now the 30-year rate has gone up half a point in only five weeks, hitting the "solid" mortgage market as well.
And for the US, this is a new phenomenon. Variable mortgage rates and a "sophisticated" mortgage market tend to require a sophisticated sales and customer base, else you can get into a lot of trouble. And that is what the US housing market is in right now. Be thankful if you didn't buy anywhere in the US in the past two years, because the worst is yet to come.
Some of this will permeate to the UK over the next couple of years, I am sure of it, which is one reason for me not being unhappy about the purchase of downstairs falling through. Balancing economic and non-economic factors as part of a big financial decision is always difficult, but I am becoming more and more convinced that we have finally reached the housing peak in London.
As is observed in a comment in the FT this morning, what do you do when all asset classses are overvalued? Logically, this shouldn't be possible, until you bring into play the concept of time. If everyone is buying stuff today with tomorrow's money, then it's quite possible for all asset classes to be overvalued. One interesting solution was to find anything that no-one wants. At the moment, that would appear to be the US dollar.
It's an interesting strategy and, since a few of my liquid assets are in US dollars, one that I've been following, albeit in an unplanned, poker-winnings, kind of way. My US liquid investments pay better than my UK ones, so, if the US dollar is not going to decline to $2.20, then shifting further into that asset class makes sense. However, just because something is undervalued (which in terms of purchasing power, the dollar most definitely is), that doesn't mean it won't become more undervalued before fundamentals reassert themselves.
++++++
While channel surfing yesterday night I came across a US programme called "Gay, Straight or Taken", which was riveting for about three minutes. The format is roughly that a woman meets three attractive guys (all the same height, mysteriously) and has to decide which of the trio is straight and single. If she is right, then they both go on a cruise. If she is wrong, then the guy she picks goes on the cruise with his partner.
Anyhoo, the woman duly selected the straight guy who was already in a relationship. She then said to camera "story of my life. If there's a choice between the guy who is available and the guy who is taken, I pick the one who's already in a relationship".
Now, this actually makes some interesting sociolgical (and game theory) points. Here we have a woman who has narrowed the situation down to two guys she thinks are straight, but she knows that one of them is in a relationship. If she selects the guy who is not, then she gets a prize.
And yet she still chose the guy who was taken.
Now, look at the gamble from the woman's point of view. Obviously the taken guy was the one that she wanted to go on the cruise with, but she would have preferred a cruise with a single guy to no cruise at all.
So, her most preferred result is
(a) cruise with guy I like best
Second is
(b) cruise with guy I like second-best
followed by
(c) no cruise.
If she chooses the guy she likes second-best, and turns out to be wrong (i.e., the guy she liked best was the one who was available), she is seriously gutted, because she has missed out on her most preferred result. So it makes sense for her to gamble on (a), and choosing the guy she likes best.
But, and here's the rub, there's likely a high probability that the guy she likes best will be the guy who is taken.
What's the percentage? 80% 70%? I don't know. So now the rational game-theorising woman has to balance a 4-to-1 against chance. Do you want a 20% chance of a cruise with the guy you liked most, or an 80% chance of a cruise with the guy you liked second-best?
I guess that it comes down to how much more she "liked" the guy who was taken.
BTW, I've eliminated the gay contestant from this calculation, as it seemed that the woman had little trouble spotting that he was sexually unavailable.
This morning's Bloomberg refers to the US housing market currently being a bloodbath. Not only have the bottom-of-the-barrel borrowers, some of whom apparently got rates of 1% for a couple of years, interest only, and have therefore seen their repayments more than quadruple (the "exploding ARMS" tale), got into trouble, but now the 30-year rate has gone up half a point in only five weeks, hitting the "solid" mortgage market as well.
And for the US, this is a new phenomenon. Variable mortgage rates and a "sophisticated" mortgage market tend to require a sophisticated sales and customer base, else you can get into a lot of trouble. And that is what the US housing market is in right now. Be thankful if you didn't buy anywhere in the US in the past two years, because the worst is yet to come.
Some of this will permeate to the UK over the next couple of years, I am sure of it, which is one reason for me not being unhappy about the purchase of downstairs falling through. Balancing economic and non-economic factors as part of a big financial decision is always difficult, but I am becoming more and more convinced that we have finally reached the housing peak in London.
As is observed in a comment in the FT this morning, what do you do when all asset classses are overvalued? Logically, this shouldn't be possible, until you bring into play the concept of time. If everyone is buying stuff today with tomorrow's money, then it's quite possible for all asset classes to be overvalued. One interesting solution was to find anything that no-one wants. At the moment, that would appear to be the US dollar.
It's an interesting strategy and, since a few of my liquid assets are in US dollars, one that I've been following, albeit in an unplanned, poker-winnings, kind of way. My US liquid investments pay better than my UK ones, so, if the US dollar is not going to decline to $2.20, then shifting further into that asset class makes sense. However, just because something is undervalued (which in terms of purchasing power, the dollar most definitely is), that doesn't mean it won't become more undervalued before fundamentals reassert themselves.
++++++
While channel surfing yesterday night I came across a US programme called "Gay, Straight or Taken", which was riveting for about three minutes. The format is roughly that a woman meets three attractive guys (all the same height, mysteriously) and has to decide which of the trio is straight and single. If she is right, then they both go on a cruise. If she is wrong, then the guy she picks goes on the cruise with his partner.
Anyhoo, the woman duly selected the straight guy who was already in a relationship. She then said to camera "story of my life. If there's a choice between the guy who is available and the guy who is taken, I pick the one who's already in a relationship".
Now, this actually makes some interesting sociolgical (and game theory) points. Here we have a woman who has narrowed the situation down to two guys she thinks are straight, but she knows that one of them is in a relationship. If she selects the guy who is not, then she gets a prize.
And yet she still chose the guy who was taken.
Now, look at the gamble from the woman's point of view. Obviously the taken guy was the one that she wanted to go on the cruise with, but she would have preferred a cruise with a single guy to no cruise at all.
So, her most preferred result is
(a) cruise with guy I like best
Second is
(b) cruise with guy I like second-best
followed by
(c) no cruise.
If she chooses the guy she likes second-best, and turns out to be wrong (i.e., the guy she liked best was the one who was available), she is seriously gutted, because she has missed out on her most preferred result. So it makes sense for her to gamble on (a), and choosing the guy she likes best.
But, and here's the rub, there's likely a high probability that the guy she likes best will be the guy who is taken.
What's the percentage? 80% 70%? I don't know. So now the rational game-theorising woman has to balance a 4-to-1 against chance. Do you want a 20% chance of a cruise with the guy you liked most, or an 80% chance of a cruise with the guy you liked second-best?
I guess that it comes down to how much more she "liked" the guy who was taken.
BTW, I've eliminated the gay contestant from this calculation, as it seemed that the woman had little trouble spotting that he was sexually unavailable.
