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I closed out my long dollar position vs the yen on Friday; a move which, given my track record of closing out too early (see my long wheat position, closed out after nine months, just three months before the current surge began) this should predicate a great dollar performance in 2011.
However, the recent political upheavals should have been good for the dollar, but they weren't. They were good for gold, which had dropped back by about 7% since the beginning of the year, and then promptly regained that loss when Egypt and then Libya blew up. So I went long on gold on Friday. Target price, $1800 from the current $1420. Could make it about a fiver a point within the next couple of weeks.
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Holiday time soon, and it can't come soon enough. Five days a week of a daily newsletter gets very wearying after about 10 weeks if I don't have a single day's break. With the days getting longer, late March/early April in Nice can be breezy, but also very sunny. I'm really going to try to visit some of the as-yet unvisited places nearby -- St Paul de Vence being high on the list. Also I plan a walk up into the mountain villages north of Menton. About 8km from Menton is my reckoning. Might get a train somewhere - Ventimiglia/Vente Mille, or wherever seems tempting.
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My work-friend Ruth Lythe had a good piece in The Guardian's Money section yesterday, on shared ownership schemes. I've been speaking to a few people in their early 30s about home-ownership and, to be frank, it's very dispiriting to hear their almost complete lack of hope. While those aged 36 and up seem to have got onto the home-ownership bandwaggon "just in time" (although whether or not this is a good idea is of course open to debate), people in their early 30s and below seem to have almost given up hope of ever owning anywhere. Unless they are willing to lock themselves away, never going out, for five years (and they have a partner), there doesn't seem any way that they could accumulate the required deposit without getting help from parents or other rich family members.
I try very hard to remember the "bad times" when a pound mattered a lot and a fiver was enough to keep me in Pils and roll-ups for the day, which was all that mattered, and damn the future. But as time goes on, even though this was only 20 years ago, one does tend to forget the emotional nature of this, of how it coloured your entire existence. I got lucky. I spotted that the housing market was starting a strong rise; I leveraged myself to the hilt, got into buy-to-let before everyone else did, and benefited accordingly. There's no such opportunity today, simply because the credit isn't so easily available.
I remember telling a guy over a Vegas poker table, after he asked me what I thought of Blair (this was just after the Iraq invasion when Blair was the bees-knees in the US and all French were hated -- oh how the Americans have short memories!), that I was "white, middle-class and middle-aged. Obviously he's been great for me." (Note that I didn't actually answer his question). There are a large number of middle-agged and elderly people who have benefited enormously from economic policies of the past 30 years -- be it through greater wealth or greater leisure time (see, over-generous pension deals) -- and, worse, they have come to see it as a "right", rather than a ridiculous gift for which they should be eternally grateful. Perhaps a chat with a few 30-somethings would enlighten them, but I doubt that it would. They would simply say that these "kids" (anyone under 40 becomes a "kid" once you get old) deserve as much as they, the elderly, got. What they don't realize is that what they, the elderly, (and us, the middle-aged going-on-elderly), got was basically a result of a rip-off of the young. The only way that the young can get it today is if they take it back off us.
In some cases (e.g., the long periods of leisure time enjoyed by the prematurely-retired over the past two decades) that's not something that you can easily "get back". Not only were the young ripped off, but the elderly have already spent it. Over the next decade there will be a significant transfer from savers to borrowers, through the twin mechanisms of low interest rates and higher inflation, but the more savvy savers will protect themselves against much of that.
The only real "transfer of wealth" will take place when these big winners start to die off without having spent all of the wealth that they have "stolen" from the young. People now in their early 30s will finally become property owners in their 50s, when their parents begin to die off. What's worrying is that schemes will appear that will enable/force them to use their home equity to subsidize care for them. This will transfer the wealth (in the form of property) to the copmpanies providing the caring.
On the plus side, this will bring about a overhang of property to the market that will keep house prices suppressed.
The more that I look at this, the more it seems to me that the UK will see a prolonged period (30 years or more), of depressed house prices. None of the factors that caused the increase over and above the rate of inflation since the mid-1950s looks set to be repeated.
The question is, will those depressed house prices translate into people finally being able to own their homes, or will it be a case of restricted credit for decades to come? That's a harder call and depends as much on political decision-making and policy as it does on free-market economics. And this is global policy rather than UK government policy. When I went into buy-to-let in 1997, I couldn't find a loan in the UK, but I found one in Ireland. Individual areas of policy control will be irrelevant in the grander scheme of tighter global solvency rules and restrictions.
______________________
However, the recent political upheavals should have been good for the dollar, but they weren't. They were good for gold, which had dropped back by about 7% since the beginning of the year, and then promptly regained that loss when Egypt and then Libya blew up. So I went long on gold on Friday. Target price, $1800 from the current $1420. Could make it about a fiver a point within the next couple of weeks.
+++++++++
Holiday time soon, and it can't come soon enough. Five days a week of a daily newsletter gets very wearying after about 10 weeks if I don't have a single day's break. With the days getting longer, late March/early April in Nice can be breezy, but also very sunny. I'm really going to try to visit some of the as-yet unvisited places nearby -- St Paul de Vence being high on the list. Also I plan a walk up into the mountain villages north of Menton. About 8km from Menton is my reckoning. Might get a train somewhere - Ventimiglia/Vente Mille, or wherever seems tempting.
++++++++++
My work-friend Ruth Lythe had a good piece in The Guardian's Money section yesterday, on shared ownership schemes. I've been speaking to a few people in their early 30s about home-ownership and, to be frank, it's very dispiriting to hear their almost complete lack of hope. While those aged 36 and up seem to have got onto the home-ownership bandwaggon "just in time" (although whether or not this is a good idea is of course open to debate), people in their early 30s and below seem to have almost given up hope of ever owning anywhere. Unless they are willing to lock themselves away, never going out, for five years (and they have a partner), there doesn't seem any way that they could accumulate the required deposit without getting help from parents or other rich family members.
I try very hard to remember the "bad times" when a pound mattered a lot and a fiver was enough to keep me in Pils and roll-ups for the day, which was all that mattered, and damn the future. But as time goes on, even though this was only 20 years ago, one does tend to forget the emotional nature of this, of how it coloured your entire existence. I got lucky. I spotted that the housing market was starting a strong rise; I leveraged myself to the hilt, got into buy-to-let before everyone else did, and benefited accordingly. There's no such opportunity today, simply because the credit isn't so easily available.
I remember telling a guy over a Vegas poker table, after he asked me what I thought of Blair (this was just after the Iraq invasion when Blair was the bees-knees in the US and all French were hated -- oh how the Americans have short memories!), that I was "white, middle-class and middle-aged. Obviously he's been great for me." (Note that I didn't actually answer his question). There are a large number of middle-agged and elderly people who have benefited enormously from economic policies of the past 30 years -- be it through greater wealth or greater leisure time (see, over-generous pension deals) -- and, worse, they have come to see it as a "right", rather than a ridiculous gift for which they should be eternally grateful. Perhaps a chat with a few 30-somethings would enlighten them, but I doubt that it would. They would simply say that these "kids" (anyone under 40 becomes a "kid" once you get old) deserve as much as they, the elderly, got. What they don't realize is that what they, the elderly, (and us, the middle-aged going-on-elderly), got was basically a result of a rip-off of the young. The only way that the young can get it today is if they take it back off us.
In some cases (e.g., the long periods of leisure time enjoyed by the prematurely-retired over the past two decades) that's not something that you can easily "get back". Not only were the young ripped off, but the elderly have already spent it. Over the next decade there will be a significant transfer from savers to borrowers, through the twin mechanisms of low interest rates and higher inflation, but the more savvy savers will protect themselves against much of that.
The only real "transfer of wealth" will take place when these big winners start to die off without having spent all of the wealth that they have "stolen" from the young. People now in their early 30s will finally become property owners in their 50s, when their parents begin to die off. What's worrying is that schemes will appear that will enable/force them to use their home equity to subsidize care for them. This will transfer the wealth (in the form of property) to the copmpanies providing the caring.
On the plus side, this will bring about a overhang of property to the market that will keep house prices suppressed.
The more that I look at this, the more it seems to me that the UK will see a prolonged period (30 years or more), of depressed house prices. None of the factors that caused the increase over and above the rate of inflation since the mid-1950s looks set to be repeated.
The question is, will those depressed house prices translate into people finally being able to own their homes, or will it be a case of restricted credit for decades to come? That's a harder call and depends as much on political decision-making and policy as it does on free-market economics. And this is global policy rather than UK government policy. When I went into buy-to-let in 1997, I couldn't find a loan in the UK, but I found one in Ireland. Individual areas of policy control will be irrelevant in the grander scheme of tighter global solvency rules and restrictions.
______________________
