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peterbirksI'm reading Biyi Bandele's Burma Boy at the moment, which, although I am only 40 pages or so into it, I can heartily recommend as one of the quality books of the year. The plot is fairly irrelevant, because the joy is in the writing and in the characterisation. I am reminded of both Evelyn Waugh and William Boyd. Already there is one member of the cast - Farabiti Banana - who seems destioned to become one of the great characters of modern literature. Although I am told that another character in the book, one Samanja Danisa, is even greater.
It's just a joy to get books like this. They really do come along once in a blue moon.
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A Japanese company has started offering space-travel insurance. This is not insurance against being abducted by aliens. This is proper cover for the dozens of people paying $100,000 for a 90-minute hop into space. The cover offered is ludicrously bad (5m yen for 100m yen of cover? Piss off.) and I idly thought of phoning my insurance broker and asking him if he could put together a better deal. Or perhaps I should send an e-mail to Guardian Money complaining about the size of the premium -- "an insult to every regular traveller into space". However, the part that caught my idea was the bit in the gumph where the insurer said that it was offering the cover:
"because regular travel insurance does not cover trips into space".
Wow. I mean. I know none of us read our travel insurance policies from start to finish, but does that mean that there is a rider in all of them which says "trips into space are excluded". I really hope so.
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An interesting factoid showing how farcical the current attitude to risk is. You can get a yield on US bonds of just over 5%. The yield on the bonds of Colombia (you know, that country ravaged by domestic strife over the past decade, the one where drugs runners have in the past controlled vast swathes of the country) is just under 6.5%. Yes, the difference is 125 basis points.
Even weirder, the yield on the bonds in Colombia and Mexico is less than the yield in New Zealand.
OK, much of this is distorted by your home currency, but these numbers are just gaga. We all know that the short-term is longer than we think, but this kind of situation just cannot continue.
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Speaking of which, there was a "wanted" ad on our intranet today. Someone is seeking a room in the Clapham area, for about £500 to £600 a month.
This shows the disconnect that exists between house prices and rental expectations. Even if our putative renter is willing to accept a room the size of a broom cupboard, we are looking at a house share in a 4-bedroom house. The typical such house in Clapham (two reasonable bedrooms, one small bedroom, one miniscule bedroom) would be on the 'for sale' market these days at around £750,000. Multiply our renters payments by four (£2,200 a month) and then by 12 (£26,400 a year). Take off agent's fee (£4,000). Take off repair costs (if furnished, about £2,500). That leaves about £20,000 for your tied-up capital of £750,000, or a yield of 2.67%. That's roughly on a par with Premium Bonds.
The only way this can be solved is either for rents to go up in real terms, or for prices to come down. Estate agentese will answer "ahh, but you have to allow for capital appreciation". But that solves nothing. If you are going to get back to a decent yield level, an increase in prices will necessitate an even greater increase in rents.
When Oakes, Gamble, Cawley, Leila and I rented a house (admittedly in Dulwich) in 1984, the rent was £700 a month, and the house was worth £78,000. That was a yield of more than 10% for the landlord. Even given the disparity in prevailing interest rates and inflation, tat made some kind of economic sense. The current yield levels make no sense at all.
But that doesn't mean that the situation won't continue for a good while The reason is simple. Once you are stuck in a loss-making proposition, sometimes it's better to carry on than to quit (both lose you money, but carrying on loses you less). In addition, a considerable amount of renting is where people are leaving London for a while, but want to retain a property "just in case". They are willing to pay a fee for this benefit, and that fee is the loss on the rental. Given the fiscal friction of selling and buying, this works out cheaper, even if you are making a loss.
The whole thing is a horrific mess, and the cure will be painful indeed, I fear. Higher inflation and stagnant house prices is the benign option. More worrying would be continuing low inflation and a large number of people starting to sell their houses in order to fund their retirement (the "trading down" or "moving to France" scenario). That could cause a bloodbath of supply. If foreign money dried up simultaneously, just as a large number of new properties came on stream (governments, as usual, trying to solve the previous decade's problems) then it would be a bloodbath.
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It's just a joy to get books like this. They really do come along once in a blue moon.
+++++++++++
A Japanese company has started offering space-travel insurance. This is not insurance against being abducted by aliens. This is proper cover for the dozens of people paying $100,000 for a 90-minute hop into space. The cover offered is ludicrously bad (5m yen for 100m yen of cover? Piss off.) and I idly thought of phoning my insurance broker and asking him if he could put together a better deal. Or perhaps I should send an e-mail to Guardian Money complaining about the size of the premium -- "an insult to every regular traveller into space". However, the part that caught my idea was the bit in the gumph where the insurer said that it was offering the cover:
"because regular travel insurance does not cover trips into space".
Wow. I mean. I know none of us read our travel insurance policies from start to finish, but does that mean that there is a rider in all of them which says "trips into space are excluded". I really hope so.
+++++++++++++++
An interesting factoid showing how farcical the current attitude to risk is. You can get a yield on US bonds of just over 5%. The yield on the bonds of Colombia (you know, that country ravaged by domestic strife over the past decade, the one where drugs runners have in the past controlled vast swathes of the country) is just under 6.5%. Yes, the difference is 125 basis points.
Even weirder, the yield on the bonds in Colombia and Mexico is less than the yield in New Zealand.
OK, much of this is distorted by your home currency, but these numbers are just gaga. We all know that the short-term is longer than we think, but this kind of situation just cannot continue.
++++++++++++++++
Speaking of which, there was a "wanted" ad on our intranet today. Someone is seeking a room in the Clapham area, for about £500 to £600 a month.
This shows the disconnect that exists between house prices and rental expectations. Even if our putative renter is willing to accept a room the size of a broom cupboard, we are looking at a house share in a 4-bedroom house. The typical such house in Clapham (two reasonable bedrooms, one small bedroom, one miniscule bedroom) would be on the 'for sale' market these days at around £750,000. Multiply our renters payments by four (£2,200 a month) and then by 12 (£26,400 a year). Take off agent's fee (£4,000). Take off repair costs (if furnished, about £2,500). That leaves about £20,000 for your tied-up capital of £750,000, or a yield of 2.67%. That's roughly on a par with Premium Bonds.
The only way this can be solved is either for rents to go up in real terms, or for prices to come down. Estate agentese will answer "ahh, but you have to allow for capital appreciation". But that solves nothing. If you are going to get back to a decent yield level, an increase in prices will necessitate an even greater increase in rents.
When Oakes, Gamble, Cawley, Leila and I rented a house (admittedly in Dulwich) in 1984, the rent was £700 a month, and the house was worth £78,000. That was a yield of more than 10% for the landlord. Even given the disparity in prevailing interest rates and inflation, tat made some kind of economic sense. The current yield levels make no sense at all.
But that doesn't mean that the situation won't continue for a good while The reason is simple. Once you are stuck in a loss-making proposition, sometimes it's better to carry on than to quit (both lose you money, but carrying on loses you less). In addition, a considerable amount of renting is where people are leaving London for a while, but want to retain a property "just in case". They are willing to pay a fee for this benefit, and that fee is the loss on the rental. Given the fiscal friction of selling and buying, this works out cheaper, even if you are making a loss.
The whole thing is a horrific mess, and the cure will be painful indeed, I fear. Higher inflation and stagnant house prices is the benign option. More worrying would be continuing low inflation and a large number of people starting to sell their houses in order to fund their retirement (the "trading down" or "moving to France" scenario). That could cause a bloodbath of supply. If foreign money dried up simultaneously, just as a large number of new properties came on stream (governments, as usual, trying to solve the previous decade's problems) then it would be a bloodbath.
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no subject
Date: 2007-06-26 04:00 pm (UTC)Instead of addressing the real problem, the government response to this is to jack up the interest rates several times to currently 8% in order to cool the market. Surprise, surprise the NZD is now a very desirable currency and Yen investors particularly are piling in. This leads inexorably to the NZD rising (30% v JPY in the last year). Now the NZ goverment are screaming blue murder about evil speculators and intervening in the currency markets to try to burn their fingers. Eventually the NZD will rise so much that the carry trade becomes less attractive, killing any export market in the process. Shweet.
So the high yield available on the NZD has nothing do with risk, or "farcical" views. It all makes perfect sense: governments screwing around with ridiculous interest rates trying to fix unrelated problems while being blind to the economic effects.
matt
no subject
Date: 2007-06-26 11:09 pm (UTC)Thinking more about the dollar. I still don't see it coming down. It's the oil again. It's sold in dollars, at least until the Iran Bourse gets under way. The dollar, to all intents and purposes, is backed by oil.
As oil gets scarcer, the price rises. The more the scarce commodity increases in value the more green backs will be printed to pay for oil and the vast panoply of products derived from it.
Inflation too will be distorted by the increase in oil price. My beloved orange juice went up 33% last year. All due to oil. The Florida farmers increased costs, the shipping, the packaging, the distribution etc. All increased in price.
My take. Shoot me down in flames.
no subject
Date: 2007-06-27 12:32 pm (UTC)But it's fascinating to think that a few by-laws preventing property development can lead to a full-blown currency crisis.
In the old days, increasing interest rates to cool demand worked fine, but that was before the carry trade moved into the retail sector.
I was practising my own quiet version of this before the concept had been named, I think. Back in 2003 or thereabouts Skandia opened SkandiaBank, based in Switzerland, and offering the opportunity to hold an interest-bearing account in any one of seven currencies, and being able to switch between them. So I smacked in five grand and plonked it straight into the higher yielding Norwegian krone, thank you very much.
The reason I thin kyour analysis is a fraction misleading is that the rising of the NZD does not make the carry trade unattractive, simply because the retail investors in Japan who have put the money in earlier have benefited from higher interest rates and an appreciating currency. This creates a bandwaggon effect as they tell their friends, who in turn pile in, which in turn strengthens the currency. The whole thing ends only when the interest rate differential shrinks or when there is no more liquid money to be put into the carry trades. There's one hell of a lot of retail savings in Japan that can be put into carry trades.
Governments cannot fight this wall of money. They just have to cut rates. This will lead to property inflation, which is a reasonable response to a scarcity of supply and a growth in demand.
I was not referring so much to the NZ yield as the Colombian yield. That people are willing to back the latter is what is farcical, not that they are failing to back the former.
PJ