Opinions on a possible perfect storm

hallmark

My take FWIW, interested to hear what other's think. All opinions welcome good bad or ugly.

I think almost everything is in a bubble.  Bonds in a bubble. US shares (which tend to drive all other share markets IMO) in a bubble.  Property in a neverending bubble. Crypto nothing but a bubble.  Commodities in a bubble. Even the stuff that isnt especially bubble-like (PMs.......) is at highs.

I subscribe to the view "when everything is in a bubble, it's the currency that's the bubble".  I think the insane money printing by the Fed, the MPC etc all has caused most of the above and most of the eye-watering inflation.

I also think this is far worse inflation than is reported officially.  The way the CPI/RPI are calculated is as dodgy as IMO.  But even if you believe inflation is 7-9% that's astronomically higher than the base rates.  Previously, when we had inflation at those levels or higher, base rates were maybe a couple points lower, maybe a bit more but it certainly wasn't anything like 7-9% inflation vs 1% base rates.

All of which means anybody relying on Savings (retirees mainly) is facing a horrendous set of options.  Cash is losing real value somewhere between 10-20% a year (and accelerating).  It's an awful option.    But all of the other options are at frothy bubble valuations.

What will happen? I don't know.  But I wonder if the above is going to lead to a situation where millions of natural SAVERS are forced to become INVESTORS in a desperate attempt to avoid their future being inflated down the drain.  And that that could happen just as one, more, most or all of the above bubbles burst.

As I say, all thoughts welcome, as I'd rather like to be persuaded I'm wrong

eskbanker

hallmark said:

I think almost everything is in a bubble.  Bonds in a bubble. US shares (which tend to drive all other share markets IMO) in a bubble.  Property in a neverending bubble. Crypto nothing but a bubble.  Commodities in a bubble. Even the stuff that isnt especially bubble-like (PMs.......) is at highs.

What makes you conclude that bonds are in a bubble?  And surely a 'neverending bubble' would be an oxymoron, given the term's accepted usage of meaning a finite temporary situation?

hallmark

This isn't a fob-off, but essentially this kind of logic: https://www.pensioncraft.com/bond-bubble-explained/

I'm far from a bond expert, but the little I think I understand is that rising base rates are cryptonite for bonds and it looks like we're going to see at least some base rate hikes (altho I do think the fed talks the talk more than it'll walk the walk).

Re property, what I mean is there's been almost no time during the last 20 years when everybody you ask didn't think that property was insanely expensive.  I agree this is an amateurish anecdotal way of looking at it.  But equally, there surely could/should be SOME point where property valuations return to nearer where they were 30 years ago (i.e."normal" people could afford a house without selling their soul) as opposed to today's valuations where lots of people simply cannot afford to buy under any circs.  That kind of thing.

25_Years_On

So it's all going to hell and we should be pessimistic about it.

hallmark

25_Years_On said:

So it's all going to hell and we should be pessimistic about it.

Well that's what I'm hoping to be convinced isn't the case really.  I'm a natural saver and reluctant investor, but I understand that everything carries risk including doing "nothing" i.e. saving, and we may well be entering an era where the least risky option (saving) is actually the most risky.

I dislike investing because I have a gambler's mentality and I know my own weaknesses (i.e. I might very well do all the things investors should not do).   Nevertheless I feel that I'm being forced down that path by inflation, and I suspect many others do too. Hence the thread.

Nobody will be happier than me if everything turns out fine.

Alistair31

Might be a good time to use cash to pay off debts (mortgage in my case) but as ever, nobody knows what is coming. 

grumiofoundation

hallmark said:

This isn't a fob-off, but essentially this kind of logic: https://www.pensioncraft.com/bond-bubble-explained/

I'm far from a bond expert, but the little I think I understand is that rising base rates are cryptonite for bonds and it looks like we're going to see at least some base rate hikes (altho I do think the fed talks the talk more than it'll walk the walk).

Re property, what I mean is there's been almost no time during the last 20 years when everybody you ask didn't think that property was insanely expensive.  I agree this is an amateurish anecdotal way of looking at it.  But equally, there surely could/should be SOME point where property valuations return to nearer where they were 30 years ago (i.e."normal" people could afford a house without selling their soul) as opposed to today's valuations where lots of people simply cannot afford to buy under any circs.  That kind of thing.

Since you have surveyed a representative subset of the UK population over the last 20 years and got this unequivocal result might be an interesting publication?

With my tongue out of my cheek if  you are hoping/expecting for average house prices to return to where they were 30 years ago (55,000 - not inflation adjusted) you are hoping for an 80% drop. I think y even the most ardent house price crash it’s aren’t eprwdicing this. Even inflation adjusted (use BOE inflation calc) you need over  >50% drop. 

P. S. I don’t know about anyone else but I don’t remember again soul selling clause  in the Ts and Cs of my abnormal mortgage (take out early 2021)! 

 

Prism

hallmark said:

What will happen? I don't know.  But I wonder if the above is going to lead to a situation where millions of natural SAVERS are forced to become INVESTORS in a desperate attempt to avoid their future being inflated down the drain.  And that that could happen just as one, more, most or all of the above bubbles burst.

Almost everyone is an investor already and it has been that way for many years. I'm not sure things will be much different going forward.

ChesterDog

Bubble upon bubble upon bubble.

Insanely expensive.

Cryptonite.

Horrendous. Awful. Eye-watering. Forced.

You're stoking your own fears and beliefs with this sort of terminology. 

hallmark

Re property: To give a simple real-world example, one of my pals is married, two kids. He works in a factory, wife works in a supermarket.  Total income is approx £40K.  Even the smallest house they could feasibly live in here (Essex) costs far far more than they can ever afford.  Even with a £100K deposit and the longest possible mortgage, they still can't afford to buy.  To me those are bubble prices.  If two people doing nothing-special but equally, perfectly normal jobs, cannot possibly afford a house, then house prices are unsustainably high and will at some point correct.   But just IMO.

Re everybody being an investor, you might think that's the case but when you ask around it's not.  I believe the stats suggest about a third of people are.

Re stoking fears, perhaps, and I'd like that to be the case, but it's only counter-arguments that'll convince me.

hallmark

To give a little perspective, I am 50s, own outright, and not posting with any agenda, as I don't honestly know the best way out of the situation we're in, all roads out look pretty grim to me so just interested in hearing other opinions.