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Opinions on a possible perfect storm

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  • hallmark said:
    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.
    Does that 1/3 include all defined contribution pensions? 

    To use your real world example 30 years ago what would have been their
    salaries, what mortgage could they have got (bOE base rate was 10% in 1992) and therefore what could they have afforded? 

    Quick right move search there are ~140 houses (haven’t looked in detail am sure many arrant suitable properties) costing 200k or less in Essex - that’s 180k mortgage (4.5x) plus 20k deposit.
  • Albermarle
    Albermarle Posts: 27,999 Forumite
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    hallmark 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.

    There have already been many discussions on this forum about 
    Pressure on bonds due to inflation, interest rate rises, unwinding of QE
    Apparent high valuations of some large US tech stocks 
    Low savings rates compared to inflation .
    etc etc 

    Most informed people are aware that some potentially tricky times lie ahead . However you have to deal with the situation as it is and 'Don't Panic' . You have to do something even if it is picking the least worst option .

    As the previous poster has pointed out the bond and US stock markets have already adjusted to some extent anyway.
  • hallmark
    hallmark Posts: 1,463 Forumite
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    I guess I'm thinking more of "active" investors than people who belong to a pension scheme. Inasmuch as we're all very much active investors whether we like it or not.

    Re the counter arguments, in all cases I guess I'm thinking global rather than UK just because I don't really see any market (shares, bonds, property etc etc) rise or fall globally without the UK simply following.  That being said I prefer UK shares to the S&P just now and obvs as a UK investor there's a line of reasoning that says nailing your mast to UK-based stuff makes most sense.

    Specifically re the counters:

    Bonds: I don't think I understand bonds well enough to comment intelligently really.  I want to believe that bonds are a good non-correlated risk to shares so I hope your counter proves to be true.

    Property: Agree UK but I don't know how much that applies globally/US wise and like I've alluded to above I just dont' see a scenario where say US property falls 30% and UK doesn't do something similar. So I think it's possible property could fall, but it's not a market I'd ever want to bet against.

    US Shares: by nature I look at stuff like the Buffet indicator and all those other ratios that suggest the S&P is insanely high.  But I understand the market can remain high longer than you can stay solvent (or whatever the precise saying is).  My gut feel is the S&P  DEFINITELY falls but that could be tomorrow or in three years or who knows.  I do think a Japan-style LONG downturn is more possible than is talked about.  We're all continually told that the market bounces back quickly, I think that's due not to happen.

    Currency: I actually have zero faith that QT will happen to any real extent. I think the people making those decisions are not economists (that might be bad enough!!) they are politicians, appointed by politicians and the moment the politics tell them to return to QE they will.
  • hallmark
    hallmark Posts: 1,463 Forumite
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    hallmark said:
    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.
    Does that 1/3 include all defined contribution pensions? 

    To use your real world example 30 years ago what would have been their
    salaries, what mortgage could they have got (bOE base rate was 10% in 1992) and therefore what could they have afforded? 

    Quick right move search there are ~140 houses (haven’t looked in detail am sure many arrant suitable properties) costing 200k or less in Essex - that’s 180k mortgage (4.5x) plus 20k deposit.
    I bought in '88 so not quite 30 years ago but a reasonable chunk. That house (3-bed in the same part of Essex they live now) was £76k.  Even allowing their combined £40k salary would have been a lot less, they'd have comfortably been able to afford to buy.

    The same 3-bed now costs nearer £400k and is way out of their reach.  The ~140 houses you're looking at are most probs in a different part of Essex.

    There are houses here that cost not much more than £200k, but they are in really rough areas, far worse than where they currently rent.  With two youngish daughters they don't want to move to a far rougher area simply to get on the property ladder, which I don't blame them thinking.
  • hallmark
    hallmark Posts: 1,463 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    hallmark 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.


    Most informed people are aware that some potentially tricky times lie ahead . However you have to deal with the situation as it is and 'Don't Panic' . You have to do something even if it is picking the least worst option .

    I agree, but you see my point. I think there's a very real possibility people do the opposite, panic, invest, then see large losses if there's a proper downturn.  I could be wrong, and chances are I am, but if I had to bet, I think it's a proper risk.
  • ChesterDog
    ChesterDog Posts: 1,145 Forumite
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    edited 15 April 2022 at 7:21PM
    With all of them, bear in mind that bubbles can generally only judged using hindsight.

    The implication of the term is that the values are heading for a collapse.

    However, high valuations can do many things, and even if they return to the mean ultimately, it needn't be sudden. They can fluctuate, stay where they are while the greater economy catches up, go higher still, slowly reduce...

    Markets react most strongly to surprises. Your Perfect Storm scenario is largely known and predictable. 

    It's what out of sight around the corner that's going to have the biggest impact. Good or bad.
    I am one of the Dogs of the Index.
  • masonic
    masonic Posts: 27,332 Forumite
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    edited 15 April 2022 at 7:45PM
    hallmark said:
    I guess I'm thinking more of "active" investors than people who belong to a pension scheme. Inasmuch as we're all very much active investors whether we like it or not.
    Fair enough, well you can turn that on its head: 40% of people don't have enough saved to survive for a month without an income. None of those people need concern themselves with making investment returns; growing their employment income is the only way they'll lift themselves out of financial insecurity. The stat of 33% owning shares is going to be the majority of people who should, given 3-6 months living expenses really ought to be saved in cash before embarking on S&S investments.
    hallmark said:
    Re the counter arguments, in all cases I guess I'm thinking global rather than UK just because I don't really see any market (shares, bonds, property etc etc) rise or fall globally without the UK simply following.  That being said I prefer UK shares to the S&P just now and obvs as a UK investor there's a line of reasoning that says nailing your mast to UK-based stuff makes most sense.
    Have you looked at valuations across global stockmarkets? For property, have you looked at the extent of such fluctuations as well as the direction? (there are good reasons why the UK market has been more constrained) For bond markets, do you understand how duration impacts bond prices, and have you compared average durations of different government bonds? (also worth comparing a global bond fund to a UK gilt fund, short dated vs long dated)
    Shares listed in the UK may not be UK shares. The FTSE100 is not very UK based. The FTSE250 is a better UK-based index, but obviously is made up of smaller companies. Single sector investing, even in your home market, is high risk investing. There are several options for global multi-asset or global equities funds, which have varying degrees of home bias and even varying degrees of exposure to the expensive US market.
    hallmark said:
    Currency: I actually have zero faith that QT will happen to any real extent. I think the people making those decisions are not economists (that might be bad enough!!) they are politicians, appointed by politicians and the moment the politics tell them to return to QE they will.
    If you really believe this then inflation linked bonds will be a good investment right now, because interest rates will have to collapse again and inflation will take off. You'll get a nice capital gain when this happens, plus inflation linking. It makes things really simple when you are so certain of a particular outcome. You also have the benefit of betting against most other market participants.
  • hallmark
    hallmark Posts: 1,463 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker

    Markets react most strongly to surprises. Your Perfect Storm scenario is largely known and predictable. 

    That's not really what I'm seeing? Do you have any links to articles/streams along those lines? (Serious question)
  • ColdIron
    ColdIron Posts: 9,873 Forumite
    Part of the Furniture 1,000 Posts Hung up my suit! Name Dropper
    hallmark said:
    hallmark said:
    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.
    Does that 1/3 include all defined contribution pensions? 

    To use your real world example 30 years ago what would have been their
    salaries, what mortgage could they have got (bOE base rate was 10% in 1992) and therefore what could they have afforded? 

    Quick right move search there are ~140 houses (haven’t looked in detail am sure many arrant suitable properties) costing 200k or less in Essex - that’s 180k mortgage (4.5x) plus 20k deposit.
    I bought in '88 so not quite 30 years ago but a reasonable chunk. That house (3-bed in the same part of Essex they live now) was £76k.  Even allowing their combined £40k salary would have been a lot less, they'd have comfortably been able to afford to buy.
    I bought in '89, a 2 bed flat for £66k. A 3 bed house was way beyond me. I stopped going out and didn't have a holiday for 10 years
    At a 12% interest rate it was far from a comfortable buy
    I wonder if time has softened your recollection of those times
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