Ratings agency Fitch released a depressing forecast for house prices this week and it has significant negative consequences (at least in the short term) for wholesale mortgage finance (RMBS’s or Residential Mortgage Backed Securities). It got a lot of coverage in the press and has got a lot of discussion going. My view (shared by a number of very rational economists) is that house prices will not suffer another big drop next year – why would they if the economy continues to recover as forecast? A tapering off or rises and continued instability in the market (presenting great buying opportunities) is a much more likely scenario. Central bankers eventually responded well to the banking shock and they’re extremely unlikely to allow a similar financial earthquake to occur again so soon (and that’s what it would take to send house prices down by a further 17%). Clearly this is an important subject so a lot of this weeks news review will be centered on it and related matters.
Inflation & Interest Rates
The Centre for Economic and Business Research (CEBR) is about to release some research backing up the view that the inevitable fiscal squeeze will mean that inflation and interest rates will remain very low until well into 2014 (0.5% into 2011 & less than 2% into 2014). David Smith notes firmly (and fairly) that ‘world recessions are not followed by galloping inflation’. Click here for more information.
Halifax of course reported a rise of 1.6% in September. This is likely to be as a result of thin trading (much as it was on the way down) and part of the rebound after financial Armageddon thankfully failed to materialize. Expectations are of a positive result for 2009 as a whole and a slow year in 2010 with most commentators (Fitch aside) expecting a modest rise or a modest fall before above trend growth (due to undersupply) sets in for at least a few years and that’s a view I share. Click here for more info.
Gold prices record levels of more than $1,050 an ounce this week and some expect it to keep rising. This looks like an obvious bubble brewing and with speculators using it as a hedge against inflation, rather a silly one.
The Dollar & Oil
Discussion has picked up again around the Dollar being dropped as the worlds’ reserve currency for oil. The report that sparked the speculation mentions a target date of 2018 however so whatever happens it won’t change for a long time. The Dollar is likely to progressively weaken for some time however if trade imbalances between the US & China in particular are to continue correcting themselves. Click here for more info.
London’s Financial Strength
Believe it or not the UK has just overtaken America to hit the top spot in a list of leading financial centres compiled by the World Economic Forum. Wherever the big firms choose to domicile themselves it’s likely that much of the advisory work will continue to take place in London. London’s liquidity and profile still sets it apart from the competition while Sarbanes-Oxley continues to detract from the US offering. This is not guaranteed to last forever and the threat of companies moving abroad must be taken seriously. It’s noteworthy however that 75% of Fortune 500 companies have London offices and 40% of the city workforce are employed by foreign firms – ‘the pools of capital are as deep as the pools of talent.’ (James Ashton, The Sunday Times).
General Business Highlights:
– John Waples once again picks out the 50% tax rate for high earners as a threat to the retaining UK’s top talent – why cause so much upset and risk losing so many great people abroad for a tax that will raise negligible sums. I’m sure most if not all of the take will be lost in administrative costs anyway.
– After numerous strikes already this year workers at the Royal Mail are threatening a walkout in the run up to Christmas. This will only encourage more customers to move to competitors and compound a vicious cycle. Postal unions have got it horribly wrong and the statistic showing they account for almost half of all days lost to industrial action in Britain underlines this.
– Intel have commented on the consumer now taking the lead in setting the pace in the computing industry and a great quote is that “we are still at the Model-T [Ford] stage of computing, that really is true if you think how computing has impacted on our lives in the last 50 years verses the next 50. It is going to be a lot more pervasive.”
An elite group of women in senior positions at hedge funds have just had a charity fundraising awards night. Women are known to be less aggressive and be more suited to mitigating risk (surely what hedge funds are all about) than men so it makes a lot of sense to promote their benefits in a an industry they are heavily under-represented in (women control just £7.6 billion out of £166 billion in 800 London hedge funds).
Stephen Levitt and Stephen Dubner authors of the bestselling Freakonomics (a great book by the way) report on a team of world renowned scientists arguing that CO2 (dimming the sun) is far from our greatest threat. In fact water vapour is the most threatening of greenhouse gases. “transportation is just not that big a sector (Jeremy Clarkson will be ecstatic)”, “cap and trade agreements are too late” because the existing carbon dioxide will remain in the atmosphere for several generations, solar panels “contribute to global warming” because they’re black and create heat. For $250 million Intellectual Ventures (IV) are confident that if necessary they could hose Sulphur Dioxide 18 miles straight up into the upper atmosphere and counteract global warming (if the worst climate predictions are correct). More importantly the knowledge alone could save poorly thought out and expensive anti-carbon schemes from going ahead – billions of poor people could be brought into first-world standards of living instead.
The world’s best universities are putting their lectures online for free through iTunes U and You Tube EDU and they’ve ‘gone viral’ at light speed. One example is a lecture from Marianne Talbot at Oxford called ‘A romp through the history of philosophy from the Pre-Socratics to the present day’ that’s attracting 5,000 downloads a week. Open educational resources (OER) have been accessed by more than 845,000 people around the world in little more than a year of their existence. In the past month downloads have averaged 400,000 per week. One study from the University of Fredonia claims that downloading a lecture (by podcast) can be more effective than attending one in person. Possibly because a podcast allows you to replay difficult parts as and when you want.
I in effect did this, without realizing, for the first time earlier today when I made notes on the ‘Here comes everybody lecture’. In my opinion this is the crux of the benefit offered by social media – people can teach each other things and pass on new learning at an incredible pace and it will lead to a golden age of progress for humanity. Just consider for a second how much faster problems can now be solved – no waiting for papers to be published (just watch it online) or to attend lectures (people will direct you to the best ones) and reduce time wasted duplicating work that’s already been done (just search for the latest breakthrough and take it from there). Phenomenal stuff. Click here for more info.
In other news
Weird but wonderful, The Sunday Times:
– Handbags at brawn. Two late-night drunks attacked a pair of cross-dressing men, but got more than they bargained for when their victims turned out to be professional cage fighters on their way to a fancy dress party. Daniel “Lionheart” Lerwell, 23, and James “Lights Out” Lilley, 22, were walking through Swansea late at night when they faced taunts of “Nice dress, gay boy!” from two men. One then threw a punch at James, who was wearing a pink wig and hot pants. James and Daniel, wearing a short black dress, suspenders and stockings, felled the attackers. After retrieving their handbags, the cage fighters left the culprits dazed on the ground. Daniel, 13 stone and a trained plumber, said he’d been particularly proud of his appearance as his mum had helped him put on his make-up. “It is a sorry state of affairs when a guy can’t safely walk down the street in a mini-skirt and make-up without getting grief from some idiot”.
– Does Ronaldo need the magic sponge? Two sorcerers claim they are fighting a black magic duel over Cristiano Ronaldo, the former Manchester United footballer. One of the magicians, named Pepe, said he was paid 15,000Euros to end Ronaldo’s carrer by a “rich, foreign woman who was betrayed”. Ronaldo who now plays for Real Madrid, has recently been suffering from an ankle injury. Pepe, clutching a wax doll of the player, says he is responsible for the injury. “She paid me to end Ronaldo’s career and I’m doing that,” he explained. A second sorcerer, known as Fafe claimed he had been called in to defend Ronaldo against Pepe’s spells. He dismissed his rival’s powers, but said he’d burnt candles next to a picture of Ronaldo just in case. “I have nothing against Ronaldo personally, “ Pepe told Portugal’s Correio de Manha newspaper. “It’s a job.”
– How not to prevent leaks … A secret dossier of guidelines has been drawn up by the Ministry of Defence to help officials maintain security and prevent leaks. The Joint Services Protocol 440 warns of the dangers of journalists, foreign intelligence services, criminals, terrorist groups and disaffected staff. And the details were secret right up until last week, when they appeared on the WikiLeaks website.
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