There seems to have been a subtle shift in the wind here at the bank. Go back a month, and there was naked fear in the air about imminent job cuts - in no small part fueled by stressed managers making unsubtle references to resource unavailability and performance limitations. And vicious rumour mongers like myself.
Yet there seems to have been a surprising turnaround in the last fortnight - at least here, I can't speak for other banks busy absorbing huge losses and laying off thousands. From what I can determine from various trusted sources, it seems the bank has postponed plans to lay off any more people. That in itself is significant - from top to bottom now, we have shed around about 22% of headcount which is certainly a lot.
The economy is cyclical (Gordon take note, a 10yr boom will not be followed by another one), and one effect of a particular sector going into downturn first is that the impact of this ripples outwards to the rest of the economy like a bomb exploding. I had many a bemused discussion in the last 18mths talking to very intelligent (home loving) bankers, who were coming out with ridiculous views that the London housing market was somehow "immune" from any downturn.
In this case, we in financial services have now weathered a 20 month storm since Bear Stearns' nationalisation first shook the financial world - the first significant job cuts coming from late 2007. It seems reasonable that we are therefore going to hit the bottom first too, and reach a period where things stop getting worse and headcount (and performance/earnings) stabilise. Timing is so difficult, but I am going to call us reaching that period across financial services in around 6-9mths, with us reaching the bottom of the markets in Q3 2009.
Otherwise on a work social last night, I took the opportunity to find out more details about the current talk amongst Prime Brokerage here, that we have inadvertently gotten ourselves caught up in this whole fiasco relating to yet another investment shark, Allen Stanford. Not directly of course, we would be no more likely to entrust our own funds to the financial equivalent of an East End used car salesman as we would have given a penny to Bernie Madoff.
No, the problem is that yet again Private Wealth Management have played the 'not my problem guv' card. Whereas before we had a commendable ban on any trading activity with Madoff's ponzi scheme, we seem to have let a number of our cricket-loving HNW's (high net worth individuals) go and place funds with him. As you can imagine, the internal impact has been the usual internal cover-up for now, so not much is being openly said but it is difficult to imagine we won't be openly mentioned in the press in connection to all this soon enough.
I wish I could say I was bothered, but previously market shocking stories are becoming a daily soap opera nowadays. Is it just me or is the collapse of the financial system absolutely hilarious?
Showing posts with label house prices. Show all posts
Showing posts with label house prices. Show all posts
Thursday, February 19, 2009
Sunday, January 25, 2009
Dinner Time Conversation Killer
It is ironic that the current dinner table conversation killer these days is exactly what most over-extended people wouldn't stop twittering on about for the last 5 years.
By that I'm talking about house prices of course. Apart from a recent evening when I was forced to endure looking through a photo album of a friend's baby for an hour, I can't think of anything more boring. However there were a whole raft of people who took delight in measuring their own success by how much money they had 'made' by virtue of their house value - and telling the rest of us ad infinitum. Of course we can all see this was an illusion now, but I was one of a long-suffering minority who chose to sit out of this particular party as I could see what was coming.
If you are one of those with everything you own tied up in a house or flat, then you need to understand that housing always has and will be the British public's great illusion of wealth. An Englishman's home is his castle as they say. Yet in truth the only time housing should be seen as an investment is when it's a buy-to-let. Otherwise a house is a place to live and use - with the added bonus it can be sold on at some point of time in the future.
However ask yourself a question, what do you DO with all that money you've got tied up in a house you live in? The answer is, absolutely nothing. Money that could be making you a lot of money elsewhere is instead used to avoid paying rent. Where the Great British public justify over-extending themselves is in the naive argument that rent is "dead money" - so you have to get on the property ladder as soon as possible.
Nothing could be further from the truth, and for proof you only need look at Germany, where house ownership is something like 20% of the population. Germans are no poorer than the British - in fact given Sterling's recent collapse (more on that in a future post), they are a good deal wealthier when measured by earnings. So how can that be? The answer of course is that the money you don't stuff into a house can make you as much (or hopefully a lot more) than by simply following Average Man On The Street. Ask yourself one question: if housing is such a great investment, and everybody does it then why aren't more people rich? No, it's not just down to the amount people earn, it's what they do with it.
Unfortunately as we've seen, most people get excited by a rising number attached to their property in a housing boom, and then pretend that they have 'made' that money. Bzzzzt. As novice traders in the City learn on their first day, one of the golden rules of investing is that an unrealised profit is nothing more than a possibility at that moment in time. Not only have people spent the last 5 years happily falling under this illusion of wealth, but worse some have then borrowed more money against their house (on these unrealised profits) to spend.
That's all fine while those profits can still be realised, but the moment the market does what it does every 18 years or so and crashes, we're left with a large number of people who are about to learn this lesson in the most painful way. Point fingers of blame at the government and housing industry for allowing this to happen.
For even the many who were not so overextended but nonetheless followed the British norm of assuming buying a house or flat was a must do with their money, they are yet to learn another of the golden rules of investing - namely it is vital to detach emotion from an investment decision. Just because your house used to be valued at a certain amount doesn't mean digging your heels in and refusing to sell now if you want to move is a sensible idea.
There is currently a belief amongst home owners that reeks of desperation - namely that the market is simply going to bounce like a ball off its bottom and start shooting back upwards. Nothing could be further from the truth: house prices historically always have a sharp peak at the top as the boom becomes unsustainably fast and then sharply reverses. However that is followed by a near-equivalent fall down on the other side. House prices will continue to fall fast and then that pace will decline until it slows gradually to zero and only gradually begins a rise years later.
We have at least another 20-25% to fall before house prices reach the bottom, and when they do, they will do little other than stay at that level for another 3-5years. That means we won't start to see significant rises in house prices again until around 2014 or 2015.
But most people don't think rationally through the process. Most people don't take the time to research the housing market before buying to understand what has always happened before, and hence try to work out will happen again in such a cyclical market. Nope, we're going to grit our teeth and hold on for another year... as I said, it's that Average Man On The Street mentality which is why most people end up without much money.
No, for anybody debating whether to sell right now the answer is a resounding yes. Be realistic, take that perceived 'hit' compared to the price at the peak, and then put furniture into storage and rent for another 18-24mths. Why sit around holding a falling asset all the way to the bottom if you know it's going to fall?
With stocks, amateur investors often make the same mistake. I certainly did in my earlier years, falling in love with a particular company's product or idea and buying the bullshit press releases to convince myself that I should hold on. It's knowing when to realise your gain (or loss) and get out that is even more important than knowing when to get in.
Nobody should be looking to go into the housing market until mid-2010 at the earliest. In the meantime there are much more profitable places to put your money, but that's for another post.
Meantime I'm sitting here putting off tidying up the house before my fiancee, L, gets back from her extended visit to see her family. She's been away for a week, busy planning for our wedding later this year. Naturally I find the whole process incredibly tedious and am feigning interest throughout as all men do. Wish me luck tomorrow - when I pick her up from Heathrow I suspect it's going to be a day that feels like the baby photo album all over again...
By that I'm talking about house prices of course. Apart from a recent evening when I was forced to endure looking through a photo album of a friend's baby for an hour, I can't think of anything more boring. However there were a whole raft of people who took delight in measuring their own success by how much money they had 'made' by virtue of their house value - and telling the rest of us ad infinitum. Of course we can all see this was an illusion now, but I was one of a long-suffering minority who chose to sit out of this particular party as I could see what was coming.
If you are one of those with everything you own tied up in a house or flat, then you need to understand that housing always has and will be the British public's great illusion of wealth. An Englishman's home is his castle as they say. Yet in truth the only time housing should be seen as an investment is when it's a buy-to-let. Otherwise a house is a place to live and use - with the added bonus it can be sold on at some point of time in the future.
However ask yourself a question, what do you DO with all that money you've got tied up in a house you live in? The answer is, absolutely nothing. Money that could be making you a lot of money elsewhere is instead used to avoid paying rent. Where the Great British public justify over-extending themselves is in the naive argument that rent is "dead money" - so you have to get on the property ladder as soon as possible.
Nothing could be further from the truth, and for proof you only need look at Germany, where house ownership is something like 20% of the population. Germans are no poorer than the British - in fact given Sterling's recent collapse (more on that in a future post), they are a good deal wealthier when measured by earnings. So how can that be? The answer of course is that the money you don't stuff into a house can make you as much (or hopefully a lot more) than by simply following Average Man On The Street. Ask yourself one question: if housing is such a great investment, and everybody does it then why aren't more people rich? No, it's not just down to the amount people earn, it's what they do with it.
Unfortunately as we've seen, most people get excited by a rising number attached to their property in a housing boom, and then pretend that they have 'made' that money. Bzzzzt. As novice traders in the City learn on their first day, one of the golden rules of investing is that an unrealised profit is nothing more than a possibility at that moment in time. Not only have people spent the last 5 years happily falling under this illusion of wealth, but worse some have then borrowed more money against their house (on these unrealised profits) to spend.
That's all fine while those profits can still be realised, but the moment the market does what it does every 18 years or so and crashes, we're left with a large number of people who are about to learn this lesson in the most painful way. Point fingers of blame at the government and housing industry for allowing this to happen.
For even the many who were not so overextended but nonetheless followed the British norm of assuming buying a house or flat was a must do with their money, they are yet to learn another of the golden rules of investing - namely it is vital to detach emotion from an investment decision. Just because your house used to be valued at a certain amount doesn't mean digging your heels in and refusing to sell now if you want to move is a sensible idea.
There is currently a belief amongst home owners that reeks of desperation - namely that the market is simply going to bounce like a ball off its bottom and start shooting back upwards. Nothing could be further from the truth: house prices historically always have a sharp peak at the top as the boom becomes unsustainably fast and then sharply reverses. However that is followed by a near-equivalent fall down on the other side. House prices will continue to fall fast and then that pace will decline until it slows gradually to zero and only gradually begins a rise years later.
We have at least another 20-25% to fall before house prices reach the bottom, and when they do, they will do little other than stay at that level for another 3-5years. That means we won't start to see significant rises in house prices again until around 2014 or 2015.
But most people don't think rationally through the process. Most people don't take the time to research the housing market before buying to understand what has always happened before, and hence try to work out will happen again in such a cyclical market. Nope, we're going to grit our teeth and hold on for another year... as I said, it's that Average Man On The Street mentality which is why most people end up without much money.
No, for anybody debating whether to sell right now the answer is a resounding yes. Be realistic, take that perceived 'hit' compared to the price at the peak, and then put furniture into storage and rent for another 18-24mths. Why sit around holding a falling asset all the way to the bottom if you know it's going to fall?
With stocks, amateur investors often make the same mistake. I certainly did in my earlier years, falling in love with a particular company's product or idea and buying the bullshit press releases to convince myself that I should hold on. It's knowing when to realise your gain (or loss) and get out that is even more important than knowing when to get in.
Nobody should be looking to go into the housing market until mid-2010 at the earliest. In the meantime there are much more profitable places to put your money, but that's for another post.
Meantime I'm sitting here putting off tidying up the house before my fiancee, L, gets back from her extended visit to see her family. She's been away for a week, busy planning for our wedding later this year. Naturally I find the whole process incredibly tedious and am feigning interest throughout as all men do. Wish me luck tomorrow - when I pick her up from Heathrow I suspect it's going to be a day that feels like the baby photo album all over again...
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