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Sunday, July 15, 2007

UK housing market also a bubble

The conventional view is that house prices are still rising in the UK. Merryn Somerset Webb, editor of Moneyweek, begs to differ (25 June) and the index to which she refers is here; Michael Hampton (Financial Sense, July 5) is also pessimistic.

For those who want to know what prices houses have actually fetched, see, which gives much other useful information.


Ed said...

This is just intended to be a communication to you, in case it might inspire some blogpost by you.
I do include
The available TIPS maturities are the green points at the ‘last Real Dow’ level -- intending to show the available choices of a certainty real future from ‘selling the Dow and buying TIPS’.

I saw
Be wary of Treasury Inflation Protected Securities (TIPS) - the government defines inflation, but it's also the borrower. Schiff says it's like "trusting the fox to guard the henhouse".

I figure
Re. our UST paying TIPS as promised, I reckon:
bad national troubles would be worsened if UST didn't keep its word & paid resulting higher future interest rates forevermore;
I-bonds and TIPS depend similarly on CPI-U, so fooling with the latter would be promptly apparent to a LOT of voters who hold I-bonds;
so I'm 'confident enough'!

But, of course, nothing is for sure: I know dogs who ALWAYS eat as fast as possible in case a supernova is imminent ...

Sackerson said...

Hi Ed, and sincere thanks for the interest.

I'm sure that both the US and the UK governments will honour their inflation-protected bonds in some sense; but I wonder how they will define inflation? Marc Faber thinks inflation is currently 5%-10% p.a., and that certainly isn't the official figure here in the UK.

If you agree with the monetarist line - and it makes sense to me - then inflation is simply the degree of increase in money and credit in the economy. On both sides of the Atlantic, that's around 13% for the last year. Wouldn't it be great if our deposit accounts paid that to us, tax-free? This would, as "The Mogambo Guru" says, result in a gradual reduction of prices relative to money. But as a fallback position, I'd accept monetary inflation less growth in GDP, which presumably would mean money kept its buying power, in general and on average.

The baskets of goods used for official inflation indices vary, and so you get varying results - which suits the government: here in the UK they've switched from the Retail Price Index to the Index of Consumer Prices for purposes of calculating State pension increases. (What joy if they'd used a house price index instead!) The arbitrariness shows how we need to get to the fundamental cause of inflation.

Now, as to charting, in which I am woefully unskilled: are you able to produce charts calculated in other ways? For example:

1. Chart of (growth rate of US M3 minus increase in GDP) against e.g. average house prices? Since 2000, I think the two lines would be close together in the UK.

2. Similar charts to show relative price movement of energy/fuel, food, the Dow, precious metals, deposit interest rates etc against (growth rate of US M3 minus increase in GDP).

Finally, I understand your point about dogs, especially labradors, of whom my brother is especially fond.

Best wishes, "Sackerson".