This week, I have mostly been losing money due to...

[redsky009]

I invested back a few years ago when the market was strong - stuck it in a low risk portfolio, thought yeah things will be fine - suddenly some tw*t flies planes into buildings and the whole thing falls apart, still haven't got my initial investment back. Just had bad luck two or three times since then which has halted all recovery. bah

luckily it was long term so I didn't count on that money for several years, but I am still a couple of grand down - would have been better off just splashing out on something and really enjoying it, or even just having it in a savings account! Ah well, you win some, you lose some.

[Lee H]

Ahh well the UK interest rates have been kept unchanged at 5.25% by the Bank of England's Monetary Policy Committee.

looks like the crash might not happen just yet

[adamzetec]

Bus driver... same thing really

Lol.... please tell me you are joking.

[greektony]

Rave is just as qualified to comment as everyone else. No one has a crystal ball. Even the proffesionals cant agree when/if a crash will occur soon

[Lee H]

Lol.... please tell me you are joking.

Nah... he's rebelled from his middle class office working days and now spends his time happily ferrying the ratrace around in his bus.

Good luck to him - if he's happier now than when he was as an office lacky I don't blame him

[M0nkeyb0Y]

You would have only lost money on this if you need to realise the value of your ISA immediately - this is a slight, and long overdue correction to an overvalued market.

I have an emerging markets fund in my portfolio that was probably hit 15%, this obviously irritates me slightly, but when I put it into perspective it's still a great investment, and it rose 22% in the 6 months prior to this.

[adamzetec]

Nah... he's rebelled from his middle class office working days and now spends his time happily ferrying the ratrace around in his bus.

Good luck to him - if he's happier now than when he was as an office lacky I don't blame him

I'm not laughing at the fact he is a bus driver - more the economic doom and gloom coming from a bus driver...

I deal with Analysts on a daily basis as part of my job, not sure many of them double up as bus drivers

[Rave]

Bus driving is a fairly easy job- you've got to concentrate enough to make sure that you don't take any wing mirrors out, but the rest of the time you've a fairly free reign to contemplate the intricacies of global finance. To be fair, I've missed a bus stop or two pondering the likely next moves of the MPC, but the frantic bell ringing and shouts of "Oi! Driver!" tends to bring you round with a start.

Rave, my rock keeps tigers away. There is going to be a fall in the FTSE, a sharpe one, giving no time frame for it makes your advise completely meaningless.

I'm happy to give you a time frame. This year, maybe next year at the outside. My qualifications: bus driver. Also read a few books about markets, sentiments, and how to recognise bubbles. I'm no techincal analyst- but I have history on my side.

If you look at index investment over long peroids of time, its generally a safe way of investing.

Over periods of 10+ years, yes it's generally safe. Will that kind of "buy and hope" investing make you rich? Only if you get lucky.

Its hardly a bad starting place for would be inestors. Been a harbindger of doom is one thing, but the risk is afterall the reward, and there will always be people who want some more reward.

Warren Buffett didn't make his multi billion dollar fortune by buying shares and hoping for the best. He made it by following the sound advice of his mentor Benjamin Graham and buying when the market was undervaluing certain compainies/sectors- and selling when they were overvalued.

I have to be behing the wheel of a bus in eight hours time so I'm not going to google the specific quote, but I believe Graham said something along the lines of 'markets swing between periods of irrational optimism and irrational pessimism. Money is to be made by buying from pessimists and selling to optimists'.

IMHO, right now, we are at the end of a sustained period of irrational optimism.

[M0nkeyb0Y]

IMHO, right now, we are at the end of a sustained period of irrational optimism.

My interpretation of the market swinging between irrational pessimism and irrational optimism, is that it isn't one or the other - most of the time it's somewhere in between, i.e. rationally pessimistic, or rationally optimistic (which is IMHO where we are at the moment). It is my opinion that the market has been rationally optimistic for some time because the world economy is doing well, house prices are growing nicely (i.e. doing peoples saving for them), and consumer spending is healthy.

House prices will not crash (demand still far outstrips supply), but the level of growth seen over the last 5 years is unsustainable so they may correct. Wages should increase in response to the rise in prices, in which case one would hope their price growth would slow, while wages 'caught up'.

I believe this will turn to rational pessimism (following correction to house prices) within the next 24 months and there will be more, small, and frequent corrections like the one we saw last week.

Or:

The markets will continue in their growth (which will be slower this year, and slower still next – aligning with economic growth) if wages increase to cover house prices.

(These scenarios assume Greenspan keeps his mouth shut)

[Rave]

house prices are growing nicely (i.e. doing peoples saving for them),

Hahaha!

Yeah, that's the prevailing viewpoint alright, but it's a complete fallacy. Yeah, so your house is worth more than you bought it, so you've 'made' a lot of money, and so you apparently don't need to save. So, when you actually need the money that you should have been saving, how do you get your hands on it? Erm...by selling your house. "Darling, our boiler is clapped out, and the car is on it's last legs, we need to spend some money this year." "No problem dear, I'll instruct an estate agent right this minute".

You could remortgage and borrow more money against the value of your home, but borrowed money has to be paid back. It's not free. Your house is not a money tree, unless you really are happy to spend your retirement living in a tent or mobile home.

and consumer spending is healthy.

Yes, because people who haven't considered the above have been borrowing and spending like there's no tomorrow. Even if house prices continue to rise, there's a limit to the amount of money you can borrow against your 'equity' in it, because eventually the interest payments become unmanageable. As interest rates keep rising, that day comes ever closer. When it arrives for a sizeable proportion of homeowners- goodbye healthy consumer spending.

Reposessions were up 67% last year, and the trend is not downwards. It's already starting.

House prices will not crash (demand still far outstrips supply), but the level of growth seen over the last 5 years is unsustainable so they may correct.

The difference between a crash and a correction is entirely one of perspective. Both refer to a reduction in value in real terms.

Wages should increase in response to the rise in prices, in which case one would hope their price growth would slow, while wages 'caught up'.

The operative word being should. With the BOE's task being simply to aggressively target inflation through interest rates, and Gordon Brown talking tough on pay settlements, nothing can be taken for granted- although of course I'll be asking for north of 5% this year- it'd be silly not to.

I believe this will turn to rational pessimism (following correction to house prices) within the next 24 months and there will be more, small, and frequent corrections like the one we saw last week.

Or:

The markets will continue in their growth (which will be slower this year, and slower still next – aligning with economic growth) if wages increase to cover house prices.

(These scenarios assume Greenspan keeps his mouth shut)

Well, to state the obvious, I disagree. IMO the recent rise in prices in all asset classes is a classic bubble and when it inevitably starts to go tits up, rational pessimism is not the likely outcome. Panic is.

[M0nkeyb0Y]

Hmmm - thought my post would rile you Rave - sorry about that. I'm just saying things as I see them, and I'm certainly not one of these prats that feels smug because the value of my house has gone up.

Yeah, that's the prevailing viewpoint alright, but it's a complete fallacy.....
You could remortgage and borrow more money against the value of your home, but borrowed money has to be paid back. It's not free. Your house is not a money tree, unless you really are happy to spend your retirement living in a tent or mobile home.

It's psychological of course... but the effect is still the same: people are spending more because it's cheap and easy (to get financed). A bloke living in a 400k house, with 50k of credit card bills doesn't feel as strapped as he probably should because he thinks he's free to downgrade to a smaller house, and realise some value. Remortgaging is a pretty cheap way to get cash if debts need to be settled immediately - or if you need a new car/boiler.

As interest rates keep rising, that day comes ever closer. When it arrives for a sizeable proportion of homeowners- goodbye healthy consumer spending.

Interest rates won't keep rising - they've been pretty well managed by the BOE, I can't see them doing anything too stupid - perhaps one more .25% rise this year.

Reposessions were up 67% last year, and the trend is not downwards. It's already starting.

If you're collecting scary figures regarding house prices: the proportion of post tax income being spend on mortgage repayments is at its highest level for 15 years - but then interest rates were at 11%.

The difference between a crash and a correction is entirely one of perspective. Both refer to a reduction in value in real terms.

I disagree - it's a question of scale, not perspective.

of course I'll be asking for north of 5% this year- it'd be silly not to.

More power to you

...rational pessimism is not the likely outcome. Panic is.

Perhaps I'm being optimistic - after all the market is obviously jittery: just look at what happened when Greenspan used the "R word" - but I still stand by the sentiment.

Assuming neither of us are right, and the true position lies somewhare in between - which by the law of averages is a sensible assumption. The danger now is that Grey Tuesday only went some way to correct the value of the market - but investors may see it as an opportunity to invest in oversold stock - but this stock is still overvalued. Then my good man - we'll have a classic bubble.

[Rave]

Hmmm - thought my post would rile you Rave - sorry about that. I'm just saying things as I see them, and I'm certainly not one of these prats that feels smug because the value of my house has gone up.

My dear chap- not at all, it didn't rile me in the least, I was just vigorously defending my position. Two years ago I used to get upset when I saw house prices spiralling further and further out of my reach- then I read this book (which I found in a bin) and then found housepricecrash.co.uk. Now that (IMO) I know what's going on, I'm much happier. I have relatively little debt (£2.5k to the bank and £2k to my mum), and I live in a nice house that costs me less to rent than it would to buy. Whatever happens, my immediate future is secure, and I am optimistic in the medium term. Long term, IMO, Peak Oil could well kill us all, but that's a whole other can of worms.

It's psychological of course... but the effect is still the same: people are spending more because it's cheap and easy (to get financed). A bloke living in a 400k house, with 50k of credit card bills doesn't feel as strapped as he probably should because he thinks he's free to downgrade to a smaller house, and realise some value. Remortgaging is a pretty cheap way to get cash if debts need to be settled immediately - or if you need a new car/boiler.

No, it's not cheap- because instead of earning interest on the money you should have saved to cover these eventualities, you're paying interest to the bank while you pay them back for it. Eventually, it's the interest charges that will break the camel's back. If/when lots of people decide their best option is to sell and downgrade, all at the same time, what happens to the perennial supply/demand equation?

Interest rates won't keep rising - they've been pretty well managed by the BOE, I can't see them doing anything too stupid - perhaps one more .25% rise this year.

One sentence, two things for me to argue with- I like it. For a start- well managed. I disagree- I think that the rate cut in August '05 was a serious mistake, and caused a reinflation of an already overinflated bubble. What could have been a relatively orderly correction will now become a fairly devastating crash.

For a second, I think you misunderstand the MPC's remit. They adjust interest rates to try and keep inflation as close as possible to 2% p/a. Their job is not to prevent a crash in any market- Mervyn King has said as much: "House prices are only a matter of opinion, whereas debt is real". If inflation continues to rise, they will continue to increase the interest rate, and house prices be damned. At least, that's the theory. The Chancellor (whoever that may be) could well bottle it and order a devaluation, or whatever, if things get really hairy. Who can say? I can't, I can only say that I think the next five years are going to be 'interesting'.

If you're collecting scary figures regarding house prices: the proportion of post tax income being spend on mortgage repayments is at its highest level for 15 years - but then interest rates were at 11%.

Yep, that's pretty scary alright, especially since I don't think we're through with the interest rate rises.

[badass]

/Me bides his time.
The only exposure I have to the markets is my pension thats worth very little anyway. The rest of my money's in savings accounts and a cash mini ISA as I think the markets are far too unstable right now and have almost peaked.
With the savings I have, the average person would have bought a house without even thinking about it, but I'm not going to buy the most expensive thing i'll ever buy at the highest price it will be for 15 years. I'll wait a couple and get it dirt cheap.

[JPreston]

Well I figure we are all exposed to the markets whether we know it or not. I haven't read 'The Grapes of Wrath' but I bet they weren't poor because they all lost their capital speculating before the wall street crash of 1937 or whatever

[Funkstar]

I'm of a similar opionin as you Badass. I have a mortgage, but it is about a third of what i'm able to get based on my earnings.

When the market does correct itself, that is when i plan to take advtange and either get a bigger place or move down south

[Rave]

With the savings I have, the average person would have bought a house without even thinking about it, but I'm not going to buy the most expensive thing i'll ever buy at the highest price it will be for 15 years. I'll wait a couple and get it dirt cheap.

I'd say it'll be 5-7 years, maybe even 8-9 before the next bottom of the cycle. Last time the bulk of the drops happened from '91-'94, with smaller drops the following two years, with the bottom being in '96. This time they have further to fall. The housing market is far less liquid than the stock market, and prices are sticky downwards.

Well I figure we are all exposed to the markets whether we know it or not. I haven't read 'The Grapes of Wrath' but I bet they weren't poor because they all lost their capital speculating before the wall street crash of 1937 or whatever

Sure a recession is a bad thing, but if you know it's coming you can take steps to protect yourself- pay off debts, sell risky assets, look for a job that's likely to be secure etc. My own personal thinking is that in a recession more people will be forced by straightened circumstances to sell their cars and take the bus, hence a continued demand for my services.