MoneyWeek Roundup: What's about to hit the housing market
By
Associate Editor
David Stevenson Feb 20, 2010
Print this article
David Stevenson highlights the week's best news and views from the MoneyWeek team, including: what's about to hit the housing market; make money from fertiliser; and is Britain worse off than Greece?
• From Valentine's Day to Pancake Day to Six Nations rugby, last week had something for just about everyone. And it was more or less the same in the financial world.
There was the usual salvo of economic data. But while some of the news suggested that life might now be on the up, quite a lot more pointed to further gloom and doom ahead.
Here's an example of what I mean. Rightmove reckons that UK house prices are up by more than 6% on last year, after a 3.2% jump in the four weeks to 6th February (really??). But home loan approvals in January that were logged by the Council for Mortgage Lenders – i.e. by the major banks, and a good forward indicator of where prices are heading - came in at just 49,000. That followed 62,000 approvals in December and an average forecast for last month of 63,000. On top of that, last month's £9.1bn of home loan lending was 21% down on a year ago and the lowest monthly total since February 2000.
Of course, you probably don't need reminding what we think about the Britain's housing market. And if you do, a quick glance at James Ferguson's piece in last week's MoneyWeek magazine (Don't be fooled - house prices will fall again - if you're not already a subscriber, get your first three issues free) just about sums it up. In short, don't bank on that house price rally continuing.
• Other economic data was also largely gloomy. The nation's dole queues shrank by 3,000 in December, but January jobless claims rose by 23,500 rather than falling as expected. And last month's retail sales were rubbish – down by 1.8%, the biggest drop for 18 months.
But though sales may be falling, prices are rising. The latest inflation news shows that the cost of living is climbing at 3.5% a year. This was the highest for 14 months. Yet Bank of England boss Mervyn King reckons there's nothing too much to worry about on the inflation front. I'm afraid I don't agree, as I noted last week.
• However, the real shocker this week was the state of the nation's finances. As we all know, January can be tough on the pocket. The Christmas credit card bills start flooding in. But for HM government, it's generally a very different story. Since records began in 1993, it has managed to turn a profit in the first month of the year by collecting more than it has paid out.
But not this January. Rather than turn in the £2.6bn surplus that had been widely forecast, our proselytising politicians managed to run up a £4.3bn shortfall. Trust Gordon Brown and Co. to break the mould. OK, it's just one month's numbers. But the trend clearly isn't Britain's friend at the moment. Jonathan Loynes at Capital Economics reckons this year's UK budget deficit could actually be bigger than Greece's. Ouch!
By the way, on the subject of tax, you don't need to make the man at the Revenue's job too easy. You could be paying him too much of your hard-earned cash. Yesterday my colleague Ruth Jackson came up with some handy hints on checking your tax code.
• Then just when you thought it couldn't get any worse, it did. On Friday, 67 academics wrote to the FT, collectively backing a 'no spending cuts now' policy. They reckon there's a real risk of Britain heading back into recession if the government's money taps are turned off.
But as we've said several times, including yesterday, huge public debts aren't the answer. They'll just mean much higher long-term interest rates - for everyone. Still, at least that letter to the FT proves one thing. Our manufacturing base may be going to pot, consumers may be badly feeling the pinch and the City is still licking its wounds, but there's no need for a total panic. We're still world class at churning out vast numbers of economists. Maybe we could export some of them – it might help the trade deficit. Nothing else is.
• If you're inclined to agree with the deficit fans, maybe you should listen to Tim Price of PFP Wealth Management. Tim's rarely short of a word on the shortcomings of politicians and policymakers. And this week was no exception. The latest headline on his Price Report read: "Get ready for the Great Government Debt Crisis" and it doesn't pull too many punches. "The story of The Titanic is one of classic hubris – excessive self-confidence in the face of nature. There are comparable risks building all around us, as governments – convinced that they know best – continue to spend beyond their means, and pile greater and greater debt burdens on the rest of us".
Right on our doorstep, "Europe is now sinking fast. Problems in Greece have spilled over into Portugal, Spain and Ireland. The whole Union is under threat. And Europe has one thing in common with the ill-fated Titanic – its crew are in complete denial. What's happening with Greece is very similar to what happened before the failure of Lehman Brothers. First you have initial denial of the scale of the problem. Then comes the growing dissent among the authorities as to how to tackle the problem. And then finally: an unholy mess. If Greece gets kicked out of Europe, it won't be the last one to go down. Most Western governments are already technically insolvent".
• That's enough to make anyone feel rather queasy. Add in the US Fed putting up one of its key interest rates on Thursday and you'd have thought the stockmarket would have taken a hit.
Funnily enough, it hasn't yet – the FTSE 100 is up some 4% this week. But how long will that last? There's normally a MoneyWeek misery-guts moping around the building, ready to pour cold water on the bulls. And this week it was our resident gold bug Dominic Frisby, on the subject of why US shares and the euro will drop, and – yes, you've guessed – why gold will go up.
"I'm forever saying gold should be viewed not as a commodity but as another currency. Given the stress in the eurozone, is it any wonder that gold has been rising against the euro?" asks Dominic. "We're too obsessed with the price of gold in US dollars, when it's the price of gold in our own currencies that's important. Gold is your hedge against the fiscal irresponsibility of your own government".
• Strong stuff. So is anywhere in the world looking healthy? Well, just maybe. "The outlook for the developed world isn't good", says our Far East expert Cris Sholto Heaton in this week's MoneyWeek Asia. But "emerging markets (EMs) are poised to boom. EM public finances generally look much sounder than in the developed world. Debt levels are lower. And most debt is owed in the borrower's own currency rather than US dollars or other foreign currency. This is a big turnaround from two decades ago, when many EMs were more highly indebted with extensive foreign currency borrowings".
So what should you buy? Cris will be writing about a couple of emerging market ETFs in next Monday's edition. And in this week's magazine, Merryn Somerset Webb reiterates the case for investing in Asia's most-neglected and despised market – Japan.
• And because we always like to finish the weekly roundup on an upbeat note – no, I mean it – I'll mention another interesting subject our editor John Stepek has just tackled.
Fertiliser. Or to be more specific, how to make money out of it.
"Fertiliser companies had a tough time in 2009 when overcapacity and lower demand pushed down fertiliser prices. But now it looks as though demand is recovering", he says. "One interesting play could be a company which supplies the fertiliser producers – Canada-listed Chemtrade (TSX: CHE.UN). The group is one of the world's biggest suppliers of sulphuric acid, a key raw material in phosphate fertilisers. We first tipped it back in May 2009. It's recovered sharply since then, rebounding 74%. However, it's still well below its 2008 high. With demand in the sector set to remain solid long term, it's a hold if you've got it, and worth getting into if you haven't".
• Oh, and just before I go, Tom Bulford, editor of Red Hot Penny Shares, has released his new oil report called "The Abandoned Oil Bonanza".
"Since 1947, Shell, ESSO, Gulf and Standard Oil have all tried and failed to tap the legendary 'paradise oil fields'. And in 1988 they simply gave up", he says. "But now one tiny explorer has finally cracked the mystery – and could spark the biggest oil bonanza of the next decade!" It sounds like a rattling good read.
● Useful links. Want to find out more about any of the MoneyWeek newsletters and contributors I've quoted today? Just click on these links:
Tim Price's newsletter The Price Report
Tom Bulford's newsletter Red Hot Penny Shares
Published in
Economics
| More
articles
by
David Stevenson
Related articles
-
By Matthew Partridge, Feb 10, 2012
-
By Tim Price, Feb 10, 2012
-
By Matthew Lynn, Feb 10, 2012
-
By Matthew Partridge, Feb 10, 2012
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.