A scary story on the front of today’s Metro. According to a report by Capital Economics the UK housing market is about to crash. And when it does, we’ll have it worse than the US.
I don’t buy this. There are as many individual reasons to buy or sell a house as there are homeowners and houses. Economics-type people often make the mistake of believing everyone thinks like they do. They don’t.
One of the cases for a crash is that buy-to-let landlords will all sell at the same time. Certainly the maths suggest it might be rational for them to do so.
“I’m already losing £200 a month on the flat I’m letting,” moaned my colleague Rick this morning.
But here’s the thing – I don’t think everyone will pull out at once. Rick himself is hesitating. Some will react quicker than others, so instead of a crash we’ll see a slow decline. And that’s worse.
Because a crash, while nasty, would at least get it over and done with. But the way I see it going, the fear and uncertainty will linger in the air, making any recession longer and deeper.
HBOS undermined by rumours
But enough of this doom and gloom. There’s a manhunt on in the Square Mile! Shares in Halifax Bank of Scotland (HBOS) were down 20% at one stage yesterday, following rumours that they’d gone to the Bank of England for emergency funding.
The Bank of England flatly denied this. They also quashed a rumour that Mervyn King was so spooked by these phantom events that he cancelled a trip to the far east. In fact, he’d cancelled a trip to West Bromwich – far less dramatic. I suspect he’d have taken any excuse to get out of that…
So it looks like a classic “trash ‘n’ cash” – short a share, spread a rumour that sends it tumbling, collect a profit. Market abuse, in other words. Now FSA Sheriff Sally Dewar has rounded up a posse to hunt down the wrongdoers.
“We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them,” she says
We wish her luck, but this sort of thing is notoriously hard to prove.
One thing it does show is just how nervy investors are right now. But if you’re wise, you’ll tune out a lot of the white noise.
“Investors shouldn’t panic every time they hear a rumour,” sighs Manraaj Singh.
Sound advice. But a comment from my colleague Bill Bonner shows why many are unlikely to heed it.
“You’d expect another City institution to take a hit,” he says. “Another hedge fund? There’s so much bad debt around.”
Fleet Street Letter editor Brian Durrant agrees: “Hedge funds are looking vulnerable right now,” he tells me. Brian thinks that we have the ingredients for a small bear rally right now. But he urges caution. “This crisis will mutate into other forms. The worst is not yet over.”
Everyone’s nervous… they know it’s bad, but not how bad. And while I’m spreading such joy, here’s a couple of other bits of news. Credit Suisse has issued what some journalists are calling a “surprise” profits warning (they’re a financial institution, so I’m not too surprised). And the Bank of England has doubled its emergency funding. There’s now a cool £10.93 billion in the trough.
Will it be enough to satisfy the banks’ hunger? Personally I worry this could spook the markets further…
So uncertainty will prevail, and we’re all in for another round of Who’s Next? In this climate you get your kicks where you can, so I called a City friend to wind him up a bit:
“I hope you weren’t spreading any of those nasty rumours yesterday,” I told him.
After protesting his innocence he went on to say that, in his opinion, HBOS had quite a responsible lending policy and should be OK. He then gave me a couple of names of who he thought would be next. I would repeat them, but I’m scared I’d be lassoed by Sally Dewar.
“It’s a commodities bloodbath!”
That’s what I heard this morning from a hysterical Garry White. OK, perhaps hysterical is overstating the case, but he was definitely furrowing his brow.
And with good cause. Gold is down to $924 an ounce, more than $100 off last week’s high. Oil futures are down, but they remain above $100. Garry’s still forecasting $120 oil, but reckons the market’s taking a breather.
But it isn’t all doom and gloom in Garry’s world. Two very different energy plays are exciting him right now. One is an oil and gas firm, the other a uranium miner. This second one is already showing a 47% gain, but strong results today mean Garry thinks there’s a lot more profit where that came from!
These people definitely want a UK housing crash…
Not all investors are nervous right now. For some, time is on their side. One such group is Qatar Diar, the property investment arm of the Qatar Investment Authority.
It has £31 billion in oil money, and if the UK housing market crashes, it’s ready to mop up the mess. It has already put money into Chelsea Barracks and the Shard of Glass Tower at London Bridge.
Indeed, Manraaj tells me that the Gulf states are awash with cash right now, and they’re investing it wisely.
So someone’s doing well at the moment - and Manraaj has found an investment that lets you ride on their coat tails.
“This could be spectacular,” he told me, with that trademark gleam in his eye. And best of all, Manraaj has found a way you get in on this play at a fraction of its usual cost.
So, while things are still pretty bleak, there are chinks of light if you look in the right places.
Have a great Easter!
Until Tuesday
Ben Traynor
P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.
