first, I always assumed Sunak chose July 4th as a reminder of the last great loss by England :)
It's funny, as I started reading I was confused because you were discussing the benefits of owning long gilts which didn't make sense to me. that said, I agree that we are going to see higher inflation, higher nominal GDP and a lot of effort to push wages higher. interest rates will have a difficult time declining in the UK, as well as in the US regardless of who wins in November. I still like your underlying thesis of long GLD/TLT as a simple and elegant expression of the view.
Disagree with exchange rates though, maintaining a high real exchange rate requires either punitively high interest rates (very dangerous with high household and government indebtedness) and/or capital controls (simply heretical in today's environment, and will be for a long time).
I suspect that we see a run on gilts, and the pound!
The $64m question is when the US dollar starts to turn south.
I really enjoy your posts & unique thinking. I do think you are severely underestimating the sheer incompetence of Western politicians and the huge bureaucracies they have created (which wears down and inhibit even the competent politician). Sure, Starmer is unlikely to be as incompetent as NZ’s Ahern who promised to build 100,000 houses in 6 years but built only 1,000 but meeting their target?? However, I agree politicians will continue to spend far more than they earn in tax revenue and the “printing press” will continue, hence so will inflation.
History since World War II shows the opposite. Voters wanted jobs and rising wages after the war - and got it. From the 1980s, they wanted lower prices and weaker unions, and they got it. While politicians are easy to hate, the apparatus of the public service is a monolith, and once it is set in motion will carry on in the same direction until forced to change by the voting public. We are in that process of change, as we were in the 1970s (Nixon was the beginning of the end of pro-labour policies). It is most clearly seen by looking at what right wing conservative parties are not doing - and that is austerity.... the new world is here already.
You have been the guy that has nailed this bond bear market the last few years more then most. I've become a lot more open to your analysis. Another excellent article Russell.
Specifically RE the UK, I don’t disagree that we’ll see larger government (I’m not high conviction on this to be honest, but could see for sure), but I definitely disagree with your prediction on housing (conscious I’m effectively self identifying as a cynical hubristic fund manager!). The UK planning system is fundamentally broken (I have plenty of anecdotes in case you’re interested). The amount of reforms which would need to be enacted just isn’t anywhere near feasible in my opinion. Even if either party were able to build 300k + homes pa, it’s nowhere near enough to bring house prices down
«The UK planning system is fundamentally broken (I have plenty of anecdotes in case you’re interested)»
It is not broken, it evolved so it is perfectly suited for its real purpose.
«The amount of reforms which would need to be enacted just isn’t anywhere near feasible in my opinion. It could be reformed»
That kind of reforms could happen very quickly indeed if there were the political will. But consider this: "The Economist" has reported that 40% of all local councilors declare "estate agent" as their occupation and 65% of chairpersons of constituency Conservative Associations are mortgage brokers, and I would guess all of them own at least one property and many if not most probably more than one, often purchased with Right-To-Buy from the council.
«Even if either party were able to build 300k + homes pa»
But Starmer's policy is to "encourage the private sector" to build 300k + homes pa, not to build them. Great! :-)
Yes of course it’s a matter of political will like anything.
RE house building targets, when I say ‘aims to build’ that’s because that’s the vernacular all parties have used for the last decade and it’s been a target of 300k+ since at least 2017 (could be earlier, not sure). So even with all the chat about boosting housing supply, the manifesto target will increase by exactly 0%
See comment above on house building targets - even if they won an outright super majority there is no appetite from them to actually get a significant number of homes built even if they were able to snap their fingers and completely change the system
without the FED's Bank Term Funding Program they would have to cut rates already much earlier to protect bank balance sheets. Now with 40 years of bond bull market, banks can't be the only highly levered sector to rates.
I think there are much more landmines waiting to explode, and I don't think they can change laws like BFTP in very sector to calm the storm, so they will have to cut rates cyclically.
However I would agree with your secular view of rising wages and rising rates for the next 15-25 years. However, rates didn't go up linearly in the 1970s. They mostly went up 4-5%, then cut 2-3%, then went up 5% again, etc. This is my most likely scenario.
Thus I'm currently positioned LONG GLD & LONG TLT (9-12 month view)
I could write more on details and provide more quotes, but my argument is that the Starmer government will do whatever it takes to restrict the housing supply, give more power in local planning to NIMBYs, increase the number of immigrating new tenants and buyers, as all these things do not require any spending.
Eventually there will be in the UK a colossal property crash, that will crash everything, making Argentina in the 1990s or Merseyside in the 1980s look like a small blips. But it will not happen because Starmer will suddenly actually become a real socialist, prioritizing the interest of young workers (many of them without the right to vote or abstainers) over the interests of older rentiers (most of them citizens and committed voters).
It will happen, like in all rentier/extractive regimes, when asset sales to foreigners will no longer be enough to pay for a large proportion of imports, causing a massive supply contraction and huge inflation. Perhaps the M25 area , HongKong-on-Thames, will continue to prosper by continuing to take a cut of foreign capitals looking for the shield of sovereignty, but the rest of the country, currently a low-wage, high-cost economy, is not going to do well (euphemism alert). HongKong is in decline, but at least it has got Shenzen nearby, the UK does not; Dubai went bankrupt some years ago, but at least it has got Abu Dhabi to bail it out, the UK does not.
What could save the UK in the long term would be a huge fall in the cost of living, especially property costs, enabling a large fall in the foreign-exchange level of wages; but it is no longer the time of the Corn Laws debate, between rentiers demanding high costs of living and industrialists demanding the opposite. Today even the few industrialists remaining are heavily invested in property, and badly want to extract the most they can from their properties and safeguard the profits abroad, for example:
«Speaking about his first year in business with Lord Sugar, Mark Wright, the winner of last year’s Apprentice, said the Amstrad founder had given him tips on creating long-term wealth. “Lord Sugar said you make money from property and do business for fun. Many of our customers make money from property and I’d love to go into property development one day,” said Mr Wright.»
«Labour MPs have raised concerns that Jeremy Corbyn’s rhetoric on tax avoidance could appear anti-aspiration. A senior shadow cabinet source said the party leader was in danger of overreaching himself in his criticism of David Cameron for investing in Blairmore, the fund set up in an offshore tax haven in the Bahamas by his father Ian.»
There are several problems with that from the point of view of the english ruling oligarchy, who own a lot of property and who often work in finance too:
* To buy property most people lever-up their savings by 10-20 times to borrow 4-6 times their gross incomes. Nobody sane wants to do that unless the property is guaranteed to double in price every 7-10 years. Despite the ridiculous humbug that english people simply love to own their own home, they just want to own something that gives them huge yearly profits entirely redistributed from the lower classes. House buying has collapsed whenever house prices were not booming because nobody wants to put 10-20 times their savings in an investment with a price falling in real terms.
* Even worse, a significant minority of property demand in the UK is purely speculative (Minsky's "Ponzi phase"): lots of speculators buy property without living in it or event renting it out, but simply because it is one of the most profitable speculations worldwide, doubling in price every 7-10 years (in the south-East). This is "hot money" and in case of a negative real return on their money they will jam the exits to sell as fast as they could, causing an apocalyptic crash. Even worse many of these speculators are "global money" and their rapid exit from the UK property market would cause a collapse of the pound.
* Even worse, 90-95% of all commercial bank lending in the UK is for property (few people in the finance sector are stupid enough to lend to low-yield, high-risk industrial or commerce ventures), and that is buffered by tiny layers of capital, and a fall in real price of properties and its consequences would essentially bankrupt several times over the vast majority of The City, as it happened in 2008-2012 (see the BoE balance sheet).
This is not to say that there will never be a fall in the price of UK property, but that Starmer's New, New Labour will never do anything to risk that, like increasing the supply of housing. What they will do has already become clear from various articles in the press: with the excuse that "the economy" requires a lot of new tradesmen and worker to build new houses there will be another extraordinary immigration boom, followed by not much if any new building (as happened since 2004 and much increased in 2016), as immigration has proven to be a big driver of doubling-up and thus booming rents and property prices, hugely boosting the living standards of incumbent "Middle England" property owning middle-age and older native voters, entirely at the expense of wage earners, tenants, upgraders.
«a fall in real price of properties and its consequences would essentially bankrupt several times over the vast majority of The City, as it happened in 2008-2012»
“The Bank of England estimates that as much as 14% of all UK home loans are either delinquent or in some sort of forbearance process. Nobody really talks about this because nobody wants property prices to fall out of bed. Can we handle the truth?”
The BoE then stopped publishing surveys saying which percentage of property loans were "in forbearance" until property prices boomed again.
“Tucked in the far southwest corner of Colorado is the historic city of Durango. Built in the 19th century at a railroad junction, it's nestled in a bend of the Animas River as it flows through the magnificent San Juan Mountains. Stunning scenery and copious amenities helped attract 460 new residents to the town of 19,000 during the pandemic. That may not sound like a lot, but it was enough to juice median home prices by 50% in just three years, with them soaring from $500,000 in 2019 to over $750,000 by 2022.”
«Assuming the polls are correct, and Labour achieves a generational win at the general election, we can expect pro-boomer policies to be reversed. [...] Another aspect of pro-labour policies»
Starmer's New, New Labour is targeting affluent propertied "Middle England" brexiter incumbents as their core constituency, and has therefore become a hard-thatcherite ultra-brexiter party, and have made very big commitment to defend the interests of property owners and in particular NIMBYs. While they claim that they will increase property ownership from 64% to 70% that is is truly unbelievable because they plan to spend no state money on it, to achieve that entirely by "encouraging" private sector builders, but again without spending any state money.
«I suspect Labour will hit its house building targets, as it will see it as a policy to win the next election on.»
There was in the 1970s a study by a right-wing think-tank that showed something quite extraordinary: that people who owned a house, owned a car, had a personal share-based pension account voted more often for right-wing policies than people who rented a house, used public transport, had a defined-benefit pension *even at the same level of income and status*. So relatively high income and status renters, public transport users, workers with defined-benefit pensions tended to vote more left-wing, but since those were few it hardly mattered. What really mattered is people with low income and status tended to vote right-wing if they owned even a tiny flat, had an however crummy car, had no matter how small a shared based pension account, and there were potentially very many of those voters.
So for the past 40 years all governing parties have undermined renting, public transport, defined benefit pensions, and subsidized property ownership, and pushed hard for private car travel and individual share-based pension accounts.
As an example, 70% of voted-for-Labour-always voters who were gifted by Right-to-Buy huge discount on a property switched (the entire family) to voting Conservatives, and often put poster-sized photos of Thatcher in their "parlour". The "Westminster strategy": https://en.wikipedia.org/wiki/Homes_for_votes_scandal has been followed nationally by all government since. Blair's government also had a policy group working on increasing the number of property owners to increase the number of "centrist" (thatcherite) voters.
Since Thatcher a government party has only ever lost an election after a fall or a stall in property prices, as "Middle England" voters get mad that they lose their massive yearly upward redistribution (20-30k per year and upwards) on which they utterly rely to maintain their affluent living standards.
«I also expect council tax to be reformed and charge on current value, to encourage baby boomers to downsize and free up homes for families.»
Any government that did that would be making an enemy of all "Middle England" voters, still the single largest block of voters other than "trot" lower class wage earners.
Also note that the assumption that "Middle England" voters are just baby boomers is a misunderstanding, not just because of inheritance, but because:
* Whether boomer or later generations it is incumbents, that is older voters, of whichever cohorts, who tend to vote right-wing for various reasons, and because of low natality and longer lifespans among native english people the number of older rentiers is rising.
* Because of a huge inflow of immigrants (net over 9 millions in 15 years) a much larger percentage than in the past of young wage earners, tenants, and upgraders do not have the right to vote, while a large percentage of native young wage earners are expecting to inherit a valuable property.
«how difficult it was to recruit and retain engineers. Every manufacturer was understaffed, and trained engineers had the whip hand, especially young engineers as companies had to deal with a wave of retirements by older engineers»
That is just a temporary blip: manufacturing in the UK has no future, whether cars or anything else but weapons. There have been studies by some think-tanks suggesting to defund both education and research in "legacy" areas, by which they mean engineering and computing, because for engineering products buying from Asia is much cheaper than manufacturing here, and for computing workers it is much cheaper to hire them from Asia, and in both cases it is asian taxpayers who pay for training engineering and computing graduates, saving a lot of money to the english taxpayer.
This is not a theoretical discussion: this has already been done to medicine, where the governments of the past 40 years have progressively cut funding for medicine degree to around 25-30% of what is required for the UK, so that 60% of newly registered UK doctors have a foreign degree, paid entirely by foreign taxpayers.
"Last year 59% of new registrations in England had been trained by other countries, writes Prof Rachel Jenkins [...] The number of medical student training places in the UK needs to double. This should not be as expensive to Treasury as feared"
“Unpublished figures from the General Medical Council (GMC) show that 7,377 (37%) of the 19,977 doctors who started work in the NHS in 2021 had a British qualification. A total of 10,009 new medics learned medicine outside the UK and the EEA – so-called international medical graduates (IMGs) – compared with 9,968 within. [...] In 2021 a total of 1,645 doctors from India began working in the UK, as did 1,629 from Pakistan, 1,250 from Egypt, 1,197 from Nigeria and 522 from Sudan – a total of 6,243. They comprised 31.3% of all the medics who joined the GMC register, and almost two-thirds (62.4%) of the IMGs.”
«In 1979, when Thatcher was elected, they were 26% of the population. They are now 21% of the population, and falling in numbers everyday.»
This is a very common misunderstanding: it is not boomers who vote for reaganism and thatcherism, it is *property owners*. When a property owning boomer dies obviously the property does not magically disappear, the boomer cannot take it to the beyond, it gets inherited, by one or more non-boomers, who then become reaganists/thatcherites themselves if they are not already while waiting to inherit their "precious". Of course there are things like equity withdrawal by the boomer, but often what happens is that the property gets sold, a share of the sale price goes to the lender, and the rest is shared among the heirs, who then use their share as the deposit for a property for their children or to pay down their mortgage.
So the number of reaganist/thatcherite rentiers does not fall at the same rate as that of boomers. It still falls but for another reason: since buying a first property is becoming ever more difficult for those who don't already own one, properties becomes more concentrated among incumbent property owners and their heirs, but the concentration is a rather slower process than the shrinking of the boomer cohort.
«it is not boomers who vote for reaganism and thatcherism, it is *property owners*»
And specifically those property owners, of any cohort, who get huge redistribution from the lower classes via government-engineered booming property prices and rents. They vote for reaganist/thatcherite politicians to keep that redistribution going flowing into their wallets.
This is important because there are two large categories of boomers (in the UK, the USA, etc.) who are not necessarily so fond of reaganism/thatcherism, and have economic interests similar to those of younger cohorts:
* The boomers who lost their jobs in the mass outsourcing and offshoring of industry of the 1980s and 1990s in the "pushed behind"/"rustbelt" areas. These boomers usually never recovered from losing a steady job and often never had a "proper" job again, living from casual jobs and welfare. These people either never had the money to buy a property or lost the property they had.
* The boomers who already owned a property in the 1980s/1990s in the same "pushed behind"/"rustbelt" areas, as those property often became entirely worthless or at best slowly fell in price; because property prices and rents are in effect a private tax on wages and in areas with rising unemployment and falling wages they cannot boom.
This maps shows property price changes by UK region 2005-2015:
I'd argue they've been conditioned to expect central bank rate cuts at the slightest hint of downturn, and are basing their long bond positions on this prediction.
Personally I believe J Powell when he says rates will remain higher for longer, which is also why I have been short TLT.
TLT could very likely sell off on a rate cut - especially as it could engender inflationary price action like a weaker dollar, or increase government spending. TLT is NOT the Fed Funds Rate.
I agree. Too much consensus is normally a red flag for me, but we're also in a small echo chamber here, judging from TLT inflows. It wouldn't surprise me, however, if TLT rallies hard in the interim period before the next secular decline begins.
The big wild card is whether we might get aggressive YCC on the long end. Maybe the Treasury's new buyback program will be expanded. Not really sure how that will affect TLT?
Agree 100% - and I think that's part of the Fed's reasoning for resisting rate cuts. They don't want to lose control of the long end of the yield curve.
first, I always assumed Sunak chose July 4th as a reminder of the last great loss by England :)
It's funny, as I started reading I was confused because you were discussing the benefits of owning long gilts which didn't make sense to me. that said, I agree that we are going to see higher inflation, higher nominal GDP and a lot of effort to push wages higher. interest rates will have a difficult time declining in the UK, as well as in the US regardless of who wins in November. I still like your underlying thesis of long GLD/TLT as a simple and elegant expression of the view.
I agree buying long bonds looks foolhardy
Disagree with exchange rates though, maintaining a high real exchange rate requires either punitively high interest rates (very dangerous with high household and government indebtedness) and/or capital controls (simply heretical in today's environment, and will be for a long time).
I suspect that we see a run on gilts, and the pound!
The $64m question is when the US dollar starts to turn south.
Hi Russell
I really enjoy your posts & unique thinking. I do think you are severely underestimating the sheer incompetence of Western politicians and the huge bureaucracies they have created (which wears down and inhibit even the competent politician). Sure, Starmer is unlikely to be as incompetent as NZ’s Ahern who promised to build 100,000 houses in 6 years but built only 1,000 but meeting their target?? However, I agree politicians will continue to spend far more than they earn in tax revenue and the “printing press” will continue, hence so will inflation.
History since World War II shows the opposite. Voters wanted jobs and rising wages after the war - and got it. From the 1980s, they wanted lower prices and weaker unions, and they got it. While politicians are easy to hate, the apparatus of the public service is a monolith, and once it is set in motion will carry on in the same direction until forced to change by the voting public. We are in that process of change, as we were in the 1970s (Nixon was the beginning of the end of pro-labour policies). It is most clearly seen by looking at what right wing conservative parties are not doing - and that is austerity.... the new world is here already.
You have been the guy that has nailed this bond bear market the last few years more then most. I've become a lot more open to your analysis. Another excellent article Russell.
Amen
Specifically RE the UK, I don’t disagree that we’ll see larger government (I’m not high conviction on this to be honest, but could see for sure), but I definitely disagree with your prediction on housing (conscious I’m effectively self identifying as a cynical hubristic fund manager!). The UK planning system is fundamentally broken (I have plenty of anecdotes in case you’re interested). The amount of reforms which would need to be enacted just isn’t anywhere near feasible in my opinion. Even if either party were able to build 300k + homes pa, it’s nowhere near enough to bring house prices down
«The UK planning system is fundamentally broken (I have plenty of anecdotes in case you’re interested)»
It is not broken, it evolved so it is perfectly suited for its real purpose.
«The amount of reforms which would need to be enacted just isn’t anywhere near feasible in my opinion. It could be reformed»
That kind of reforms could happen very quickly indeed if there were the political will. But consider this: "The Economist" has reported that 40% of all local councilors declare "estate agent" as their occupation and 65% of chairpersons of constituency Conservative Associations are mortgage brokers, and I would guess all of them own at least one property and many if not most probably more than one, often purchased with Right-To-Buy from the council.
«Even if either party were able to build 300k + homes pa»
But Starmer's policy is to "encourage the private sector" to build 300k + homes pa, not to build them. Great! :-)
Yes of course it’s a matter of political will like anything.
RE house building targets, when I say ‘aims to build’ that’s because that’s the vernacular all parties have used for the last decade and it’s been a target of 300k+ since at least 2017 (could be earlier, not sure). So even with all the chat about boosting housing supply, the manifesto target will increase by exactly 0%
Might Labour win enough of a majority, combined with some voting by smaller parties (Lib Dem, etc) to be able to easily push through big reforms?
FYI FT article on proposed changes which was quite good
Could a Labour government break Britain’s planning deadlock?https://on.ft.com/4c8O5sx
But in my opinion the fact they’re not aiming at boosting the housing target says it all really
See comment above on house building targets - even if they won an outright super majority there is no appetite from them to actually get a significant number of homes built even if they were able to snap their fingers and completely change the system
without the FED's Bank Term Funding Program they would have to cut rates already much earlier to protect bank balance sheets. Now with 40 years of bond bull market, banks can't be the only highly levered sector to rates.
I think there are much more landmines waiting to explode, and I don't think they can change laws like BFTP in very sector to calm the storm, so they will have to cut rates cyclically.
However I would agree with your secular view of rising wages and rising rates for the next 15-25 years. However, rates didn't go up linearly in the 1970s. They mostly went up 4-5%, then cut 2-3%, then went up 5% again, etc. This is my most likely scenario.
Thus I'm currently positioned LONG GLD & LONG TLT (9-12 month view)
I could write more on details and provide more quotes, but my argument is that the Starmer government will do whatever it takes to restrict the housing supply, give more power in local planning to NIMBYs, increase the number of immigrating new tenants and buyers, as all these things do not require any spending.
Eventually there will be in the UK a colossal property crash, that will crash everything, making Argentina in the 1990s or Merseyside in the 1980s look like a small blips. But it will not happen because Starmer will suddenly actually become a real socialist, prioritizing the interest of young workers (many of them without the right to vote or abstainers) over the interests of older rentiers (most of them citizens and committed voters).
It will happen, like in all rentier/extractive regimes, when asset sales to foreigners will no longer be enough to pay for a large proportion of imports, causing a massive supply contraction and huge inflation. Perhaps the M25 area , HongKong-on-Thames, will continue to prosper by continuing to take a cut of foreign capitals looking for the shield of sovereignty, but the rest of the country, currently a low-wage, high-cost economy, is not going to do well (euphemism alert). HongKong is in decline, but at least it has got Shenzen nearby, the UK does not; Dubai went bankrupt some years ago, but at least it has got Abu Dhabi to bail it out, the UK does not.
What could save the UK in the long term would be a huge fall in the cost of living, especially property costs, enabling a large fall in the foreign-exchange level of wages; but it is no longer the time of the Corn Laws debate, between rentiers demanding high costs of living and industrialists demanding the opposite. Today even the few industrialists remaining are heavily invested in property, and badly want to extract the most they can from their properties and safeguard the profits abroad, for example:
https://www.telegraph.co.uk/finance/enterprise/11929491/Lord-Sugar-tells-his-Apprentice-to-invest-in-property-if-he-wants-to-be-wealthy-in-business.html
«Speaking about his first year in business with Lord Sugar, Mark Wright, the winner of last year’s Apprentice, said the Amstrad founder had given him tips on creating long-term wealth. “Lord Sugar said you make money from property and do business for fun. Many of our customers make money from property and I’d love to go into property development one day,” said Mr Wright.»
http://www.thetimes.co.uk/edition/news/labour-fears-corbyn-will-be-seen-as-unambitious-3tww86v5n
«Labour MPs have raised concerns that Jeremy Corbyn’s rhetoric on tax avoidance could appear anti-aspiration. A senior shadow cabinet source said the party leader was in danger of overreaching himself in his criticism of David Cameron for investing in Blairmore, the fund set up in an offshore tax haven in the Bahamas by his father Ian.»
«Falling house prices in real terms is likely.»
There are several problems with that from the point of view of the english ruling oligarchy, who own a lot of property and who often work in finance too:
* To buy property most people lever-up their savings by 10-20 times to borrow 4-6 times their gross incomes. Nobody sane wants to do that unless the property is guaranteed to double in price every 7-10 years. Despite the ridiculous humbug that english people simply love to own their own home, they just want to own something that gives them huge yearly profits entirely redistributed from the lower classes. House buying has collapsed whenever house prices were not booming because nobody wants to put 10-20 times their savings in an investment with a price falling in real terms.
* Even worse, a significant minority of property demand in the UK is purely speculative (Minsky's "Ponzi phase"): lots of speculators buy property without living in it or event renting it out, but simply because it is one of the most profitable speculations worldwide, doubling in price every 7-10 years (in the south-East). This is "hot money" and in case of a negative real return on their money they will jam the exits to sell as fast as they could, causing an apocalyptic crash. Even worse many of these speculators are "global money" and their rapid exit from the UK property market would cause a collapse of the pound.
* Even worse, 90-95% of all commercial bank lending in the UK is for property (few people in the finance sector are stupid enough to lend to low-yield, high-risk industrial or commerce ventures), and that is buffered by tiny layers of capital, and a fall in real price of properties and its consequences would essentially bankrupt several times over the vast majority of The City, as it happened in 2008-2012 (see the BoE balance sheet).
This is not to say that there will never be a fall in the price of UK property, but that Starmer's New, New Labour will never do anything to risk that, like increasing the supply of housing. What they will do has already become clear from various articles in the press: with the excuse that "the economy" requires a lot of new tradesmen and worker to build new houses there will be another extraordinary immigration boom, followed by not much if any new building (as happened since 2004 and much increased in 2016), as immigration has proven to be a big driver of doubling-up and thus booming rents and property prices, hugely boosting the living standards of incumbent "Middle England" property owning middle-age and older native voters, entirely at the expense of wage earners, tenants, upgraders.
«a fall in real price of properties and its consequences would essentially bankrupt several times over the vast majority of The City, as it happened in 2008-2012»
An interesting quote from 2012:
https://advisoranalyst.com/2012/05/01/niels-jensen-investment-outlook-april-may-2012.html/2/
“The Bank of England estimates that as much as 14% of all UK home loans are either delinquent or in some sort of forbearance process. Nobody really talks about this because nobody wants property prices to fall out of bed. Can we handle the truth?”
The BoE then stopped publishing surveys saying which percentage of property loans were "in forbearance" until property prices boomed again.
«as immigration has proven to be a big driver of doubling-up and thus booming rents and property prices»
My usual example:
https://www.businessinsider.com/affordable-housing-crisis-us-west-coast-cause-explained-2023-9
“Tucked in the far southwest corner of Colorado is the historic city of Durango. Built in the 19th century at a railroad junction, it's nestled in a bend of the Animas River as it flows through the magnificent San Juan Mountains. Stunning scenery and copious amenities helped attract 460 new residents to the town of 19,000 during the pandemic. That may not sound like a lot, but it was enough to juice median home prices by 50% in just three years, with them soaring from $500,000 in 2019 to over $750,000 by 2022.”
«Assuming the polls are correct, and Labour achieves a generational win at the general election, we can expect pro-boomer policies to be reversed. [...] Another aspect of pro-labour policies»
Starmer's New, New Labour is targeting affluent propertied "Middle England" brexiter incumbents as their core constituency, and has therefore become a hard-thatcherite ultra-brexiter party, and have made very big commitment to defend the interests of property owners and in particular NIMBYs. While they claim that they will increase property ownership from 64% to 70% that is is truly unbelievable because they plan to spend no state money on it, to achieve that entirely by "encouraging" private sector builders, but again without spending any state money.
«I suspect Labour will hit its house building targets, as it will see it as a policy to win the next election on.»
There was in the 1970s a study by a right-wing think-tank that showed something quite extraordinary: that people who owned a house, owned a car, had a personal share-based pension account voted more often for right-wing policies than people who rented a house, used public transport, had a defined-benefit pension *even at the same level of income and status*. So relatively high income and status renters, public transport users, workers with defined-benefit pensions tended to vote more left-wing, but since those were few it hardly mattered. What really mattered is people with low income and status tended to vote right-wing if they owned even a tiny flat, had an however crummy car, had no matter how small a shared based pension account, and there were potentially very many of those voters.
So for the past 40 years all governing parties have undermined renting, public transport, defined benefit pensions, and subsidized property ownership, and pushed hard for private car travel and individual share-based pension accounts.
As an example, 70% of voted-for-Labour-always voters who were gifted by Right-to-Buy huge discount on a property switched (the entire family) to voting Conservatives, and often put poster-sized photos of Thatcher in their "parlour". The "Westminster strategy": https://en.wikipedia.org/wiki/Homes_for_votes_scandal has been followed nationally by all government since. Blair's government also had a policy group working on increasing the number of property owners to increase the number of "centrist" (thatcherite) voters.
Since Thatcher a government party has only ever lost an election after a fall or a stall in property prices, as "Middle England" voters get mad that they lose their massive yearly upward redistribution (20-30k per year and upwards) on which they utterly rely to maintain their affluent living standards.
«I also expect council tax to be reformed and charge on current value, to encourage baby boomers to downsize and free up homes for families.»
Any government that did that would be making an enemy of all "Middle England" voters, still the single largest block of voters other than "trot" lower class wage earners.
Also note that the assumption that "Middle England" voters are just baby boomers is a misunderstanding, not just because of inheritance, but because:
* Whether boomer or later generations it is incumbents, that is older voters, of whichever cohorts, who tend to vote right-wing for various reasons, and because of low natality and longer lifespans among native english people the number of older rentiers is rising.
* Because of a huge inflow of immigrants (net over 9 millions in 15 years) a much larger percentage than in the past of young wage earners, tenants, and upgraders do not have the right to vote, while a large percentage of native young wage earners are expecting to inherit a valuable property.
«how difficult it was to recruit and retain engineers. Every manufacturer was understaffed, and trained engineers had the whip hand, especially young engineers as companies had to deal with a wave of retirements by older engineers»
That is just a temporary blip: manufacturing in the UK has no future, whether cars or anything else but weapons. There have been studies by some think-tanks suggesting to defund both education and research in "legacy" areas, by which they mean engineering and computing, because for engineering products buying from Asia is much cheaper than manufacturing here, and for computing workers it is much cheaper to hire them from Asia, and in both cases it is asian taxpayers who pay for training engineering and computing graduates, saving a lot of money to the english taxpayer.
This is not a theoretical discussion: this has already been done to medicine, where the governments of the past 40 years have progressively cut funding for medicine degree to around 25-30% of what is required for the UK, so that 60% of newly registered UK doctors have a foreign degree, paid entirely by foreign taxpayers.
https://www.theguardian.com/society/2022/feb/09/britain-needs-to-double-the-number-of-doctors-it-trains
"Last year 59% of new registrations in England had been trained by other countries, writes Prof Rachel Jenkins [...] The number of medical student training places in the UK needs to double. This should not be as expensive to Treasury as feared"
https://www.theguardian.com/society/2022/jun/08/nhs-hiring-more-doctors-from-outside-uk-and-eea-than-inside-for-first-time
“Unpublished figures from the General Medical Council (GMC) show that 7,377 (37%) of the 19,977 doctors who started work in the NHS in 2021 had a British qualification. A total of 10,009 new medics learned medicine outside the UK and the EEA – so-called international medical graduates (IMGs) – compared with 9,968 within. [...] In 2021 a total of 1,645 doctors from India began working in the UK, as did 1,629 from Pakistan, 1,250 from Egypt, 1,197 from Nigeria and 522 from Sudan – a total of 6,243. They comprised 31.3% of all the medics who joined the GMC register, and almost two-thirds (62.4%) of the IMGs.”
«In 1979, when Thatcher was elected, they were 26% of the population. They are now 21% of the population, and falling in numbers everyday.»
This is a very common misunderstanding: it is not boomers who vote for reaganism and thatcherism, it is *property owners*. When a property owning boomer dies obviously the property does not magically disappear, the boomer cannot take it to the beyond, it gets inherited, by one or more non-boomers, who then become reaganists/thatcherites themselves if they are not already while waiting to inherit their "precious". Of course there are things like equity withdrawal by the boomer, but often what happens is that the property gets sold, a share of the sale price goes to the lender, and the rest is shared among the heirs, who then use their share as the deposit for a property for their children or to pay down their mortgage.
So the number of reaganist/thatcherite rentiers does not fall at the same rate as that of boomers. It still falls but for another reason: since buying a first property is becoming ever more difficult for those who don't already own one, properties becomes more concentrated among incumbent property owners and their heirs, but the concentration is a rather slower process than the shrinking of the boomer cohort.
I have to clarify this because it is important:
«it is not boomers who vote for reaganism and thatcherism, it is *property owners*»
And specifically those property owners, of any cohort, who get huge redistribution from the lower classes via government-engineered booming property prices and rents. They vote for reaganist/thatcherite politicians to keep that redistribution going flowing into their wallets.
This is important because there are two large categories of boomers (in the UK, the USA, etc.) who are not necessarily so fond of reaganism/thatcherism, and have economic interests similar to those of younger cohorts:
* The boomers who lost their jobs in the mass outsourcing and offshoring of industry of the 1980s and 1990s in the "pushed behind"/"rustbelt" areas. These boomers usually never recovered from losing a steady job and often never had a "proper" job again, living from casual jobs and welfare. These people either never had the money to buy a property or lost the property they had.
* The boomers who already owned a property in the 1980s/1990s in the same "pushed behind"/"rustbelt" areas, as those property often became entirely worthless or at best slowly fell in price; because property prices and rents are in effect a private tax on wages and in areas with rising unemployment and falling wages they cannot boom.
This maps shows property price changes by UK region 2005-2015:
https://loveincstatic.blob.core.windows.net/lovemoney/House_prices_real_terms_lovemoney.jpg
http://www.lovemoney.com/news/53528/property-house-price-value-real-terms-2005-2015-uk-regions
"What are bond bulls looking at?"
I'd argue they've been conditioned to expect central bank rate cuts at the slightest hint of downturn, and are basing their long bond positions on this prediction.
Personally I believe J Powell when he says rates will remain higher for longer, which is also why I have been short TLT.
TLT could very likely sell off on a rate cut - especially as it could engender inflationary price action like a weaker dollar, or increase government spending. TLT is NOT the Fed Funds Rate.
I agree. Too much consensus is normally a red flag for me, but we're also in a small echo chamber here, judging from TLT inflows. It wouldn't surprise me, however, if TLT rallies hard in the interim period before the next secular decline begins.
The big wild card is whether we might get aggressive YCC on the long end. Maybe the Treasury's new buyback program will be expanded. Not really sure how that will affect TLT?
Agree 100% - and I think that's part of the Fed's reasoning for resisting rate cuts. They don't want to lose control of the long end of the yield curve.