enrieb

70% Loans can still be risky,

as UK lenders will discover in the years to come

Anecdotal, my sister finally bought a house. She's sort of intelligent in a functional conventionally university educated sense, but she gives far too much weight to the wisdom displayed by 'experts' in media organizations like the BBC or for that matter anyone whistling a popular economic tune or wearing a suit.

Feels bad to say this, but it applies to a sizable proportion of people who regard themselves as housing bears. She is one of the generation that missed out on the bubble and considered herself a bear as a consolation, convincing herself that not buying a house 2003-7 was a smart move because housing was overvalued, but secretly, all the while cursing her decsion not to buy and feeling foolish, in hindsight, for missing out on the paper gains. As the bubble continued to progress she believed the house prices had some basis in reality, and now presented with the opportunity to buy at 2005-7 prices she has jumped at the chance.

Houses on the road she has bought were valued at 240k peak, this is a gross overvaluation based on the mortgagees (as oppose to home owners) withdrawing mortgage equity to do up their homes and 'adding value'. In the case of the 240k valued houses this was achieved by building extensions onto the 3 bed semi's and turning them into 4 bed semi's, with the 3 bed semi's selling for around 200k at peak prices.

Sister has managed to purchase a 4 bed semi for 120k at auction, now that does seems like a bargain compared to peak prices and it is a fantastic looking house needing very little work, however lets look at this in a little more detail.

The previous owner did have the house valued at 240k peak prices, though despite buying the house pre 2000 for around the 60k mark, he had managed to withdraw so much equity in-order to 'add value' by modernizing, plastering, new kitchen, re-wiring, new windows, porch, koi carp pond, conservatory etc as well as building a full size extension to turn it into a 4 bed, the fool could no-longer afford the mortgage repayments.

So 120k seems like a bargain, but is it a really a realistic price? is the buyer capable of keeping up the mortgage payments? Sadly I the answer to be a resounding no. I believe that she has put down at least 20k as a deposit, possibly more with the help of my parents, thus leaving her with a mortgage of at least 90-100k which is, at least, four times her income. Her current monthly payments are £500, which is less than she was paying in rent for her previous property, this I expect, is also including a discounted payment rate for the first 2 years. We all know on here that interest rates are ridiculously, unrealistically low compared to any historical measure and are unlikely to remain at these levels for any substantial period of time. When the fixed rate period has ended and interest rates are back up to more realistic levels then her payments could well be around a £1000-2000 a month, which she would be unable to pay, even with parents help.

As a single person, this financial commitment for the next 25 years also means she will be unable to have children, unless she meets someone willing to pay the mortgage. Given her obsession to own property and be accepted as part of the herd, I feel that her decision to turn her back on the chance to have children will weigh heavy on her as the years progress. Its sad in an individual fly-on-the-wall sense, but in terms of the big economic picture this sort of lending doesn't make for secure mortgages.

The majority of people buying, even at 50% off peak prices, are not in the financial position to be able to keep up repayments over the long term when interest rates return to normal. These mortgages, even with 20-30% deposits are still bad risks especially as the economy continues to contract. House prices will continue to fall for some time.

.

Reddish marks can be what is known as copper spotting. I have a maple with several copper marks on it. They look almost like stains or some kind of rust. Perfectly normal, apparently, despite gold being virtually immune to most tarnish etc.

The gold is probably unmarked, it may just be a reaction of contaminants in a thin layer on the surface of the gold at an almost microscopic level. Almost all metals have some sort of reaction with oxygen, gold is one of the most resistant. You could possibly clean it off, but I would advise against over-cleaning, the surface layer is possibly one of the factors that helps to protect gold from damage

It could be some sort of oligodynamic effect creating a fine surface layer.

The oligodynamic effect was discovered in 1893 by the Swiss Karl Wilhelm von Nägeli as a toxic effect of metal-ions on living cells, algae, molds, spores, fungus, virus, prokaryotic and eukaryotic microorganisms, even in relatively low concentrations. This antimicrobial effect is shown by ions of: mercury, silver, copper, iron, lead, zinc, bismuth, gold, aluminium and other metals.

 

Especially heavy metals show this effect. The exact mechanism of action is still unknown. Data from silver suggest that these ions denature proteins (enzymes) of the target cell or organism by binding to reactive groups resulting in their precipitation and inactivation. Silver inactivates enzymes by reacting with the thiol groups to form silver sulfides. Silver also reacts with the amino-, carboxyl-, phosphate-, and imidazole-groups and diminish the activities of lactate dehydrogenase and glutathione peroxidase. Bacteria (Gram-positive and Gram-negative) are in general affected by the oligodynamic effect, but they can develop a heavy-metal resistance, or in the case of silver a silver-resistance. Viruses in general are not very sensitive. The toxic effect is fully developed often only after a long time (many hours).

http://en.wikipedia.org/wiki/Oligodynamic_effect

Iron, as we all know rusts, silver blackens, copper forms a green residue on the surface, aluminum and stainless steel form a thin almost invisible surface layer after contact with air. Brass kills bacteria and the buildup darkens the metal. Funny how people think that nice clean looking steel door handles are more hygienic than old hard to clean brass, the brass is much better for hygiene.

In Stainless steel, the chromium forms a passivation layer of chromium(III) oxide (Cr2O3) when exposed to oxygen. The layer is too thin to be visible, and the metal remains lustrous. It is impervious to water and air, protecting the metal beneath. Also, this layer quickly reforms when the surface is scratched. This phenomenon is called passivation and is seen in other metals, such as aluminium and titanium.

http://en.wikipedia.org/wiki/Stainless_steel

Aluminium oxide is responsible for resistance of metallic aluminium to weathering. Metallic aluminium is very reactive with atmospheric oxygen, and a thin passivation layer of alumina (4 nm thickness) forms in about 100 picoseconds on any exposed aluminium surface.[5] This layer protects the metal from further oxidation

http://en.wikipedia.org/wiki/Aluminium_oxide

Copper is a metal that does not react with water (H2O), but the oxygen of the air will react slowly at room temperature to form a layer of brown-black copper oxide on copper metal.

It is important to note that in contrast to the oxidation of iron by wet air that the layer formed by the reaction of air with copper has a protective effect against further corrosion. On old copper roofs a green layer of copper carbonate, called verdigris, can often be seen. A notable example of this is on the Statue of Liberty.

http://en.wikipedia.org/wiki/Verdigris

The copper in brass makes brass germicidal, via the oligodynamic effect. For example, brass doorknobs disinfect themselves of many bacteria within eight hours.[6] This effect is important in hospitals, but useful in many contexts.

http://en.wikipedia.org/wiki/Brass

Passivation

Passivation is the process of making a material "passive" in relation to another material prior to using the materials together. For example, prior to storing hydrogen peroxide in an aluminium container, the container can be passivated by rinsing it with a dilute solution of nitric acid and peroxide alternating with deionized water. The nitric acid and peroxide oxidizes and dissolves any impurities on the inner surface of the container, and the deionized water rinses away the acid and oxidized impurities. Another typical passivation process of cleaning stainless steel tanks involves cleaning with sodium hydroxide and citric acid followed by nitric acid (up to 20% at 120 °F) and a complete water rinse. This process will restore the film, remove metal particles, dirt, and welding-generated compounds (e.g. oxides).

In the context of corrosion, passivation is the spontaneous formation of a hard non-reactive surface film that inhibits further corrosion. This layer is usually an oxide or nitride that is a few atoms thick.

http://en.wikipedia.org/wiki/Passivation

Edit: I suppose its possible that a surface level of dirt will increase the weight very slightly on the coins, which, in part, accounts for some of the +- tolerance in weight.

Oh dear.. you're going to love this one. Last night, before I had seen this post from you, I noticed that one of my 1oz maples looks slightly 'redder' than the others; It's REALLY close though in colour. Now this coin is one I have handled more than the others so I am hoping it might just be the grease might have changed the colour slightly. The weight is pretty much spot-on 1ozt (31.11g) and the diameter/thickness looked fine to me but when I went to get it out of the capsule (30mm) it stuck slightly whereas the others come out just fine from their cases!! I will measure this coin again with calipers tonight.

Ping test seemed ok, coin does not look like a fake. Originally purchased from CID in 2008.

 

EDIT: I'm pretty sure it's an OK coin, but the slight colour difference is a bit unnerving. Will post results reweigh/measure results asap.

You will have no problem whatsoever with the maples, as long as the size and weight is accurate, 24 carat is impossible to fake unless they use platinum, which is more valuable.

The red spots are mainly on the coins that are alloyed with copper, Krugerrands, sovs, early britanias, etc..

Can you provide a link to the evidence of people doing very well out of the hyperinflation?

I would be particularly interested in evidence of landlords who did well.

The only landlords that did well according to the anecdotes in Guttman's The Great Inflation were landlords who rented out property to foreigners in exchange for hard currency. People would come from all over to take advantage of the depreciating currency in that same way that we do today in places like Thailand. Its also one of the factors that leads to the hatred of foreigners that emerged later in Germany, and most other nations that suffer from hyperinflation.

Time to cash in your gold?

http://news.bbc.co.uk/1/hi/uk/8104479.stm

A new kind of party plan is sprouting, where rather than buying make-up or Tupperware, guests are bringing and selling their gold.

 

A popular idea from America, it is thought the parties have been brought about by the economic climate and the high price of gold.

News reports are talking about the huge surge in stocks like its VE day or something, going from 7 ounces to the dow up to 7.7 ounces to the dow shows just how low expectations are in the markets.

Any idea what it was worth at its peak?

 

Must have been up at 20/25 ish

It was about 40/1 in 2000 when the Dow was around 10,000 and gold was 250ish, I can't remember the exact figures. When the dow hit its nominal peak over 14,000 the ratio was 20/1, six months ago it was 15/1 and now we are 7/1.

There are some good charts around somewhere, I'll try to find them.

http://bigpicture.typepad.com/.shared/imag...ative_ratio.PNG

The Dow Jones is now worth 7 ounces

Despite the fall in the spot price of gold, its been a good day. Its 7.3 ounces to the dow now.

Just for info. Posted by "MAGNUM P.M.'s twin bro" on GIM

 

http://goldismoney.info/forums/showpost.ph...postcount=25897

Good video, I like the point he makes about the bailouts

But the huge money that has already gone in, and will continue to go in. Once you've opened that gate you can't close it, because of the psychological impact of closing it. Monty is suggesting we go to somewhere between 20 trillion, I had though somewhere in the area of 17. Truth to be known is neither of us know."

So does anyone have any limit in mind for the amount of money the government are going to throw into the hole? It may be a good question to ask those who put forth the deflationary argument.

What would happen if the government said no more?

I think Sinclair's figure of 17-20 trillion seems realistic, I personally don't see a limit to the amount of cash they are going to throw at this problem. Its also important to think about how a figure like a trillion (which seems a huge amount now) will be seen in say 10 years time. A decade ago a billion seemed like a huge amount of money, earlier in the century the super wealthy were millionaires, now they give that away in quiz shows.

So, who wants to be a billionaire? How long until the first billion pound football player? assuming the pound is still around then.

Sorry, what I meant was where did the $12K for the dow come from?

The dow was $12-12,500 in March 2008 when gold was over $1000 an ounce.

I've never understood that calculation. What does it mean?

Its a good measure of value, because it takes the fiat paper out of the equation. It shows how despite new nominal all time dollar highs for the dow the price of stocks against gold has been falling since 2000. The gold/oil ratio is another useful stat.

In 2000 it took 44 ounces to buy the dow, in 2007 when the dow was at its nominal peak the ratio was something like 20-1 and at the beginning of 2008 it took 15 ounces to buy the dow. I think it was 10 - 1 at the start of 2009.

Some people predict the dow will be worth one ounce of gold before this is through, I would be happy to buy it for two.

It takes less than 8 ounces to buy the Dow Jones now.

When gold was over $1000 in March the Dow was still around $12000.

Diet Cola Addict,

 

I suspect your credit rating is poor for the same reason mine is: you don't have enough debt. As I understand it, these numpties work out your credit rating by reference to how much debt you've taken on and successfully repaid [note: in this case I don't think repaying a loan early counts as 'successful' as you've 'diddled' the lender out of anticipated profits]. What they want to see if people with lots of debt paying it off according to, but not ahead of or behind schedule.

 

I'd never had a credit card, paid off a mortgage after four years (STR'd) and had an abominable credit rating a while ago despite having a very healthy savings stash and no debt. I've never taken a loan other than my one mortage. In pre-crunch terms this meant I was unknown ergo a credit risk.

 

I'm hoping that, in the near future, people might see this differently!

 

You might find that putting your daily spending on a credit card and paying it off monthly helps your credit rating. [Although you may find being forced to do this, like me, objectionable].

 

Wanderer

Yep its a weird situation, the way credit scoring works filters out people who are low debt/low risk, whereas morons who borrow to buy things are considered a good credit risk. The market signals are broken, hence the financial crisis.

Its like if a religion were determining who is a sinner, if you have committed no sins then you do not need to confess, but because you have not confessed you are a sinner. If you go to confess on a regular basis you are considered absolved of your sins because you have asked for forgiveness.

When I was a child I attended a catholic school, it was OK but there came a point where we had to go to confession, being only young and reasonably well behaved I had nothing to confess to, but I felt obliged to confess to something after being put in one of those confession boxes. I made some minor offenses up (stole a biscuit, swore, etc..) and then also confessed to lying, which I wouldn't have had to do if I had not been made to go to confession.

BBC news clip from june 08.

http://news.bbc.co.uk/1/hi/england/7469961.stm

Yes you read it right, looking back at this moment in time, these could well have been the dumbest people on the face of the planet.

http://johngaltfla.com/blog2/2008/02/06/th...-for-inflation/

Where to Invest in Times of Distress?

http://www.cnbc.com/id/15840232/?video=1004555064&play=1

A short interview with Sean Boyd, CEO of Agnico-Eagle Mines and CNBC's Maria Bartiromo.

http://www.cnbc.com/id/15840232?video=999822152&play=1

GFMS press release predicts new all time high in the first half of 2009

http://www.gfms.co.uk/Press%20Releases/UP208_overview.pdf

http://www.gfms.co.uk/

Super-rich reel as fortunes cut in half

The Sunday Times

December 28, 2008

http://business.timesonline.co.uk/tol/busi...icle5404353.ece

If some of these super rich had kept some assets in gold then they wouldn't have lost so much wealth, people always want to buy while its going up and never when the price is low. Still at least with the price rising we don't have to listen to those arguments about why gold isn't worth anything, though I am sure they will reappear when the price falls back.

Welcome Paddles, its good to see poster of your caliber here.

I think that part of the reason that banks and building societies no longer want to report house price falls are that most of their assets are still tied up with the value of housing. Giving out predictions of realistic house price falls would be an admission of their own insolvency, with all the implications that has for the share prices and economy.

I put 5k in on Dec 15th

 

hahahahahaha!

Glad to see your back in the game Steve, I think since last year, we are all probably much better informed and confident of our economic opinions having seen the first stages of the economic collapse that has long been predicted. Don't let the volatility shake you out, accept the day to day ups and down as waves in the ebb and flow of the tide. Over the longer term the pound is sinking and so too will the dollar.

On the subject of todays spike, perhaps it has something to do with this news from Pakistan.

Pakistan cancels military leave

Friday, December 26, 2008 13:25 GMT

http://english.aljazeera.net/news/asia/200...5230859853.html

Realist Bear had this prediction!

24/10/08 RB Gold will be sub $300 by the end of the year.

Goldline are out of most of the main 1 oz bullion coins again

Australia Nugget 1oz - out of stock £ 578.75

Austria 1oz Philharmoniker - out of stock £ 578.75

Canada Maple Leaf 1oz - out of stock £ 591.75

China Panda 1oz £ 589.25

South Africa Krugerrand 1oz - 2 weeks wait £ 597.25

United Kingdom Sovereign's £ 149.00

United Kingdom Britannia 1 oz - out of stock £ 602.50

USA Eagle 1oz - out of stock £ 578.75

I also rang Chards the other day, and they were out of Sovereigns, though they did have Krugerrands available.

US treasury bonds 'still the best option'

By Xin Zhiming (China Daily)

Updated: 2008-11-20 07:03

http://www.chinadaily.com.cn/china/2008-11...ent_7221498.htm