I’m going to stick my neck out and make a few predictions.
1. The stock market crash is not over yet.
We are currently in a very large rally. Bears, like me on this occasion, generally get nervous the longer such a rally carries on – have I missed the bottom?! It’s a kind of anxiety caused by not following what other people are doing. What if they are right and I am wrong? But looking at it from a logical point of view I still believe we’re on the way down.
Unemployment in the UK is already up by 244,000 this year. Personal insolvencies and repossessions will continue to rise for many many months yet. According to the Council of Mortgage Lenders, lenders repossessed 12,800 homes during the first quarter, up from 10,400 in the fourth quarter of 2008 and almost 50% up on the 8,500 reported a year ago.
Corporate insolvencies will increase and we will see investors returning to defensive stocks. Right now investors are favouring high yielding volatile stocks as they seek out both income and capital appreciation. The defensive stocks have been far from the best performers in this rally so far.
2. House prices will keep falling for a few years yet.
Nationwide has house prices down 15% from April 2008 to April 2009. Halifax has it down 17.7% and down 22.55% since it’s peak. The most entertaining statistic is from Rightmove. They have property down 6.21% since it’s peak. Well I know whose figures I trust and it certainly isn’t theirs! Nationwide have an interesting graph:
What’s particularly interesting about this graph is that right now prices are clearly still heading south as they cross the long term price trend. This is a feature of markets – return to the mean.
In other words, prices tend to overshoot and undershoot the mean as they oscillate around it. You can see from the last crash that prices went well below the trend and that is where we are headed now.
You can see from the start of the graph that in the 80s prices only just dipped below the long term trend but this time I think we will be well below it.
I expect unemployment, difficulties in getting mortgage finance and general economic bad times to force house prices down to £100,000.
Another interesting feature to remember is that last time it took about 6 years to reach the bottom of the market. America crashed before us this time and they are still going down now. If you are waiting to get on the ladder don’t worry too much about being left behind as I expect the market still has a long way to go before it hits the bottom.
3. Gold will rise again and may even reach $1,500 this time.
Gold tends to go up in times of uncertainty and fear. Despite the fact that it pays you no income the attractions of gold are important in times like these. There is no credit risk and a highly liquid market.
I know it’s been up around $1,000 already in recent times and retreated but I think that retreat is merely down to the same denial that has brought us this stock market rally. When this stage is over I expect gold to rise again. Timing is merely a guess but I expect movement upwards towards the end of this year.
That’s it for my predictions. I’ll revisit this post later in the year and see if my guesses (and predictions can never be any more than a guess) are near the mark!