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The next half of 2020


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Hello all, 

As we are nearly half way through the year I have been both reflecting on the last 6 months and thinking forward to the next. 
 

With the the freeze in the market over the last few months I feel as though we maybe experiencing a mini bounce with some pent up demand and a lack of supply. As the government continues to support business with the furlough scheme until the end of October a large part of the economy is still on ‘vacation’. 
 

An amusing analogy I have recently come across - ‘Restarting business from a standstill is tricky, you need to hope you have the money for rent, PAYE etc and that your customers are still there. It’s like flying into the airport back from holiday, hopefully the battery on your car hasn’t gone flat’

Will employment suffer post furlough scheme, and as a result will the housing market flatten or maybe even dip?
 

This is linked to the Robs podcast chat on inflation/deflation and the real question being; How will people feel and how will they spend over the next 6 months? 
 

Thoughts/speculation welcome :) 

 

 

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It's an interesting one and the one on everyone's lips at the minute.

I think higher unemployment is an absolute given. We already seen joblessness rise and claims for unemployment benefits increase. The rise in logisitical jobs and supermarket jobs wont outweigh the widespread cut backs. Impacting deflation. 

I think in times of uncertainty people generally sit, wait, save their money, thus reducing consumer spending. Impacting deflation.

The amount of QE is massive, and they could keep trying this. Again this devalues money because there is more of it in the economy. Impacting deflation. 

If there is an antibody or a cure found... this could give people confidence to venture out and spend more, and could lead to restrictions lifted. hopefully inflation. 

Some consumer confidence is coming back as the warning level decreases. I was out today and the amount of cars on the road was pre covid levels.

Everyone and their aunt is waiting for a dip to swoop in and get a bargain. I think people are expecting to bag bargains, but where some parts of the country havent even returned to 2008 levels I'm not sure it's going to happen. I think there will be lots spent in the North and the divide will closen.

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For me the presence of a second wave, and/or discovery of a vaccine are going to be instrumental. 

Should we hold out long enough, without a second wave, then the economy will have time to recover. 

A vaccine, which is distributed sufficiently, will obviously cause the market to rebound. Depending on how long this takes, and whether infection numbers have increased, will determine the state of the economy by that point. 

Either way, I can see huge increases in unemployment. I think this will kick in properly from 1st August when the furlough rules begin to change, with employers having to contribute more and more to the wages over the next couple of months.

My feeling by looking at what is happening in Beijing (and the fact that we seem to be returning to normal quite quickly) is that a second wave is only a matter of time. Lets hope a vaccine comes along quickly. 

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Hi @Rob123 and @nicholas b,

I would be interested to know peoples views on whether QE or a no-deal Brexit will bring about inflation (regardless of what Rob & Rob say on Thursday's show). On Friday, the governor of the BOE announced that he won't hesitate to unwind all of the QE stimulus, albeit before increasing interest rates once we start to get back to normal.

https://www.bloomberg.com/opinion/articles/2020-06-23/bank-of-england-s-andrew-bailey-wants-to-remove-the-qe-punch-bowl

It would be great to get an amateur economists opinion on how this will pay out. I always thought that governments and the BOE collude and just let the debt sit there until it's expiry date but the latest announcement contradicts that - confusing me! Why would the government do this? This could have a huge impact on inflation is my thinking but I could do with a more informed opinion. 

Many thanks in advance fellow hubbers.

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It would be great to get an amateur economists opinion on how this will pay out

Well I'm about as amateur as they come, but here's my lukewarm take:

Unemployment will increase during the 3rd quarter of this year as businesses take the opportunity to reduce cost from easily replaceable workers. However the furlough scheme means most people will remain reasonably confident about their finances so demand will remain high; ultimately there is no structural problem with demand- if anything there may be an undersupply.

If we don't see a second peak then expect unemployment levels to drop at the end of the year as low skill workers are rehired and the economy to recover by start of 2021. IMHO we should be seeing a larger number of infections than we are now; how strict have the people you know been about social isolation. What about the hundreds of thousands mixing on the streets a couple of weeks ago? So this is my most likely scenario.

If we do see a second peak then there will be a great deal of pressure on the PM to avoid a second lockdown. We may have "lockdown-lite" - hospitals, care home, schools and indoor public venues affected, but businesses remaining open. I can't see this causing an economic apocalypse.

So my prediction is slow recovery over 6-12m with interest rates and inflation remaining about where they are now. Large purchases e.g. property will be delayed until confidence picks up; this will happen in September / October as the situation becomes clearer. 

Finally with more people comfortable with working from home I'd expect to see lower demand in overheated areas (i.e. places where people have to live in order to commute to work), smart properties in desirable areas should continue to be in demand (lifestyle choices)

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I personally think if the Covid-19 figures were to flatten as they are the property market and property cycle would continue almost unaffected, if not even growing at a faster rate, since borrowing is still widely available and people have had so much time to asses their lives, free time to look at where they'd like to move and people realising they quite enjoy working from home.

BUT with the BLM protests and the crowded beaches showing the disregard some of the public have towards the remaining risk I think a second spike is inevitable. Which will surely lead to a lot of job losses when the furlough scheme ends or the employers have to start toping up the wages. Which could be the turning point that sends us into a real recession.

Myself I think the second scenario is most likely but we won't feel the effects in the property industry until next year. By which time we will hopefully have a vaccine and QE will begin to take effect and throw us into a massive boom :mellow: hopefully

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Interesting views here, I tend to look at the stats/news/reality and sort of take a step back. For me, I don't see any opportunities at the moment, I see risks with buying and not achieving the end value I need to complete a BRR or sell a flip at profit. With Furlough ending soon, and with so many companies going under, I think it's undeniable we're in for some sort of shock or issues, the economy will reflect that.

I'm waiting (very bored) and taking each day as it comes, and seeing where we go. I can't speculate as I have so many ideas and it could go any way, any where!

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1 hour ago, tej_talks said:

Interesting views here, I tend to look at the stats/news/reality and sort of take a step back. For me, I don't see any opportunities at the moment, I see risks with buying and not achieving the end value I need to complete a BRR or sell a flip at profit. With Furlough ending soon, and with so many companies going under, I think it's undeniable we're in for some sort of shock or issues, the economy will reflect that.

I'm waiting (very bored) and taking each day as it comes, and seeing where we go. I can't speculate as I have so many ideas and it could go any way, any where!

Hi @tej_talks, I have FOMO! If the market has opened up post lock down much higher, is this a blip or the start of a massive boom? Would be interested in your views. 

 

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4 hours ago, tej_talks said:

Interesting views here, I tend to look at the stats/news/reality and sort of take a step back. For me, I don't see any opportunities at the moment, I see risks with buying and not achieving the end value I need to complete a BRR or sell a flip at profit. With Furlough ending soon, and with so many companies going under, I think it's undeniable we're in for some sort of shock or issues, the economy will reflect that.

I'm waiting (very bored) and taking each day as it comes, and seeing where we go. I can't speculate as I have so many ideas and it could go any way, any where!

Snap!! This is the point I was making. Literally there are tens of thousands of people in this position. Sitting and waiting for some form of dip. With that being said will there be one or will demand keep high due to investors coming in to the market, after the pent up demand from lockdown is gone? Will the QE outweigh the joblessness, redundancies and jobs removed from the market?

Who knows. I've given up trying to figure it out, it hurts the brain. I'm sticking to my original plan, again, as you pointed out, I'm sitting and waiting for December when the SEISS payments end, the furlough ends and the market generally quietens. Touch wood something reasonable will come up. 10-15% BMV would be nice, perhaps wishful thinking.

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21 hours ago, nicholas_b said:

Snap!! This is the point I was making. Literally there are tens of thousands of people in this position. Sitting and waiting for some form of dip. With that being said will there be one or will demand keep high due to investors coming in to the market, after the pent up demand from lockdown is gone? Will the QE outweigh the joblessness, redundancies and jobs removed from the market?

Who knows. I've given up trying to figure it out, it hurts the brain. I'm sticking to my original plan, again, as you pointed out, I'm sitting and waiting for December when the SEISS payments end, the furlough ends and the market generally quietens. Touch wood something reasonable will come up. 10-15% BMV would be nice, perhaps wishful thinking.

Great philosophy. I will end up driving myself mad if I carry on speculating!

 

Two interesting sources of info pointing to inflation:

https://moneyweek.com/economy/inflation/601584/the-end-of-the-bond-bull-market-and-the-return-of-inflation?amp

https://ritholtz.com/2020/06/mib-jeremy-siegel-covid-market/

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50 minutes ago, jonnyh14 said:

Great philosophy. I will end up driving myself mad if I carry on speculating!

 

Two interesting sources of info pointing to inflation:

https://moneyweek.com/economy/inflation/601584/the-end-of-the-bond-bull-market-and-the-return-of-inflation?amp

https://ritholtz.com/2020/06/mib-jeremy-siegel-covid-market/

I think Rob and Rob referred to this. If not then what they said is incredibly similar. The point being made about QE being sent direct to consumers opposed to financial institutions, and that financial institutions are in a healthy position, are the main arguments for inflation. It's very interesting. This couple with low interest rate would generally mean spend, spend, spend. 

 

I think the argument for want/need is weak, that's only short sighted and reiterates what I said about demand being pent up. If you put this in a housing context of needing a house and then supply v demand I'd be interested to see the thoughts of experts on this. I also like the comparison and why it's different to the 08/09 crash.

I also think the V shape recovery might tie with the 18 year cycle? Funny how things work out.

I'm still not sure how this will link to our proposed no deal Brexit.

Jesus, apologies for rambling, I bore myself sometimes. Just thinking out loud. I'm sticking to what I said above in terms of waiting till christmas then just taking the plunge. 

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