Mark Dampier: Why the smile? This is all his fault
Saturday 10 January 2009
Over the course of the past few weeks, I have been criticised by friends for my pessimistic views on the UK economy, and on house prices in particular. I don't see what good it does to shoot the messenger, but I note that throughout history messengers have often received the raw end of the deal! I also find it increasingly difficult to be politically neutral; investment and politics are now more closely linked than ever.
I firmly believe that this government has systematically wrecked our economy over the past 10 years. They sold half our gold reserves at about $250 (£164) an ounce, and now the price is more than $850. They have taxed pensions, they raised taxes through complicated means so as to hide them, and they weakened regulation of the banking system.
Fatally, they not only spent the surplus money we had in the good times, but also borrowed more! They have used some of this money to expand our bloated public sector instead of introducing the dramatic cuts and reform it needed. The opposition parties haven't been much better, though, seemingly too scared to say anything that might offend the public sector or indeed anyone else. They've had an open goal wider than the Grand Canyon and completely failed to score.
Consequently, we go into 2009 with the economy in a huge mess and politicians of all parties blaming everyone except the people who are really responsible – themselves. Is it any wonder that I'm angry? I am sure that most of you are, too.
The underlying cause of the housing problems was an unchecked rise in land values. Indeed, as I have said in this column before, the only person to have foreseen this, to my knowledge, was Fred Harrison in Boom Bust (written in 2005). House prices in America are likely to fall another 15 per cent before they reach the bottom, making for a fall of at least 40 per cent in total. I mention this because our housing market was even more overvalued than theirs. So far, our housing market has fallen about 16 per cent, so there is a long way left to go, especially considering an almost-guaranteed sharp rise in unemployment this year. Anyone predicting a modest recovery later in 2009 is fooling themselves.
The best leading indicator of house prices is mortgage approvals, which makes sense as the vast majority of people can't buy a house unless they are first granted a mortgage. The graph on the right, which pushes the mortgage approval data forward seven months, reinforces my point (thanks to M&G for this data).
I believe we can expect at least a 20 per cent fall this year, and the market isn't likely to hit bottom until late 2010 at the earliest. Worse still, millions of people will be in negative equity, which will cause a big drag on the economy.
What solutions do our politicians have for our flagging economy? Labour want us to spend more in the shops, but a VAT cut that reduces prices by 2.13 per cent is far too small, especially as shops are slashing prices anyway, and we know that huge tax rises will come within two years.
The Tories' master plan is a tax break on savings (although not for everybody), but perhaps the irony is lost on them that if everyone now starts saving, the recession will be even worse! God save us from the politicians. As Ronald Reagan once famously said, the nine most terrifying words in the English language are: "I'm from the government and I'm here to help."
What we really need is a thorough overhaul of the tax and benefits systems, along with a huge cutting back of the public sector – but that would take some real hard work and great political courage, and might be difficult to sell to the public. Consequently, I expect to remain angry and disenfranchised for quite some time to come.
Next week, I will return to funds that I hope might prosper over the next few years (despite the politicians).
Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Five Questions: Changes to car tax discs
Bargain Hunter: There's one day left to book a bargain flight with Air Asia
Two million first-time buyers are locked out
How to save money: UK is crashing down the European league table for putting money away
Mark Dampier: When even safety first is a risk, go for income and capital growth
- 1 Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
- 2 Oil tanker with $100 million cargo goes missing off Texas coast
- 3 George Galloway left with severe bruising after attack in Notting Hill by man 'shouting about the Holocaust'
- 4 Saudi Arabia executes 19 in one half of August in 'disturbing surge of beheadings'
- 5 Brother and sister, Christopher Buckner and Timothy Savoy, arrested for 'committing incest after watching 'The Notebook''
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
With Douglas Carswell joining Ukip, my party has taken another giant step forward
- < Previous
- Next >
iJobs Money & Business
£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...
£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...
£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...
£50000 per annum: Harrington Starr: Financial Technical Consultant (C++, C#, F...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony