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The Summer Stock Market 15% Discount Sale Continues

Stock-Markets / Stock Markets 2011 Aug 14, 2011 - 10:00 PM GMT

By: Nadeem_Walayat


Best Financial Markets Analysis ArticleThe stock market managed to make it through to the other end of a wild week having survived the bears repeatedly letting off both barrels at the bulls, throwing everything they had at the market, starting with the downgrading of the US debt from AAA to AA (eventually to junk), intensifying in core eurozone countries such as France itself now also in the firing line for a downgrade, however by the end of the week the net result was a market that closed higher by about 100 Dow points against last Sunday evenings Dow futures of 11,170.

High volatility became extreme volatility with the Dow yo-yoing by more than 500 points virtually every day, which presented accumulating investors multiple opportunities to buy stocks at deep discounts of more than 15% off recent highs as the Dow retraced to an intra-day low of as deep as -17% off the bull high at which time the usual suspects appeared in the mainstream press, (regurgitated in the blogosfear) to proclaim the end of the "bear market rally" and resumption of the bear market, which as is usually at the precise time that the stock market would reverse direction sharply higher.

The old 1930's charts of the Great Bear Market were again used to justify expectations of what perma bears and deflationistas' had in mind for what was expected to occur next, (for the umpteenth time), though those that spend so long staring at these 1930's charts are missing the most obvious point, which is what?

  • Dow 1929 Peak 381
  • Down 1932 Bottom 41

What is that saying ?

Think about it for a moment, Dow 1929 peak 381, Bottom 1932 41.

Where does the Dow stand today ?


What's 11,270 divided by 381 ?

What's 11,270 divided by 41 ?

What's the trend trajectories off either the 1929 bull market high or the 1932 low ?

Where do the trend trajectories imply the Dow will be in 5,10, 20, 40, 80 years time ? Significantly Higher or lower ?

If there is a constant battle between Deflation and Inflation then why is this not reflected in the general stock market indices such as the Dow?

It is because the general stock market indices are locked into an inflationary exponential growth spiral, as corporate revenues and earnings (profits) are leveraged to rising commodity and consumer prices (fuelled by perpetual currency debasement) AKA the INFLATION MEGA-TREND, trends of which are further enhanced by expanding profit margins as a consequence of increasing worker productivity as technological advances are taking place exponentially, for instance today's smartphone has more processing power than the whole United States had 50 years ago! And the technological advances over the next 50 years will be exponentially greater!

You may argue that companies go bust thus this cannot be be so ? Yes, companies do go bust, but they get thrown out of the general stock market indices long before they disappear into history and replaced by EARNINGS GROWING companies, a fact that apparently fails to register in the consciousness of deflationistas' who place theory and models of what SHOULD happen over the REAL world of experience what actually takes place in investor portfolios.

The bottom line is that there is no battle between deflation and inflation because deflation only exists in the minds of ivory tower academics or other vested interests that are paid to pump out economic propaganda to keep populations sedated on the consequences of the ever present Inflation Mega-trend, where anything less than 2% annual compounding of official inflation (that is significantly lower than the real rate of inflation that people experience) is deemed to be bad therefore supportive of the fiat currency money printing system that all governments are engaged in utilising to enable then to spend monies they do not have by conjuring it out of thin air.

I'll stop here else I will just be repeating what I have already written at length countless times over the past 2 years and iterated in the Inflation Mega-trend ebook (FREE DOWNLOAD).

Stock Market inflation Mega-trend Investing

Stocks of rising divided companies are one of the best long-term inflation mega-trend hedges therefore oscillations around the general stock indices growth spiral should be utilised to both bank profits and accumulate into which means bear markets and market panic events are buying opportunities. Yes, EVERY CRASH and BEAR MARKET without exception has been a buying opportunity for stocks in consistently raising dividends because they hedge your cash against inflation, because deflation does not exist in our fiat currency money printing world.

This is how I invest and grow my stocks portfolio, bank profits when the yields drop, accumulate stocks when the yields rise, a simple yet effective strategy where the yield is far more important than the stock price, because that is what will generate the return and DRIVE the stock price higher over the long-run.

So all I saw this past week was a summer discount sale of as much as 15% on the indices, though the reality is that solid dividend stocks are not only a hedge against the Inflation Mega-trend but also against market panics, which means I was lucky if I was able to secure a discount of 8%, let alone 15% on target stocks, which matches my previous long-term study of such companies that on average can be expected to fall at half the rate of the general stock market indices during market panics and bear markets followed by greater upside on the other side as a consequence of consistently rising earnings and therefore much lower P/E Ratios.

There are countless such dividend stocks such as Tesco, BHP, Vodafone, BATS, Coca Cola, HSBC, Glaxo, Royal Dutch Shell to name just a few. Key metrics to look for are consistent high dividend payers / raisers, good dividend cover and a low P/E.

So, if you get your investing mindset right (psychology) then market panic events such as last week are not times to panic, but rather a time to stock up on higher yields courtesy of lower stock prices of between 5% to 15% compared to where they were barely a few weeks go. Always Keep Yield in Mind, for you only need to know price if you intend on SELLING, after all when you put money in fixed rate savings account / bond do you ever consider the exchange rate of your domestic currency ? No you consider the yield, which is how you should also approach stock market investing.

Now before you run off and buy dividend stocks do remember that investing in the stock market is high risk and for the long-term, if you cannot acknowledge these fundamental facts of stock market investing and are prone to start sweating on every market dip then you should not be considering investing in even safe high dividend yield stocks let alone big name tek stocks that the mainstream media obsesses over.

Look, even if worse comes to the worst and stocks fall say another 20% by the end of the year, that translates into a 10% risk for dividend stocks ( an opportunity to accumulate more at an even higher yield), against which you are hedging against the long-run impact of the Inflation Mega-trend that looks set to deliver year on year rising dividend income ultimately matched by rising stock prices as a consequence of falling P/E's. Though my expectations remain for general stock market indices such as the Dow to make NEW bull market highs by year end.

And don't forget than there is a literal avalanche of scared money sat in the likes of U.S., UK and German bond markets, all it would take is a little stability in the economic data for stocks to spike significantly higher.

Are British Police to Blame for Extent of London Riots and Looting?

Whilst The US was being stripped of its AAA credit rating London high streets were being stripped of their consumer goods. Many thousands of residents and business owners were all saying the same thing, "Where is the Police?"

The spark for the trouble was the shooting on Thursday 4th August of an Afro-carribean male by police in Tottenham (London) under Operation Trident which targets black on black gun crime, with the initial protest at his killing starting in Tottenham on Saturday 6th, then spreading across London on subsequent nights as rioters and looters took advantage of an apparent lack of police response, utilising social media sites such as Twitter, Facebook, and smartphone's such as the Blackberry to quickly organise and target rich pickings for consumer goods on high streets.

Rampaging mobs of looters after clearing high street shops of their goods then took the insane step of setting them alight, destroying many livelihoods and homes.

The rioting / looting spread further across England's inner cities with severe disturbances taking place in at least 6 cities including Birmingham, Bristol and Liverpool which culminated in the killing of 3 asian males (hit and run) in a group of 80 in Birmingham that had sought to protect their homes and business against looters due to the lack of police response. The killings had risked the start of race riots which were prevented by the victims parent's dignified calls for calm.

However unlike the early 1980's, Britain has become the CCTV capital of the world with more cameras than even totalitarian states which ensures that the vast majority of the rioters, looters and arsonists would be be tracked down and brought to justice, which is small comfort to those that are losing everything during each nights rampage.

Whilst many in the media have focused on the social causes such as economic austerity cuts, social exclusion, lack of jobs for possible reasons why. The truth is that the real reason for 90% of the looting masquerading as rioting was because the Police let it happen.

Britain's extensive 5 million strong CCTV camera's mean that for several years the police has had an apparent policy in action of letting civil disorder / crime take place. Why ? Because then the police are better able to convict with the aid of cctv and other video footage than had they attempted to intervene at the time resulting in lesser charges fewer convictions. In fact elements of the police have been actively engaged in inciting crime and demonstrations to take place so that evidence can be generated enabling convictions to take place as I wrote last February.

The recent highly public case of under cover police infiltration and incitement operations on climate change activists is further evidence of a defacto police state in action where under cover police officers are inciting protesting groups to break the law. How many more hundreds of under cover police operatives are out there who's primary purpose is to incite a group or protesting crowd into a course of action that they would not have otherwise undertaken so that the police can generate evidence for prosecution.

The Police, by standing back and letting riots take place for several days with little action other than filming the perpetrators is just a continuation of this policy of letting rioting / looting fools generate evidence against themselves.

Unfortunately the lack of police response sent the green light to many more people than the usual suspects as students and those in low paid work that were bitten by the looting bug and fell into the police evidence generating trap and in the process have now likely wrecked their futures as the Police have already arrested near 3000 rioters / looters based on video footage evidence as homes are raided for evidence and suspects arrested.

Off course those that broke the law are nothing more than common criminals that deserve everything that is thrown at them as they are brought to justice, but the Police did take several steps back and allow the Riots / Looting / Arson to take place for several days which resulted in far more crime than would have occurred had the police acted following the initial disturbances in Tottenham and failure to respond to subsequent disturbances. One could speculate that this could have been part of a collective message from the Police to the government as to what it can expect to happen more often if the planned Police cuts are implemented.

Another point to consider is that the frenzy of looting activity was probably further fuelled by the mainstream broadcast press as it pumped out blanket 24 hour coverage of looting across London's high streets without any police presence for hours at end.

Your bloated analyst having gorged himself on high yielding stocks during the week.

Source and Comments:

By Nadeem Walayat

Copyright © 2005-2011 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


15 Aug 11, 04:59
House Price Compound Growth

I agree with your analysis, and too believe that inflation and stealth taxes of other sort will decimate the middleclasses. My question really is what do you expect house prices in the south east of the UK to grow by- (Compounded Return) over the next 10 years, as per your inflation prognosis?

would you say 3/4% per annum return or greater?

Kind Regards

15 Aug 11, 11:45
House Prices, Location, Location, Location


over the past couple of months I have done a lot of research and analysis into house prices that I have yet to convert into articles.

The bottom line is that location matters more than anything else even within the same city it can make the difference between 1% growth per annum and 10% growth per annum.

I will shortly be posting my analysis for the city of Sheffield to illustrate this, but it is beyond my resources to expand to other cities.



Harald van Lintel
15 Aug 11, 12:10
if worse comes to the worst

I always follow your commentaries with much interest, and I noticed that for the last two years your prevision of the stock market was very good.

However, one month ago you were still optimistic that the "Stealth Bull Market" was going to continue until the end of this year, and the recent drop was steeper than you expected. Does your comment that "if worse comes to the worst and stocks fall say another 20% by the end of the year" indicate that you are not so sure anymore, and that the trend for the rest of the year may be down?

15 Aug 11, 15:10
Location location location location!

Yes, location is absolutely critical in so many ways and at so many levels. As Nadeem says, getting it right makes a huge difference to your profitability. Getting it wrong, and ending up as a forced seller if the market turns down and you can easily get wiped out completely. You can't afford to leave any aspect of location to chance (and that includes things that MAY happpen in the area in the future, such as school closures, new high-speed rail links and god knows what else). It's a minefield!

15 Aug 11, 17:32

I think its better to invest for income and imagine that there will be no increase in price over the short term. Given the current market turmoil, there are many great oppurtunities out there. When prices or rents rise it will be a bonus.



18 Aug 11, 11:34
credit based house prices

Hi Nadeem.

Enjoy your work as always.

I guess you see housing investment another inflation protector (as it has been for a long time), but given price levels are based entirely on credit levels, isn't it a dangerous time for property investment?

Interest rate rises, as you have written, could easily undermine current price levels.

18 Aug 11, 15:07
UK housing market investing


I tried buy to let years ago, but I hated it so I don't do that.

I have not completed my housing analysis but I have a mountain of cash that needs to go into an inflation protecting assets for which the current UK housing market conditions appears ripe.

You have to evaluate the utility cost for purchasing houses, afterall its fine having plenty of figures sat on a spread sheet but its not quite as enjoyable as being sat in a high figure property, in which respect location gives the inflation protection PLUS extra profit so one gets to enjoy ones wealth WITH profit.



18 Aug 11, 15:39
Inflation beating investments

I can see where you're coming from with your argument in favour of UK housing investment, Nadeem, but like john in Singapore I fear rate rises nulifying value rises.

But what can anyone do? The options are increadibly limited and we are thinking in these difficult times more in terms of wealth preservation than wealth expansion. Over the next couple of years, we'll be lucky to break even in real terms, let alone make a buck. Time to find something safe and unspectacular and batten down the hatches, I reckon!

18 Aug 11, 16:51
uk house market investing

Hi Nadeem,

sorry i dont understand, if not buy to let are you saying buy a bigger property to live in and somehow get it to make you money? how does that work as its not earning a yield?


18 Aug 11, 17:56
UK Property


The name of the game is protecting and growing ones wealth, property is one of the key long-term asset classes to enable this to occur.

For property there are two choices:

For buy to let that generates a yield, however this is a job, so you need to put a value on the time you spend on managing buy to lets.

Buy to let is not suitable for everyone (including me).


Buying to live in where the LOCATION matters above everything which can deliver you a gain per annum even if house prices are falling elswhere in a city.

So time purchases well and you can make a huge profit over the long-run by buying when the market is weak (now) under bidding, and selling when the market is euphoric - over bid buyers.

PLUS - and this is a BIG PLUS ! - The PROFIT IS TAX FREE ! (Yes I know real profit is less accumulated inflation).

Offcourse your not getting a yield but neither are you incurring costs yourself of renting on top of which you get to enjoy a property whilst all the while maximising your wealth protection.


chris wallace
18 Aug 11, 19:17
housing offset mortgages

nadeem i have followed yourself and shaun richards blogs for quite a while.i know you like to be debt free but wouldnt using a market leading offset mortgage to purchase your house obviously protect you from interest rate rises and save you tax on savings interest etc. plus make your capital available for other opportunities i believe some accounts allow you to offset your investments against your mortgage as with anything it is not just the price you pay but the lifetime cost of the asset or service .welcome your thoughts.i have been thinking along these lines.just a thought along different lines ,how long before the looters target wealthy homeowners AS SOFT TARGETS.??????

18 Aug 11, 21:20
Buying Houses - Mortgages


I would only consider a Cash ISA offset mortgage (that allows ISA's to be transfered in), I know Intelligent Finance used to do one, but I don't think there are any on the market at this point in time.

All that mortgages do is to leverage your capital i.e. increase the potential reward as well as the risks should your future revenues be unable to service the mortgage. So effectiely you are speculating with borrowed money if you are using capital for something else whilst you have a mortgage.

I don't see the point of offsetting cash outside of an ISA against a mortgage, better to have a smaller mortgage, less risk.

The looters are getting punished, there is always crime, but if you buy in a good location then crime will also be low.



18 Aug 11, 21:35
if worse comes to the worst

As you can see volatility is high.

I'm not going to try and give myself an headache by trying to anticipate short-term swings of 5% on a near daily basis, but rather stick to the long-term strategy of investing for yield for the long-run.

Yes, I still expect new bull market highs this year, but there is always a risk that the market will do its own thing, in which respect, yes there is a risk that I could be wrong in my assumption, but as long as dividends are not cut, it's not something that is overly important in terms of the long-run.



19 Aug 11, 12:26
worse comes to worst

Hi Nadeem -

If the market really drops another 20%, it'll be a pretty substantial correction from this year's peak. Wouldn't it then be likely that the market won't recover to that peak level for a long time?

Using 2008 as an example, the market plummeted from July 2008 - Mar 2009, a collapse that spanned 8+ months!

Furthermore, the market didn't recover to the pre-collapse levels until roughly April 2010, a full year after the bottom was reached.

I think the previous question is more related to - if indeed we are looking at a make/break scenario right now, wouldn't it be better to maintain cash/defensive for the coming year?

Otherwise one risks being stuck in a losing position for well over a year?



23 Aug 11, 01:35
Stocks Expectations
Hi Eric

I don't see how I could make my position clearer.

My expectations are for new bull market highs, if I am wrong in this expectations then yes stocks could fall by another 20% which would translate into dividend stocks falling by about 10%. To iterate this is not my expectation.

I have put my money where my mouth is and now hold more stocks in nominal terms then I have ever held in my 25+ years trading / investing history.

I was going to do an article on the housing market, but I guess I need to do another one on stocks and the inflation mega-trend.



P.S. Every investment I make is on the basis of making a 100% return, it may take 2 years as occured with the likes of Silver, or 10 years as are my growing expectations for UK property. So all these divi stocks I have bought today will be giving me a 100% gain between 5-10 years time, not possible ? Well virtually everything I bought during the financial crisis from Oct 2008 to March 2009 is giving me 60-100% gains in less than 3 years !

I told people in October 2008 that I expected the stock market to bottom between Feb to June 2009, and that I would be scaling into long-term into this window -

20 Oct 2008 - Stocks Bear Market Long-term Investing Strategy

. I really need to do another article, these clueless perma-bear fools really don't have a clue about investing !

It's all crap ! As if ANYONE buys at the top and sells at the bottom! fools ! That is the only word that explains them,
24 Aug 11, 06:04
inflation megatrend

What about the Japanese experience ? They have had 20 years of deflation.What are the flaws in Albert Edwards "Ice Age " hypothesis that extrapolates this to the US and Europe?There must be a limit to the amount of money that governments can print without causing more damage than good.In addition demographics are not helpful.The retirement of the baby-boomers alone will put the stockmarket under huge ressure for the next few years,not to mention the increased cost of caring for elderly unproductive citizens.

24 Aug 11, 08:16
Japan Deflation ?

There was no deflation in Japan.

Prices instead were stable.

Stocks ?

They collapsed from about X200 earnings,

Housing ?

Tokyo was valued more than the whole United States.

That has nothing to do with value investing. This is not 2000 and I am not buying Nasdaq stocks at X150 earnings.

Take the trend trajectory for the whole trend, not just top to bottom, but also bottom to top then you see that there IS no deflation, not even in Japan !

Look at the perma bear fools, that take every high in the stock market as THE final high and then say look its crashed, what about when the high is next surpassed ? The fools have been playing and losing the same game since 1932 !

Deflation is myth that does not exist in reality.

I don't see how you can lose buying dividend paying stocks at X10 or less earnings.

This is the buying opportunity of the decade for the likes of tesco....

My portfolios doubled in 3 years, and will likely double again in the next 3 years, my only problem is what to do with the money ???? Buy a bigger house ?



24 Aug 11, 18:14

Hi, what do you think about 4500/4600 as a bottom for the FTSE before the end of year rally? Did you manage to short the markets like you did before?

25 Aug 11, 10:41
Get in now while the going is good!

I agree with Nadeem here.For a 10 year outlook there are some fantastic buys right now.Market leading blue chips with a dividend track record is going to provide a solid investment. The dividend yield itself is great but on top of that we are picking up these stocks at a 15% discount which gives us a great capital growth play. International exposure is also my hedge against the dollars continued decline.

I have recently taken positions in BHP, INTC, MCD, PM, JNJ, T, NLY( NLY is a 2 year play) to name a few. I'm also looking at WFC and HPQ closely and may pull the trigger on Friday pending the Fed news.

Not sure what you think of my choices Nadeem...... I'm far from being an expert that's for certain.

My bottom line is that people were content investing for the long term when the dow was at 12,500. It does not take a rocket scientist to know that buying at 11,000 should make therefore make you really hapapy :-)

Keep up the good work

Marcin Strojny
25 Aug 11, 11:23
Thomas Cook


What would you say about Thomas Cook? Price dropped from 200p to 44p this year, at current level P/E is 2.7 and dividend yield 24%. The company in indebted and will probably cut the dividend, but even with 50% cut it would still be way over the inflation level.

25 Aug 11, 15:50
Iceman - Japan


Don't forget with Japan they have been able to borrow monumental sums entirely domestically.

Noone else is able to do that (perhaps Norway excepted), so it's dangerous to generalise their experience with the misallocation of capital they were able to exercise.

25 Aug 11, 15:53
What to do with returns?

Nadeem - what to do with money that's been made?

Well, I've no idea of your tastes or lifestyle but I can help you to decide if you like? Could be fun!!

My preferences are the Lakes and the Bordeaux region in France, including the coast. Lots of enjoyment to be had I think.

David Robson
26 Aug 11, 16:51
Investing for Dividend Yields

Hi Nadeem,

Thanks for all the articles you publish on your analysis - I find them very insightful.

I had a question on buying shares with a view to accumulating dividend yields over time, using the powers of compound interest.

Shares ISA are tax free and look appealing. However, they do not seem to offer the ability to claim dividends as Scrips i.e. reinvested shares, which would make them unable to harness the powers of compound interest.

Is this correct?

Can you advise on what account you use / would use for investing in shares for dividends, whilst minimising tax?



27 Aug 11, 02:32
Shares ISA


Shares ISA's in my opinion are the best way to go, (especially for higher rate tax payers), they are clean, no accounting, just invest and forget.

Regarding SCRIPS, ISA's not perfect but considering all things they ar the best, else liable for heavy extra tax on dividends.

I currently use selftrade for ISA and sipdeal for the SIPP.



30 Aug 11, 21:13
Dow Theory

Hi Nadeem -

Thank you for your invaluable insights and analysis.

Quick question: I believe Dow Theory regestered a sell signal. Does this change your outlook over the next say 6-12 months? i.e. we go lower than the Aug low sometime in the next 6-12 months?


JC Smith
01 Sep 11, 08:32
Bull bear ratio CONTINUES to move down...

Bull-bear ratio to continues to move down as expected. It is now 1.12 as of last Friday's survey (last Friday's survey was RELEASED two days ago), down from 1.23 the prior week.

During 2005 - 2007, the ratio moved down to about .8ish on one or two occasions during INTERMEDIATE bottoms. I would expect the same here as well. Something on the order of .75ish is likely "in the ballpark."

Still expecting one more leg down from the China markets, and expect Shanghai to reach the 2,000 - 2,200 area. Any weakness in the China markets will likely "bleed over" into the Europe and US markets.

Next week (starting Tuesday) should prove interesting. There is NEVER any "guarantee" that the market HAS or HASN'T reached an "intermediate term bottom." But next week could prove to be pivotal one way or the other (as some indicators say the bottom has already been reached, while the II survey continues to weaken).

While the ULTRA bears say "the world is ending" (AGAIN), the markets are forming another strong bottom to push up off of (if the bottom hasn't already been reached already).

03 Sep 11, 06:57
UK Housing


It was only in July that you did a piece on foolish vendors chasing the market down.

Then in less than a month you have turned into a housing bull.

Surely then you must accept that you have made a major mistake not buying property earlier? Where are you buying? If it is London it is going to cost you more than it would have done a couple of years ago.

Is your plan to buy then become a major housing bull to try protect the value of your asset?

Nadeem Walayat
03 Sep 11, 16:05
UK Housing Cut and Slice!

Ive not bought anything yet, typically looking to offer about 20-25% less than the FIRST Asking price on par with their prices of about 6-7 years ago i.e. circa 2004-2005.

Have a number of candidates, first to bite on a 20-25% discount or so gets my CASH !

Where am I buying ?

Within about 8 miles radious of where I was born :)

Housing Bull ? Why ? The Price ONLY matters when one is Buying or Selling, so I will time the sale with the next peak, just as i did last time ;)

The primary purpose of this analysis IS with regards my portfolio which will soon including housing.



03 Sep 11, 17:30
property risks

Hi Nadeem.

Given price inflation of commodities ie necessities and the not particularly great outlook for property prices (and some risk), why not buy a farm even if you lease out the productive capacity.

Surely that gives you further inflation protection than just a bigger house that costs more to run and hassle to keep/repair?

04 Sep 11, 10:58
Housing in Canada

Thanks for being a voice of reason when the talking heads are all panicking.

Do you have any thoughts on the housing market in commodity-rich countries such as Canada and Australia? House prices in Canada have doubled in the last 10 years. There was a quick 5-15% correction in 2008, but prices bounced back up just as fast. The average price to household income is now around 5.5, with the historical average at 3.5, and the monthly cost of owning versus renting is near all-time highs (despite historically low interest rates). Do you think inflation will keep supporting rising prices, or do you think we will have our turn at a housing slump once interest rates rise? Thanks.

05 Sep 11, 13:54
Housing markets

Aussie- Can't comment, take months of analysis to determine what next.

Farm - I have contemplated buying a farm and developing the land, but even after the crash it would be a serious financial hit! and would take up a lot of time for management / development.

Better to buy a big prop with capacity for utilisation of infrastructure for business activities.

Theres little point having ones wealth sat on spreadsheets, a big prop is one way of enjoying the wealth and protecting it at the same time.



Benny B
05 Sep 11, 15:19
Perfect Timing

I think your timing in real estate is perfect. I question if real estate is an investment or simply a place to show your wealth. Good luck picking out a property, I would look for a nice home on acreage.

06 Sep 11, 16:36
UK Property Timing

The banks are on the brink therefore cash is king.

Now, the question is will I be able to locate, and complete before they go over the brink taking a lot of cash down with them !

This IS probably the best time to buy a property in 30 years, whilst most measure affordability on average house price indices, what they need to also evaluate is that today buyers are in an extreme position of strength that typically allows for price cuts of at least 10% and as much as 25% on first asking prices.

During booms it works the other way, where it goes to sealed bids well OVER the asking price.

Therefore you can achieve a 30% advantage to that which the price indices imply.



Jas Singh
06 Sep 11, 17:32
Banks / Houses

Hi Nadeem

If the Banks are on the brink, then why not wait until they fall of the cliff to buy?

Credit will be destroyed will it not ... ?

06 Sep 11, 17:33
house prices

Hi Nadeem,

What about if you need a mortgage to buy a place and the banks go over the edge?


06 Sep 11, 22:40
housing, banks and mortgages

Bank failures will be accompanied by waves of money printing to prevent financial armageddon, resulitng in far higher inflation.

If banks go over the cliff then mortgage supply falls.

One would imagine that less mortgages means lower prices, not necessarily so, as it also means less new building.

So you get less housing stock created plus vastly expanded supply of money so the currency debases whilst the housing stock remains constant hence upward pressure on prices in nominal terms. I will cover this in my next article as I have seen once more than the mainstream press cannot even understand the difference between nominal and real house prices.

The name of the game is to plan ahead, when house prices are expensive, mortgages are easy and plenty, when house prices are cheap mortgages are hard and scarce.

07 Sep 11, 09:21

oh one thing, but if interest rates get pushed up to say 6% then more properties may come onto the market?

upsetting the balance pushing house prices lower?

07 Sep 11, 11:31

It all boils down to probabilities.

Ask yourself the question, if today you buy a good property in a good location will it be higher or lower in price 5 years from now ?

I thinkp probability strongly favours higher prices.

08 Sep 11, 18:49
gold aswell as houses?

Hi Nadeem. Interesting debate.

How do you see something like precious metals performing in chaotic banking scenarios eg being on the brink and the money printing that must occur because of that.

Would you see everything falling or do you ignore the short term gyrations and look further ahead, in which case how do PMs do?

09 Sep 11, 08:17
September 30 year end funds...


Looking for mutual funds and hedge funds to continue dumping their "losers" during the month of September. Many of the hedge funds and mutual funds have a September 30th fiscal year end. In order to pass along those loses to their shareholders, the stock has to be SOLD BY SEPTEMBER 30th (by the fund) in order for the shareholder to use that loss on their tax return for the current calendar year 2011. For instance, a hedge fund with a September 30th year end that sells stock on October 1st of this year, would NOT be able to pass along the effects of that transaction to its individual shareholders until its fiscal year ends NEXT YEAR (October 31st 2012), and the individual would NOT be able to report that transaction until 2012.

This is why during a DOWN YEAR in the stock market, September and early October are many times VERY WEAK. The mutual funds and hedge funds are busy dumping their losers...and the "momentum" most times spills over into early October.

This is especially true for segments that have been hit particularly hard. For instance, this year, the alternative energy stocks have seen a "perfect storm" of (1) too much inventory, (2) decreased "feed in tariffs" from Europe(3) low natural gas prices, and (4) an overall weak market. I expect the solar stocks to be "especially good buys" by early October.

09 Sep 11, 18:00
UK Housing


Do you think you were wrong not to include UK housing in the inflation megatrend? Surely the time to buy was late 2008 when mortgage approvals were on the floor? Prices in many places are higher now.

09 Sep 11, 18:55
UK housing

Inflations running at about 5% per annum, thats 15% in 3 years, are house prices 15% higher than late 2008 ?

Forget asking prices and indices, look at actual SOLD prices.

I am seeing sold prices at or below late 2008, not hard to check just go to sites such as Zoopla and look at sold prices for various streets in areas and you will see prices typically stagnant over the past 3 years whilst inflation has pushed their real value lower by 15%.

I could post a whole long list of properties that have sold recently below late 2008 and some going back to 2003 price levels.

As an example I am trying to get a repossed prop, but the bankrupt bailed out bank has laid down tough conditions for exchange, 21days from offer acceptance to exchange!. We are talking about at a 33% or greater discount to the price the original person PAID for the property in 2006! Thats price PLUS 5 years inflation equals a 50% discount on oririginal purchase price.

The current housing market is very juicy for buyers, I don't think I could have timed it any better, off course it could be better in a year or 2 but that would be obviously be with the benefit of hindesight, just as looking back at late 2008 through some eyes could be.

Anyway at that time I was busy fixing cash at inteest rates of over 7% to mature during the next 2-3 years, as wrote about at length between April 2008 and October 2008. That was the opportunity of late 2008, to fix your cash for multiple years at over 7%!

I will do an indepth article on inflation and housing and email out sunday / Monday.



10 Sep 11, 16:22
House purchase timing

Nadeem, on the basis of what you say, would it not be better still to wait until say end of January next year to offer on properties? Prices are still slipping in real terms, whilst you're still getting interest on your cash. Sellers are at their most desperate around the cusp of January and February with all those Christmas bills coming in, the spring market revival is still several weeks away, the weather's miserable adn everything's moribund. What better time to go house hunting and make some really cut-throat offers?

10 Sep 11, 17:43
house buying

Yes, December, Janaury, Febuary are generally good times for buyers.

However the best time to go house hunting is well before then, at least 6-9 months before, so that one can monitor the housing market on an individual house basis.

For instance I am currently tracking about 500 properties (constantly increasing) of which 20 are in my list of potentials.

I have observed several useful patterns that suggest people should NOT wait for Jan-Feb.

For instance asking prices are cut 3-4 months after first coming on the market, which therefore means sellers are most likely to accept a significant discount either just before they are going to cut in the 3-4th month or just after the cut. better to offer just before the cut as that will ensure as a buyer you do not get compeition from other buyers at the new lower offered price.

The same occurs in the 4-6th months, i.e. more cuts so increased probability of a lower offer succeeding.

So in summary - generally

1-3 months sellers will wait for near asking prices.

3-4 months, first cut and low offers acceptable.

4-6 - Further cuts and lower offers.

6-12 months - more cuts and lower offers acceptable.

If after 12 months a seller has not cut at least once, then they are probably time wasters not really interested in selling.

Generally you can expect sellers to cut by about 5% every 3 months. the worst time to put an offer is in the first two months.

So if one knows ones market then one knows which properties are primed for a low offer at all times, in which case Dec to Feb just gives on an extra little advantage.



P.S. The only draw back is the TIME spent on all this research.

Kip Mcgrath
12 Sep 11, 10:49
BULL market

Dows back below 11k, now what for your BULL market?

12 Sep 11, 15:10
Stock Market Trend Expectations


Despite extreme volatility, actual trend has shown little deviation against my last analysis as illustrated below -

07 Aug 2011 - Stock Markets Panic Crash Continuing, Is the Stealth Bull Market Over?

My current focus is on the UK housing market, but will try and update trend expectations into November / December when time permits.



12 Sep 11, 20:08
Euro debt

Hi Nadeem.

One of your contributors (Jensen) wrote a little while back that euro debt needs are set to fall from next year, esp Portugal whereas we've been through some period of rising debt needs.

Is it likely that the tune may change soon and the eurozone becomes very positive in nature due to debt requirements falling?

14 Sep 11, 07:10
Euro collapse

as others have mentioned the euro is about to collapse, so have you changed your mind in outlook for stocks ?

14 Sep 11, 09:15
markets analysis


The markets discount the future, the mainstream media looks in the rear view mirror and academics live in ivory towers.

I don't buy for today, or tommorrow but for years forward eyeing gains of 100% at a minimum (inc dividends).

I am not telling anyone else to buy or sell, just what I am doing, because I understand the risks vs rewards that are individual to me.

As you can see I have had NOT time to write any analysis, that does not meen I have not been busy doing a load of analysis just that I have not turned any of it into articles.

I want to write and post,

I want to write about the bankrupt bank of england and inflation

I want to wrote about todays unemployment statistics

I want to write about the worthless mainstream medias recent articles on UK housing

I want to write about UK housing and inflation

I want to write about greece leavign the eurozone and banks going bankrupt.

the stock market, comes pretty low on the list and the dollar even lower in terms of portfolio implications.

But... I have just not had the time to do so....



15 Sep 11, 11:09

Thanks for the update Nadeem and good luck with the house hunting. I sure wish you lived in Canada so that we could get your objective analysis on the housing market here... Still no correction here and with interest rates staying low the overpriced houses keep going up.

I understand you don't always have time to put your analysis into articles, but I appreciate the quick updates you give us in the comments (especially on the stock market). It's hard to find good objective analysis out there...

16 Sep 11, 09:29
house price

Hi Nadeem,

You promised a housing article last weekend, im bursting with anticipation! :-)

Your friend,


Dan Caruso
16 Sep 11, 12:34
QE - How it works

Hi Nadeem

Is this the correct way in which QE works?

1) Central bank lends newly created money to banks at base rate.

2) Banks buy Gilts, and profit enourmously from the interest rate difference.

Thus, the BoE has killed two birds with one stone by recapitalising the banks, and buying Gilts.

Is this correct?

Many thanks


17 Sep 11, 15:00
stocks correction

I believe we are still in wave b of an abc correction with stocks likely cheaper in weeks or months to come.

Jas Singh
19 Sep 11, 07:29
Repossesed Properties

Hi Nadeem

Where do you find repossesed properties?



19 Sep 11, 09:08
3 Weks of downturn left....

Three weeks and counting. The first week of October will be the "area" of the bottom for this leg down that started back in April of this year.

Again....I am looking for S&P in the 950ish range....and Shanghai Index in the 2,000 - 2,200 range. It is appearing more likely that Shanghai gets close or slightly below the 2,000 range (nice LONG bullish wedge is forming and "another touch" to that wedge would occur somewhere in the 1,900 - 2,000 range).

Watch the sentiment readings. The last reading was down to .87 "bulls to bears ratio". I had said that the ratio would get down to the .75ish range. I am looking at the market from a TIME PERSPECTIVE right now....and will be "picking my spots" starting next week...and the first week in October. I believe the "bottom" for this leg down will occur in the first week of October. The sentiment ratio may very well be below .75ish by then. In 2009 the ratio got into the low .4's. I don't EXPECT the ratio to get that low...but anything is possible.

19 Sep 11, 21:12
Minimal Inflation without Wage Inflation


How is hyper-inflation going to happen with the current US wage deflation?

I own 40% US Real Est, 20% precious metals bullion etfs, 5% Corp bnds etf, & 35% cash

what would you suggest ??? plz hlp !!!

20 Sep 11, 03:16

I'll write an article on repos, but basically they appear designed for risk takers, as there is always the risk of beign gazumped even upto the last minute before exchange.

Not for ordinary home buyers,

I need to get writing on housing else the bottom will have come and gone :)

20 Sep 11, 03:19


Hyperinflation is a political panic event, it is NOT an economic event in that it does not rely on the likes of wages.

No stocks ?

The cash yields what ? 2% ?

Dividends yiled, what ? 3-5% ?

Ask yourself will companies be paying higher or lower dividends (in nominal terms) 5-10 years from now ?

If higher then stocks are a bargain !

If lower than yes cash is still king.



20 Sep 11, 13:38
re JCS three wks of downturn left...

First leg down in ftse took around one month (other indices similar), and b wave not yet finished yet so I respectfully suggest 3 weeks from now is too soon for this correction to bottom, though anything is possible.

20 Sep 11, 18:39
UK Housing


The RPI Index Sept 2008 was 218.4 then Sept 215.3 i.e. deflation. Therefore we have not had 5% inflation per year for 3 years.

This turnaround in you becoming an housing bull is quite amazing considering your article in July.

So it's official? UK housing is now a better bet than shares, gold or other currencies?

20 Sep 11, 21:50
UK Housing


Look there are many threads in many directions that one can focus on to skew comments in a particular direction which is why I tend to put final conclusions in my articles so that there really should not be such doubt. I will write on UK housing soon which will have a conclusion based on probability.

Whilst I have been silent in my postings, I have been very active in my analysis where I have multiple competing threads that I need to rope into a single final conclusion, it literally gives me an headache, but its what needs to be done to arrive at high probability forecasts.

Deflation... Eh ?

I forecast deflation into Mid 2009 and then the start of an Inflation Mega-trend in Jan 2010, since which time inflation has been 5% per annum, I refer you to my Inflation mega-trend ebook and about 50 articles.



21 Sep 11, 13:06


All I'm saying is that earlier in this thread when I mention house prices were cheaper late 2008 your argument is that "Inflations running at about 5% per annum, thats 15% in 3 years"

Now you say you forecast the inflation megatrend for Jan 2010 and it's been 5% a year since.

It's 2011 so one of your statements cannot be correct - I think the "15% in 3 years". I would agree with 10% in 2 years.

However well done on being able to find a house now at a bargain price.

22 Sep 11, 12:34

Hi Nadeem -

Does Operation Twist satisfy your criteria for QE3? In your view, are we entering the final stages of the recent correction, with a bottoming imminent? Do you recommend a buy now?

Medium Term (6 months), has anything emerged to alter your probability of a re-test of the market highs? Long term buys are great, but if this market plummets 30% from the highs reached this year, it will take 1-2 years to recoup that loss.

My other concern is with the saboteurs in Congress - they seem hell bent on disrupting everything because they know that this will prevent the government from kickstarting the economy (or just preventing a free-fall). All with the overarching selfish goal of lowering Obama's ratings and increasing their chances of getting elected next year. The irony is that the ignorant minority who support them seem to think they would be good for the economy. Even as the saboteurs actions directly triggered the 15% collapse in the markets this year, their followers keep their eyess closed. Long story, but question is: Are you worried about these 6 year olds in Congress further depressing the markets?

And will Europe come through and bail out Greece? Because if Greece openly defaults this year, that could easily act as a catalyst for the next 15% sell-off.

Thanks and sorry for so many questions!

23 Sep 11, 00:30
housing pause button


I will pause my work on UK housing and do indepth analysis on the stock market this weekend.

My last analysis suggests stock market low should be imminent.



25 Sep 11, 16:08
Mark: re suggestion that 3 weeks is too soon....


No offense taken at all. I believe that by the end of the first or second week in October, we will have enough money OUT of the market for an INTERMEDIATE TERM bottom. It looks (to me) that we MAY be forming a "broadening top", with this leg down ending at the 950ish range (below the S&P lows of 1,000 at the end of June 2010). The "bull to bear" ratio many times bottoms on an INTERMEDIATE TERM basis below a ratio of 1.0 to 1.0 of bulls to bears. We're below that now, but I think we are heading slightly lower at ABOUT .75ish of bulls to bears.

If I am correct on that part, then the next question becomes HOW HIGH we will rally AFTER the bottom? I expect we would rally UP TOWARDS the previous highs of 1370ish on the S&P. But that is looking too far ahead right now.

I believe that markets move in INTERMEDIATE TERM movements. When investors get to bullish, then hedge funds and others sell. When it gets too bearish, then hedge funds buy. Now that we have a LOT more "algo" traders (high frequency traders)....this pattern is even more reinforced...and more exaggerated on both the up move, AND the down move.

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