The Epic UK Property Bubble Is on Its Last Legs.

Tuesday June 20th 2023 Monaco 64 home of alternative economics and contrarian views we're going to look at an epic bubble today yes I think it's one of the biggest ones and people are going to look back years from now and they're gonna write about it it might be in uh Charles makai's a new edition book about popular delusions and Madness of crowds it's the UK real

estate bubble yes it's been going on since around the late 90s after the labor new labor came into power they they also allowed Banks to get into the mortgage Market before that it was just a building societies and they they created that bubbles uh new labor it's not just a conservative thing it's a whole a political class that is um try to perpetuate the bubble and

I think it's an epic bubble and uh as Newton said in his third law for every action in nature there's an equal and opposite reaction and that Bubble Up burst back in 0809 but they did everything they they threw the kitchen sink at it to keep it going and they did it again in 20 20 21. but now I think uh it's on its last legs

unless they they bring in uh the jacuzzi and throw throw it uh at it uh things are not looking good so that's what we'll uh look at today yes Rudy and I have been out and it's been raining quite hard this morning we got wet when we left the house it was just a drizzle but uh everything's fine and uh I have been warning of course

with the voters uh it uh makes people believe that they're wealthier than they are it makes people go out and take other loans because they think wow I bought my house for 500 000 now it's worth a million I'm a half a million pounds Richard but a lot of people forget of course that unless you sell that house you haven't really made 500 000 and then

you have to buy another one of course and that other one has probably gone up as well unless you move to a different area where houses are cheaper so it's been a main driver of the UK economy housing unfortunately the UK economy is much further along than let's say the US economy in terms of de-industrializing um the UK was an industrial and Manufacturing Powerhouse in the

1800s and even up to the 1920s or 30s I would say or even the 50s 60s and 70s but now we've become a finance based economy we've been financialized and uh yeah we we've had a central bank that's kept interest rates negative in real terms from 2008 to until recently late 2021 and it's not just a bank of England of course all the major central banks

did it and now um things are starting to unravel would say I warned about a month ago that the guilt Market where uh interest rates are set um in this Government Bond Market not not just for uh short-term rates but for longer term rates was not looking good and many of you know of course that I worked in the uh Bond markets and uh for 20

years Government Bond Market and I can tell when things are are getting bad not just fundamentally but technically through the charts and and the charts are continuing to look really bad for me and I made another one another video a couple of weeks ago saying that we're gonna have probably the worst Bond crisis interest rate crisis in recorded history not just in in the UK but

in the US and other European countries where they came kept rates artificially low and it's what Newton said you can't fool mother nature for too long and uh interest is just the the price of time like uh Edward Chancellor says in his book that I'm still reading an eyelet recommend so if you uh set rates negatively you're saying that time doesn't matter that everyone is going

to live forever and uh that that doesn't work right because we're all Mortals and uh Bank of Japan's still doing that uh that uh strategy of negative rates and they're gonna pay for it to the Japanese unfortunately so and now people are starting to wake up I remember I made a comment about a month ago uh on social media uh I saw one of these uh

people who have uh been around for a long time and there's many of them uh saying that uh that they built a huge buy to let or buy to rent portfolio and they they can teach you how to do it how everything's easy and you're gonna make loads of money you buy this property you rent it you make money and uh he was saying uh in

this uh post that interest rates were topping and that they're going to come down and I said well I I don't think so I think they're going to go a lot higher and this person replied oh they never go up that much but uh I guess he didn't look back in 1990 when interest rates were at 12 so we're starting to see of course a lot

of stories coming out in the mainstream now about this it's not just uh Monaco 64 here on YouTube and uh a month or even six months or 12 months or two years ago when I was warning about this people were like didn't really care but look at this one here this came out uh in the Ft overnight first time buyers struggle as mortgage products cut by

40 Rising interest rates prompt lenders to clamp down on borrowers with small deposits and then you have two two-year UK mortgage rate rises above six percent for the first time since 2008 two-year guilt also passed five percent ahead of expected increase in interest rates this week and we also have the uh CPI and RPI data tomorrow they are measures of prices people call them inflation uh

data but as you know inflation the inflation has been created of course by the central bank and the governments through their profligate policies the Central Bank keeping uh the base rate negative in real terms for like 13 years or even 14 years while we're still negative right now because the base rate is four and a half percent the CPI is running almost at nine the RPI

is at 11. so policy is still inflationary and that's what people don't understand because they they've been fooled into looking at CPI for inflation uh and it's not it it's it's the cost of money so the cost of money and credit is still negative and I'm afraid the only way for the bank of England and the government to rein in price Rises or at the inflationary

pressures is for interest rates to go above the CPI and the RPI but by then the whole housing sector will have collapsed the whole economy will have collapsed because it also affects credit card rates and it also affects uh Consumer Credit it affects uh corporate credit rates it affects everything it affects the government who are they gonna you know how much is it going to cost

for them to borrow with the debt piling up and the other thing that's happening now is that the bank of England they they bought about almost a trillion pounds worth of bonds and corporate bonds guilds and corporate bonds since 08 and now that portfolio is in the red and they did a deal back in 08 about QE with uh with the treasury that if the bank

of England made a profit on their uh portfolio they would send it to the treasury but if the bank of England made a loss the treasury would have to cover the bank of England so who's the treasury we are uh the general public the taxpayer so there's that problem there too so what does it say here in the Ft because we've seen that uh most people

now expect government to do everything to solve every crisis even though governments uh and the central banks are the ones that really uh germinate the crises I would say it's it's always them uh so it says the cost of two-year fixed rate mortgage in the UK Rose above six percent on Monday piling pressure on homeowners and Rishi sunax governments in an indication that government rates could

rise even further two-year guilt yields Rose 0.14 points breaking through the five percent barrier to their highest level since 2008 despite the growing political risks the Prime Minister rejected providing extra help to struggle struggling households arguing that his plan to have inflation was the best and most important way that we can keep costs and interest rates down for people ministers are instead telling lenders to live

up to their responsibilities and help the vulnerable well lenders are not Charities they're businesses it's also costing them a lot more to borrow so that they can lend that this is what these ministers don't understand so so am I saying that the government should help of course not I'm totally against government interference in the markets but I think when push comes to shove they might try

to help the bank of England might step in we'll have to see how bad the guilt Market gets how bad prices drop and yields go up and to me it's not looking good and we're gonna have a look at uh a chart that I drew yesterday and you have to understand that the two-year guilt guilt uh yield and the three-year yield price is usually very stable

or it used to be back in the day and back back before QE because it's only a two year long so the duration is very short so there's not much volatility but what's happened with 14 years of uh zero interest rates and massive QE it it created a major bubble in the bond price and why is that well because in order to drive interest rates low

to allow people to keep borrowing and uh taking on huge mortgages that's what they had to do the other thing it did it made a a huge Of course house price bubble uh a a house price oh that's totally ridiculous and I think it's gonna deflate massively uh in real terms and why did it do that well because borrowing at one or two percent you can

borrow a lot more because your payments are going to be less but boring at 687 you can borrow a lot less so the house prices are just like a bond price when yields go up bonds go down house prices are going to go down and they're already doing so and uh so the bond uh bull market that we've had or we had from like the early

80s up until the end of 2021 was like uh akin to going up the escalator there's a note say on Wall Street a bull market goes up in an escalator but then all of a sudden it falls through the Elevator Shaft and that's what we're seeing a house uh not just house prices but bond prices are collapsing and that's why uh yields are going up so

quickly uh so if you turn the yield chart upside down it's the same thing and the same thing is gonna happen to house prices of course government can do things to try to help and they have implemented some forbearance rules uh late last year because they saw this coming they're going to help people on universal basic income to keep interest payments going but they're gonna have

a condition in that yes government will help you pay your mortgage interest but then you're gonna have to pay back the government so it's like you're gonna have to double down and borrow even more so some of you might say well that's a plan uh to basically make sure that the general public doesn't own anything that you owe nothing and be happy that might be so

that might be so and maybe they won't come to the rescue and what this will lead to I think politically is a new party empowered labor party and uh what are they gonna do well then I could come in on a white horse a gear storm and say I'm Gonna Save everyone I'm Gonna Give You Universal basic income so you can stay in your home and

pay your mortgage and most people are gonna a lot of people are gonna say wow great Labor is doing something uh the Tories ruined everything but they forget that this housing problem actually started under Tony Blair and Gordon Brown and they they are just as much to blame for all the QE and money printing we we've had since 0809 because uh their policies back in the

early 2000s created the massive housing and subprime bubble that we saw first so I I think that that is a possibility and uh one thing's for sure uh they're gonna try to keep things going and the uh thing that will suffer from that of course will be the currency and I expect the housing market or real estate uh to be very moral Bond and what do

I mean by that there will be a lot more uh or a lot less excuse me deals go through sales uh it's not going to be as easy to sell your property because people won't be able to afford it and some people are going to be stuck in their homes uh with a big mortgage that they can barely just afford and they won't sell because they

wouldn't be able to get another mortgage deal so that's how it's going to become so before we look at the markets quickly I just wanted to show you the chart I tweeted that this out yesterday epic real estate crisis all but certain for Brits and this is a two-year guilt yields and why do I say all but certain because well nothing in his life is in

life is for certain uh but the probability of this happening is really high now and that's why I'm telling you about it and I've been warning of course those who wanted to listen for many years so I've spoken about technical analysis so what we have here is uh a very bullish formation which in this case is very bearish for the real estate market because it's yields

interest rates and we have to remember when interest rates go up house prices go down bond prices go down so here we have uh we were at even uh negative a negative rate uh towards the uh the end of 2020 even in 2021 we had a negative two-year deal yield which meant the government was getting paid to borrow money which is a crazy thing of course

and then we just uh fell down or that Elevator Shaft if you turn this chart upside down and uh yields went yeah pretty much in the straight line from around zero to four just about four percent and that was back last year in September October when he had the first crisis guilt crisis the trust and quarantine crisis and then we Consolidated into this little triangle and

these are called continuation patterns and there's a three and four chance that the pattern resolves itself in the direction of a previous Trend and it has as you can see we've broken the top of the triangle instead of the bottom so now what's the distance that it will go up well it's the same distance that it went up in the first leg so you add uh

about four percent to around four and you get eight a two year guilt yield with uh eight percent and I think that could happen by the end of 2025. yes it it's not a straight line but don't forget this is a weekly chart so I think it's happening um and as I said the only way for them to stop this would be for the bank of

England to step in uh and do massive QE to in QE just means they'll go in there and start buying uh guilds but then they'd have to switch their policy of raising rates and fighting inflation and that would totally destroy the pound or there could be some kind of Crisis out there that justifies them stopping this some kind of existential crisis for the country a war

or something else I don't know um I'm just trying to uh tell you uh what I see here so there you go not looking good and uh the thing is you might ask so how come people don't see this how come the mortgage brokers the real estate uh people or the government they don't see this well because they probably never worked in the bond markets uh

to recognize that formation or what that means and and that's why they're always too late to react to things they don't anticipate things so that's how I see it so uh with that let's quickly look at where the markets are this morning so it's 8 30 a.m London time we've got spot gold at 1953 that's up just under three dollars Heisman 54 low 43 spot silver

is down a couple of cents at 23.93 has been 2404 the low's been 81. uh Dow futures is down eight NASDAQ down 14 s p down three uh the pounds unchanged 127.95 the euro is up slightly at 109.36 and the dollar is down about a tenth of a percent versus the Yen at 141.81 uh dollars up 0.2 versus the U1 at 7 17. I saw the

People's Bank of China cut rates by 0.1 of a percent this morning uh to the other currencies Aussie dollar is above uh just above 68 but it's down two-thirds of a percent uh the dollar is uh unchanged versus the Canadian dollar one thirty two eighteen and the Kiwi dollars down a quarter of a percent at 61.84. WTI Crude that's up a quarter of a percent at

71.60 uh Brett is up 0.4 at 76.37 Platinum is down three bucks at 9.75 in high grade copper is up 0.2 of a percent at 387.70 let's quickly look at the uh guilt guilt Market uh important market for the UK economy while the 10-year yield yield is at 5 11 right now so yes we've broken through that five level and uh it doesn't look good uh

the US 10-year yield is at 379 that's up two basis points the two years at 472. so with that I'm gonna wish you all a very good day take care bye