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Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: Housing market continued good run into 2013, or did it? Nationwide and Hometrack. Is Osborne pressuring the Bank of England?  Is the bond bubble bursting?  Shop price inflation falls. Companies in the news: GlaxoSmithKLine, Wolfson, Lamprell


Housing market continued good run into 2013, or did it?.

Twist: you can pretty much conclude what you want from data, depending on your twist.

The latest Halifax house price index was out yesterday, and the twist most analysts chose to take was to see it as positive. House prices over the previous three months rose 1.3 per cent. In the three months to January, house prices were 1.9 per cent higher than in the equivalent period in 2012.

Martin Ellis, Housing Economist at Lloyds, said: “Market activity has also improved with sales in 2012 at their highest for five years. Rising mortgage approval numbers point to further increases in home sales in the coming months. The Funding for Lending [FFL] scheme has helped lenders to lower interest rates and improve availability in the past few months.  This is likely to have been a factor contributing to the pick-up in both home sales and prices.”

On the other hand, the Halifax reported recorded a 0.2 per cent month on month drop in house prices in January.

Matthew Pointon, Property Economist at Capital Economics, twisted the other way. He said: “There is no guarantee that house prices will continue on this upward trend. For a start, the recent gains to house prices already look to be running out of steam. And while we expect the FLS will continue to keep mortgage interest rates low, and allow a few more first-time buyers to enter the market, credit scoring criteria will remain very tight. The low-hanging fruit of new buyers with small deposits, but very good credit scores, may now have been picked.”

Mr Pointon sees it in terms of two opposing forces. On the one hand, there are poor fundamentals, on the other there is government support via funding for lending. But he reckons that with wages rising at such a pedestrian pace, and indeed falling relative to inflation, a correction in house prices is just being delayed.

Or to put it another way, no amount of battening down the hatches can stop the twister that is falling house prices from eventually striking.

Nationwide and Hometrack

For the record, the latest Nationwide report on house prices recorded a 0.5 per cent month on month rise in January, and zero change over the past 12 months. Hometrack had house prices unchanged in January relative to December and said that 79 per cent of respondents to its latest survey said they felt more optimistic about the forthcoming spring market than they did this time last year. 21% were more pessimistic.

At the unveiling of yesterday’s highly regarded Green Budget by the Institute of Fiscal Studies  and Oxford Economics, John Walker from Oxford Economics said that to put it mildly he expected to see falls in house prices for the foreseeable future. Earlier this year, the Centre for Economics and Business Research forecast sharp rises in house prices over the next few years.

Is Osborne pressuring the Bank of England?

Twist. How independent is independence? And how free is the central bank do what it thinks is right, when its arm is being twisted?

In Japan, no one is suggesting the central bank is losing its independence, far from it. The country’s new Prime Minister Shinzo Abe has merely requested, very politely, that the central bank had better independently agree with him. Given that today is one of those rare days, in that it follows an evening in which England beat Brazil at football, maybe a footballing analogy is appropriate. When asked what he did when a player disagreed with him, the redoubtable late Brian Clough said: “We sit around table and talk it through until we decide I was right all along.”

George Osborne may be asking the Bank of England’s MPC to sit with him at a similar table.

Yesterday he said: “Monetary policy action by the BoE can and should continue to support the economy.”

Good time George was talking about his own efforts to cut government debt  – you know the ones that involve cutting debt in such a way that it actually goes up. He said that his cuts are what is making it possible for the Bank to act in such a stimulatory way.

But it was his choice of the word ‘should’ that raised eyebrows.

Mr O may, of course, have been making a perfectly innocent remark in suggesting that the Bank of England has only been able to act the way it has because of his efforts.

But the ‘should’ word implies a bit more than that.  Maybe the hint is there, just a hint, that for those who don’t comply, the knife will be twisted.

Is the bond bubble bursting?

“Markets will remain irrational longer than you can stay solvent,” once said John Maynard Keynes, who lost his fortune when markets failed to crash when he expected them to. To sort out his financial woes he had to borrow from his father, but ended his days as one of the most successful investors of his generation.

But are the current high prices of bonds rational, and can the investors who bet on them crashing stay solvent?

Their prices have risen this year. At the time of writing, the yield on UK ten years stands at 2.0948, and for US yields it is 1.9685 – in both cases that’s just a whisker off a ten month high.

It remains to be seen whether we are seeing the beginning of a crash, or a temporary flight away from so called less risky assets.

But the gurus have been speaking out.

I’m short long-term government bonds,” said Jim Rogers on Bloomberg radio yesterday. The man who used to be George Soros’s business partner said: “I plan to short more. That bull market; that’s a bubble.”

Recently Pimco’s co-founder Bull Gross said: “Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a ‘big freeze’ trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence.”  He continued: “Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four dollars of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result.”

Mr Gross concluded: “The bottom line is Gross thinks investors should prepare for eventual inflation…The end stage of a supernova credit explosion is likely to produce more inflation than growth, and more chances of inflation as opposed to deflation.”

Okay, so that was all very well, and a bit obtuse, but what about bonds and bubbles?

Well, just like Rogers, he is dubious about the bonds. But he did come up with an interesting idea recently. Buy Italy.

He said: “Not only has Italy outperformed US stocks so far this year, its bonds are now an attractive safe haven.” And that is an interesting twist.

Shop price inflation falls

Overall shop price inflation fell to 0.6 per cent in January from 1.5 per cent in December; the lowest shop price inflation since November 2009 when it was 0.2 per cent, according to the British Retail Consortium/Nielsen shop price index.

Food inflation fell to 4.0 per cent in January from 4.1 per cent in December. Non-food prices fell 1.4 per cent in January after being broadly flat in December.

Helen Dickinson, British Retail Consortium Director General, said: “Overall shop price inflation is at its lowest since November 2009, helping counter much bigger increases in other household costs which are undermining customers’ spending power. With consumer confidence creeping up, retailers will be hoping for an increased willingness to buy more than just immediate needs.”

Mike Watkins, Head of Retailer and Business Insight at Nielsen, said: “With the traditional high street January sales being replaced by year-round discounting, it`s no surprise to see a continuation of deflation in non-food, particularly in clothing and footwear where half-price reductions have been used to attract shoppers post-Christmas. For food retailers, despite seasonal promotions coming to an end, food inflation has remained steady at around four per cent. This is perhaps a positive sign that the industry is managing the impact of any cost inflation coming through the supply chain.”

Companies in the news

Bull: At the ‘Telegraph’, Questor took a look at GlaxoSmithKLine this morning. It sees the dividend as safer than Astra Zeneca’s, and because of the pipeline of new drugs and income has it down as a “buy”.

At the ‘Times’, Tempus reviewed Wolfson, a company still recovering from the horrible year that was 2008, when it lost its contract with Apple. But Tempus said things are moving in the right direction at the company and said that shares offer value in the long term.

Bear:     Tempus also took a look at Lamprell. Yesterday the oil rig maker revealed a new contract, but Tempus said: “I would be tempted to take some profits at this stage.”

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees


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