You’d be forgiven for thinking that it’s all over if you caught page 19 of the London Evening Standard which has the headline ‘London house prices surge past the pre-recession peak of 2007’. Apparently the suburbs of Mayfair, Knightsbridge, Belgravia, Pimlico, Chelsea, Kensington, Holland Park, Notting Hill and Regent’s Park have risen in price by 51% from their lowest point in March of 2009. As an added bonus they are now 3% above the previous high.
Can you spot a theme with the suburbs? It’s amazing what bailing out the banks, the Bank of England dropping the Official Bank Rate to 0.5% and around £200 billion of Quantitative Easing can achieve. It’s certainly helped some however I don’t think we’re out of the woods yet. Let me provide some further evidence.
I don’t have to look far. Firstly, page 31 leads with ‘More bank losses feared after SocGen writedown’. Society Generale have issued a surprise profit warning stating they have to write down a further EUR1.5 billion on is Collateralised Debt Obligations on residential Mortgage Backed Securities after deciding to take a “stricter assessment” on their value. Now where have I heard those words before?
Until banks face up to their losses and clear their balance how can we move onto the next business cycle. At this rate we’re going to end up just like Japan. A further sobering thought is that this is all still going on and the peak of the Alt-A resets in the US are just starting now.
Secondly, page 33 tells us that ‘Flat manufacturing triggers talk of recession’s return’. Manufacturing output has failed to grow for a second month in a row leaving manufacturing output 5.4% lower than a year earlier.
That doesn’t sound like a boom to me. To me it sounds like it’s going to get worse before it gets better.