And leases tend to be for 100 years, so early in the lease there is little practical difference…
You under-leveraged the phrase “one of the contributing elements” to the point of euphemism - you must be British? I have the firm belief GSachs controlled the game from start to finish. (But we’ve all been there before here on BB! 2008/9 vintage discussions)
Speaking of which, @gouldina, I put “toppy” into the British English translificator and it gave me “batshit crazy”.
The funny thing about the London market is even when everyone knows it’s frothy, there still come begging letters through the mailbox trying to buy your place for squeelions, but they’re sterile offers - by the time any transaction were to come to fruition, the market would have collapsed and your buyer vanished.
I’d quite like to sell my place, have no idea of the value (or lack of), but really don’t like this exaggerated swing. There’s always a hangover.
Just wait. Property prices and rents mean that many of the people who make a city work can actually live in London and insane transport fares means they can’t commute. Sooner or later there will be no one left to plump those pillows and froth those lattes.
2 Likes
Not British, just a weird American, and I was indeed reducing it to euphemism. They did control the game. Having had some run ins with regional head honchos back in 02, i divested to cash, and came out ahead of anyone i knew. I’ve had friends lose houses, seen families destroyed, and never mind the generally shitty attitude about everything which led to the kind of preoccupation with ones own problems that prevents a citizenry from fully engaging to check the shenanigans of their own government.
Who has time to oppose torture, drones, and wire taps when it takes 14 hour days to feed your family?
2 Likes
Hmm. Would that be a British English (circa 1850) translatificator? ;->
1 Like
It isn’t clear if he is a tenant or leaseholder. The latter have considerable rights and could not be forced out. They also have purchase rights on sale of the land.
Yep - prior to that it was “The Patented Britishe Englishe Languageinator”, but those are rare (one example in the UK, in the British Museum), and can only handle 12 characters.
Worked well though, for the time.
4 Likes
You have three basic options as a retail investor, two of which have been mentioned here. Finding the right ETF, as Bookburn mentioned, is probably the best holistic strategy. CDOs are not an option, sadly.
The option (pun intended) that nobody has mentioned is getting long-call puts. You’d want to build up a set of puts on entities that you expect to have cash-flow issues in the event of a bubble burst. You can pretty easily get one-year expiring puts and in some cases two-year.
The advantage of the put is that your risk is much more limited. You can’t lose more than the contract price if it expires worthless. Even if it expires out of the money you only lose a portion of your contract price. Buying puts during a bubble means you’re likely going to get them for stupid cheap since everyone is betting the other way. If your broker is smart he’ll steer you to a market where you get a rebate for providing liquidity, making your out-of-pocket costs even less.
I don’t remember offhand whether the UK follows US or EU rules on early sale of options. If it’s EU rules then the put is a much worse plan; under US rules you could cash out your puts any time the underlying equity took a dip and your options swung into the money.
(Yes, I used to work in the financial industry. Nothing in this or any comment I make should be construed as investment advice as I am not a registered financial advisor. I do not stand to gain or lose any money based on this conversation or actions people reading this might take.)
3 Likes
Shorting is really exactly the same thing as investing. On both sides you’re making a bet about the direction of the market.
If I buy a stock from you, I’m betting that the stock price is going to go up, and you’re betting that it’s going to go down (or at least not do well enough that it’s worth holding on to). If I am shorting stocks, that essentially means that I borrow stocks from somewhere else to sell to you. But the situation is basically the same: You’re betting that the stocks will go up, and I’m betting that they’ll go down.
In both cases (in theory) we’re rational people betting against each other. In both cases, one of us will lose out to the other as a result of the transaction.
People dislike the idea of shorting, because the sellers get to profit off of a company’s loss. But looking at it in the way above, you’ll see that the seller always profits off a company’s loss. Even in “regular” investing, if I buy stocks from you at the peak of the market, and then the company’s stock crashes, you’ve essentially made a huge profit, both real (the value that the stock went up while you held it) and because you now have a lot more money than all the suckers who didn’t sell.
Shorting just allows anyone to be in the position of that seller by first borrowing stocks.
Anyway – obviously all of this is repellant if someone dislikes the whole stock market. From from a logical perspective, selling short is exactly the same as “regular” investing.
1 Like
Thanks for the clarification.
We have something like this in the commercial real estate market in the US. Leases on underlying land are typically for 99 years and are largely unbreakable. Why someone would buy this sort of property in the last 30 years of its lease is beyond me.
I can think of 10 ways to profit off a burst London real estate bubble, but the simplest is simply to sell, invest the proceeds in something else, and rent until you can buy another property at a lower price. Simple, but not sexy.
There are lots of ways to force out leaseholders – you can undermaintain the property; you can overmaintain the property (and bill it to leaseholders); you can sell the flying freehold on the leaseholder’s roof and stick a whack of flats on top of it, etc.
Some of this is stuff where you might get a cause of action and eventually win something back in court, but that presumes that an individual leaseholder has the wherewithal to fight a huge, aggressive property developer in the courts.
You could research real estate investment trusts (REITs) with heavy London portfolios, then buy out-of-the-money put options with long maturity dates. The problem with REITs is that many of them aren’t big enough to have a robust options market, and your options could expire many times waiting for the big crash.
You could do the same thing with banks, but banks are so large now that the collapse of a regional bubble --even one as big as London, wouldn’t have much impact on their stock price.
As for London being in a bubble, I would doubt it. Global cities like New York and London didn’t see the precipitous drops that lesser cities did back in 2007. The world is awash in the excess savings of the very rich. Real estate in desirable locations is an attractive long-term hedge with the added benefit of prestige. If you have money to burn, why not own an apartment in all the great cities?
1 Like
Here’s an article that mentions just that.
http://money.cnn.com/magazines/fortune/fortune_archive/2005/06/13/8262539/
Note that it’s about London, puts, and written in 2005!
But isn’t that just speculatory investing? Theoretically, couldn’t you could be investing in a company because you want to own a piece of it and are hoping for it to be profitable enough to pay dividends, not because you’re thinking of selling it to turn a quick buck?
Is London really a bubble? As someone who has had to move three times in the last year because of rising rents, there seems to me to be a helluva lot of demand for housing. It seems to me that if housing prices are going up, a lot of that has to do with the fact that you can rent out the most ramshackle dump and ask outrageous amounts of money for it, and people will still be beating down your door to sign a contract before someone else does.
1 Like
It’s a bubble on a surge.
Lots of Asian and Persian cash flying into the London market (may be slowing) to invest in prime and new properties. Population of London increasing with immigration, despite nasty @TheresaMay’s nasty policies. Economy on the mend, maybe,
But the low bank base rate means cheap mortgages, countered by the difficulty getting one. However, Sensible Economists are now saying time for rates to go up before we get inflationary pressure - which will strip bare the nation’s capability to pay mortgages. When that happens, unless earnings increase significantly (which drives inflation), the demand for purchasing property will fall.
Supply is very, very tight. Interest rates up - supply will have a sudden rainfall as people try to get out from under the cloud, like slambam quick. Will tend to collapse prices.
So it’s hard to say what next. I’ve converted over the years to simple technical analysis of the long-term trends in the perceived value of property in the UK.
1 Like
Thanks, gouldina! That makes the translation something like:
Our landlord is making noises about either buying out our lease or somehow evicting us, so he can sell
To Cory’s original question, I’d say the answer is:
You rent your residence? Then you’re already shorting London.
1 Like
and they sold off Scotland Yard (!)
I try not get too pedantic about these things, but Cory you’re a writer, Exclaim with conviction or don’t exclaim at all. You’re not parenthetically alarmed, you’re alarmed.
1 Like
That’s interesting – I read the question with the context of knowing that the questioner was a novelist, and made the assumption that this might just end up being the “get rich” scheme of a character in an upcoming book, assuming that there was some plausible mechanism to make it work.
I even did a brief search to see if Cory had made disparaging comments about the shorting activity of the banksters in the UK, thinking that it might be fun to snark as if I thought he was doing this for personal financial gain…
