Wednesday, 24 July 2013

Government Financial Stats Are Rigged – Here’s Why

As you probably know by now, financial professionals don’t really like me. Quite a few IFAs have actually called me a conspiracy kook and that I’m spreading information which is misleading to the public. I still find this amusing considering all I’m doing is spreading cold hard facts. Facts which the media doesn’t know or just won’t publish. This includes the Financial Times by the way. Also I still haven’t met a financial professional who predicted and prepared for the 2001 Tech collapse or the 2008 meltdown. And just like those instances, I’m still yet to meet one who is preparing for the mother of all crashes, the crash of 2013/14/15/16/17/18. Unfortunately I don’t have a crystal ball and so I can only forecast this for sometime in the next 5 years, but this one will be many orders of magnitude greater than the 1929 Great Depression. How do I know? Trends. But this will be a topic for another edition. This rant is solely for Government Stats and was sparked due to a twitter conversation I was having with an IFA and he said that when investing you can and should only plan using the Government figures as they are the facts. Now this is incredibly short-sighted on his behalf and if he did a tiny bit of due diligence instead of blind trust, he’d see my point. So here are the main lies:

According to the Government, UK inflation right now is 2.7%. Now this is the most farcical of all stats as it’s becoming almost common knowledge that REAL inflation is near 10% now. The way they calculate inflation is by taking a metaphoric ‘basket of goods’ which the public buy from day to day like bread, milk, cars, iphones and CDs etc. (But funnily enough, not rent or houses. They used to, but they took it out of this calculation in 1983 as they started to inflate the housing market). So they just compare the prices of this basket to last month, last year, last 5 years etc and plot a graph. So right now they’re telling us it’s 2.7%. Well what they fail to realise or purposely ignore is that EVERYTHING in that basket is now smaller or of less value than previous times. For example, let’s take a Snickers bar (my favourite). In 2003, they were on average 30p. But now, they average around 60p. In fact I’ve spent around 90p in some places, so in 10 years, the price has increased by 100% minimum! AND they are all now 7.2% smaller. This same stat applies to everything else in the basket. So when you crunch the numbers, REAL inflation is near double digits.

Recently the US GDP calculations have been changed. They are now including Research and Development (R&D) spending as part of the revenue. Now this is absurd. The US spends more money on Military (R&D) than every country in the world combined. Even their medicine R&D dwarfs other nations. Now it could be argued that medicine R&D could produce more efficient medicines which would positively bring more revenue in, but it’s negligible. Military R&D has next to no productive use (other than for war) and so this ‘ploy’ is something which will make the US Debt to GDP ratio not look as bad as it really is. They’re the only country in the world to do this but it probably won’t be long before the UK follows suit in order to hide our problems.

Jobs/Unemployment Data
This is a huge topic which I could ramble on for but in a nutshell, when calculating these figures, they are now on purpose stretching the parameters of what a full-time employed person really is. They are now counting people with a ‘part-time job but are seeking a full-time job’ as ‘fully employed’. They are including some forms of charity/volunteer workers as ‘fully employed’ many other profiles. But they’re doing it on the other end of the scale as well by classing some people without a job but are seeking employment as ‘part-time’ employed and so on. So they’re trying to make these figures show that unemployment isn’t as bad as it really is when the poor/rich divide is increasing dramatically! Just have a look at the BBC Documentary ‘Skint’ – it’s shocking but a real insight into the UK’s deprived areas.

Housing Data
Again, another topic which I could bore you on but this one is probably as laughable as the inflation data. For some reason the Government likes to promote to the public that a rising housing market means that the UK economy is improving. And as the public are grossly ignorant with these and investing matters, we just nod and accept what we see in the news etc. So 2 points here: i.) The housing market is NOT a reflection on how our economy is doing, and ii.) The Government is now openly trying to pump up this market again with 95% mortgages! Also when you look at US housing data that’s even more of an exaggeration. What they fail to show us is that the Fed is buying up $85 billion a month of Mortgage Backed Securities, other toxic bonds and also at least 70 000 empty homes per MONTH using proxies.

So there you go. Hopefully you can now see that we need to at the very least question what we get told. Housing, employment, GDP and inflation data is rigged which I hope I’ve demonstrated and that’s only the tip of the iceberg. If they are rigging interest rates, imagine what else they are doing. So when you’re next going to buy a mortgage, invest in the stock market or pensions etc, just please do a double check of REAL adjusted data, not nominal data which gets published. is a great site for real data…

The Bank Could Seize Your House Within 10 Years

As a nation, it seems as though we're doomed to repeat our past failures. It feels as though we're living in 2005 all over again as the Government has decided to try and artificially pump up the housing bubble again! Just in case you weren't aware, one of the main reasons for the 2008 Melt Down was because the US and UK Governments were inflating the 'Sub-Prime’ market. This basically means that they were giving pretty much anyone a mortgage whether the borrower could afford the mortgage or not.

So fast forward to 2013, the UK has got into bed with the US again with another stinking policy and is now offering 95% mortgages. This may be great news for the 1 million renting young couples (18-35 years old) in the UK who have been refused a mortgage within the last 5 years, but when you really investigate things, it has shockingly awful consequences for the new home owners, the future housing market and the Government.

Reports show that this 95% mortgage scheme has received great interest from the public. This isn’t surprising considering that we in the UK and US are literally obsessed with owning a home due to the Thatcher-Reagan era starting the theme that everyone should be a homeowner. This isn’t the case with other countries around the world. Even on our doorstep, France and Germany are predominantly renters. Most people I speak to on this subject all follow the same thinking - ‘Rent money is throwing money down the drain when it could be used to pay off a mortgage’. I don’t exactly agree with this mentality (but that’s another topic). So now these 1 million couples are rushing in to buy a new house, what does this mean? What is likely to happen? Why is this bad for all parties?
-         Bad for the new home owners. The majority of the homes which come with a 95% mortgage are new builds. Although attractive on the face of it all, these new home owners are moving into houses which are rushed into construction, composed with the cheapest materials and built with shoddy tradesmanship. Due to targets and deadlines, a large percentage of these houses experience teething problems down the line.  Just speak to any builder or tradesman and they’ll tell you how crud these houses are and that within 2-10 years, serious work will be needed on them. Also on top of all that, the new homeowners are instantly 20% down at the very least. In order for these building contractors like Bovis etc to make a profit out of this, they have hiked up the premiums for each house. So you’re using extreme financial leverage to buy an overpriced shoddy house which will require on-going repairs down the line and you’re already in negative equity.

-          Bad for the housing market. It’s likely that the UK housing market will temporarily boom in prices due to this Government scheme. Eventually the letting side of the property market will wane as all of these renters become home owners which will make rents slide (good for renters I guess). However just like we’ve seen multiple times already, in order to curb this rapid growth in house prices, the Bank of England will be forced to raise rates. This is another bad thing for these new home owners.

-          Bad for the Government. Due to the raising of rates, the UK will end up more in debt as the interest on our £1.2 Trillion debt will increase greatly, mortgage repayments will go up and those on a Standard Variable Rate or tracker mortgage will get severely burned! The UK will be a repo nation.
Most people fail to stress test their property portfolio or mortgage repayments properly so here's my quick rule of thumb to see whether you will be able to keep the Bank from repossessing your house or not:

1.) On a £100k house, for every % rates go up, your monthly mortgage repayments go up by £83. So on a £200k mortgage, if rates went up by 1%, you'll have to fork out an extra £166 per month if you don't have a fixed rate mortgage.

2.) UK average rates are between 7-9%,  so at the very least, let's work to 7%. So if you have a £200k mortgage and rates rise by 7% (which I can GUARANTEE it will happen), can you afford to pay an extra £1162 per month for your mortgage?! In fact, where would the UK find an extra £301 Billion to service this increased interest? – Fancy new taxes…

If the answer is no to that last question, please have a serious rethink with your IFA or mortgage advisor. I don’t give advice (and never will), but a straight forward solution to this pending problem would be to fix your rates for as long as possible. Definitely longer than 5 years! Rates are at rock bottom now and they can't go any lower. But one thing is for sure, rates will go up to historic averages at the very least and when this happens, people will lose their homes so please make sure you spread the word and to just question your current situation…