Losing money, and glad of it
Today’s news about Lehman Brothers seems likely to hit stock markets hard enough to send my portfolio firmly into the red. No, I don’t have stock in or near Lehman or its peers, but the expectation is that there will be substantial collateral damage throughout the world’s stockmarkets, including those stocks I do hold.
Why am I happy to make such losses?
Well for one thing, there’s no reason they should be sustained. They won’t vanish as quickly as the surreal gains that followed news of the fannie/freddie bailouts (gains of 10-15% in UK bank shares on Monday didn’t even last the week). But neither do they reflect on the fundamental value of unconnected businesses.
More importantly, the end of the bottomless taxpayer purse is long overdue. The US allowing Lehman to fail is moving on from its King Canute phase to face reality (and so close to an election, they must expect it to be popular – or at least less unpopular than another bailout). The UK is showing signs of doing likewise, with Mervyn King reportedly taking a stand against throwing ever more taxpayers money into the black hole of housing. In the meantime both countries have suffered huge losses, but better late than never.
This weekend seems to bring us much closer to drawing a line under “housing rescue” schemes that serve only to prolong the pain. The Vested Interests can stop talking the market up, and start telling vendors to drop 60% from peak prices if they’re serious about selling. When a £200K house has fallen to £80K we’ll be back to something like the long-term average in terms of income multiples. Then I’ll be able to afford a house, and those stockmarket losses will cease to matter.
 Mainstream predictions – coming from vested interests – started this year at about +1%, moved to -10% in six months, and are now moving to -25% and more amongst those who need buyers as well as sellers. All in an effort to convince people like me to start buying at prices that are still a long way above their long-term trend, in the expectation they won’t fall very much further.