2000 should have been the natural end of the BabyBoomer-led economic SuperCycle. The oldest Boomer (born in 1946) was about to leave the Wealth Creator 25 – 54 age group that drives consumer spending and hence economic growth. And since 1970, Boomer women’s fertility rates had been below replacement level (2.1 babies/woman). So relatively fewer young people were joining the Wealth Creator generation to replace the Boomers who were leaving.
But instead, central banks decided that demographics didn’t matter. They believed instead that monetary policy could effectively “print babies” and create sustainable demand. So instead of worrying about financial stability – their real role – they aimed to stimulate the economy by boosting financial asset prices – primarily shares and housing markets.
London’s housing market was a key target as the Bank of England’s Governor told Parliament in March 2007:
“When we were in an environment of global economic weakness at the beginning of the decade, it meant that external demand was declining… We knew that we had pushed consumption up to levels that could not possibly be sustained in the medium and longer term. But for the time being if we had not done that the UK economy would have gone into recession… That pushed up house prices and increased household debt. That problem has been a legacy to my successors; they have to sort it out.”
But instead, when the Subprime Bubble burst, policymakers did even more stimulus via Quantitative Easing (QE).
The chart of London house prices since 1971 (in £2017) therefore shows 3 distinct phases:
- 1971-1999. Prices were typically Cyclical – (1) up 51%, down 31%; (2) up 37%, down 15%; (3) up 109%, down 43%. But they averaged around 4.8x average London earnings
- 2000-2007. Central banks panicked after the dotcom crash and kept interest rates artificially low – creating the Subprime Bubble as prices rose in more or less a straight line, till they were up 196% from the previous trough
- 2008-2017. The market tried initially to return prices to reality, and they slipped 10%. But then central banks rushed to flood it with liquidity and created the QE Bubble, causing prices to soar 46%
Now, however, the Stimulus Bubble is ending and a “perfect storm” is developing as 3 key myths are exposed:
The end of the ‘London is a global city’ myth. The house price/earnings ratio averaged 4.8x between 1971-1999. But it then took off into the stratosphere to reach 11x today, as the myth grew that Londoners weren’t relevant to the housing market. Instead, it was said that London had become a “global city” where foreigners would set the price.
Chinese and Asian buyers boosted this myth as vast new apartment blocks were sold off-plan in the main Asian cities – often to buyers who never even visited their new “home”. But the myth ended last year when China introduced severe capital controls – capital outflows collapsed from $640bn in 2016 to just $60bn in 2017.
The scale of the this retreat is overwhelming as The Guardian reported recently:
“The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units, as the rich overseas investors they were built for turn their backs on the UK due to Brexit uncertainty and the hike in stamp duty on second homes….
“Henry Pryor, a property buying agent, says the London luxury new-build market is “already overstuffed but we’re just building more of them. We’re going to have loads of empty and part-built posh ghost towers. They were built as gambling chips for rich overseas investors, but they are no longer interested in the London casino and have moved on.””
The end of the buy-to-let mania. Parents of students going away to college began this trend in the mid-1990s, as they bought properties for their children to use, rather than rent from poor quality landlords. After the dotcom crash, many decided that “bricks and mortar” were a safer bet than shares, especially with the major tax breaks available.
Banks were delighted to lend against an asset that was supported by the Bank of England, finding it far more attractive than lending to a business that might go bust. And so parents held on to their investments after their children left college – further reducing the amount of housing available for young people to buy. But as The Telegraph reports:
“Buy-to-let investors now face tougher conditions. A weakening housing market, tough new legislation and the tightening of affordability checks by lenders are but a few problems causing landlords to run for the hills. According to the National Landlords Association, 20% of landlords plan to sell one or more of their properties in the next 12 months.”
Interest rates will never rise. Of course, the key to the Subprime and QE Bubbles was the Bank’s decision to collapse interest rates to stimulate the economy. Monthly payments became much more affordable – and ever-rising prices meant there was no longer any need to worry about repaying the capital.
But some people still couldn’t afford to buy even on this basis, and by 2007 around 30% of mortgages were “interest-only” with no capital repayment at all. These buyers should have been forced sellers when the Subprime Bubble burst; prices would then have returned to more normal levels. But instead, the Bank of England stepped in again, as the Financial Times has reported:
“During and after the 2008 financial crisis Britain’s mortgage lenders took a more tolerant approach to non-payers through the use of forbearance ….at the height of the housing market troubles in 2011 Bank of England research suggested that as many as 12% of all UK residential mortgages were in some form of forbearance. This helped prevent the downturn from developing into a 1990s-style crash, the Bank suggested.”
PRICES WOULD FALL 60% IF THE HOUSE PRICE/EARNINGS RATIO “REVERTS TO MEAN”
All “good things” come to an end, of course. And the London property bubble is probably no exception. Its 3 key drivers are now all reversing, and there seems little sign of any new factors that might help to keep the bubble inflating.
The risk is that interest rates continue to rise, forcing many owners to sell and bursting the Stimulus Bubble. UK 10-year rates have already trebled from their 0.5% low in Q3 2016. Most rates seem likely to go much higher now the 30-year downtrend has been broken, as I discussed last week.
Today’s high prices will also make it difficult for sellers to find local buyers, as the number of homes being bought/ sold each year has fallen 25% since the 2007 peak. Most young people cannot afford to buy. And if many people do decide to sell, potential buyers might panic, causing the slump to continue for many years – as happened before 2000.
Nobody knows how low prices might go, if they start to fall. But ‘reversion to mean’ is usually the best measure. If this happened, today’s average London home, selling at 4.8x earnings, would cost £193k – a 60% fall from 2017’s average price of £475k. This figure also highlights the risk that policymakers’ denial of demographic realities has created.
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Global interest rates have fallen dramatically over the past 25 years, as the chart shows for government 10-year bonds:
UK rates peaked at 9% in 1995 and are now down at 1%: US rates peaked at 8% and are now at 2%
German rates peaked at 8% and are now down to 0%: Japanese rates peaked at 4% and are now also at 0%
But what goes down can also rise again. And one of the most reliable ways of investing is to assume that prices will normally revert to their mean, or average.
If this happens, rates have a long way to rise. Long-term UK interest rates since 1703 have averaged 4.5% through wars, booms and depressions. If we just look more recently, average UK 10-year rates over the past 25 years were 4.6%. We are clearly a very long way away from these levels today.
This doesn’t of course mean that rates will suddenly return to these levels overnight. But there are now clear warning signs that rates are likely to rise as central banks wind down their Quantitative Easing (QE) and Zero Interest Rate stimulus policies. The problem is the legacy these policies leave behind, as the Financial Times noted recently:
“In total, the six central banks that have embarked on quantitative easing over the past decade — the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England, along with the Swiss and Swedish central banks — now hold more than $15tn of assets, according to analysis by the FT of IMF and central bank figures, more than four times the pre-crisis level.
“Of this, more than $9tn is government bonds — one dollar in every five of the $46tn total outstanding debt owed by their governments. The ECB’s total balance sheet recently topped that of the Fed in dollar terms. It now holds $4.9tn of assets, including nearly $2tn in eurozone government bonds.”
The key question is therefore ‘what happens next’? Will pension funds and other buyers step in to buy the same amount of bonds at the same price each month?
The answer is almost certainly no. Pension funds are focused on paying pensions, not on supporting the national economy. And higher rates would really help them to reduce their current deficits. The current funding level for the top US S&P 1500 companies is just 82%, versus 97% in 2011. They really need bond prices to fall (bond prices move inversely to yields), and rates to rise back towards their average, in order to reduce their liabilities.
The problem is that rising yields would also pressure share prices both directly and indirectly:
Some central banks have been major buyers of shares via Exchange Traded Funds (ETFs) – the Bank of Japan now owns 71% of all shares in Japan-listed ETFs
Lower interest rates also helped to support share prices indirectly, as investors were able to borrow more cheaply
Margin debt on the New York Stock Exchange (money borrowed to invest in shares) is now at an all time high in $2017. Ominously, company buy-backs of their shares have already begun to slow and are down $100bn in the past year.
House prices are also in the line of fire, as the second chart shows for London. They have typically traded on the basis of their ratio to earnings
The average ratio was 4.8x between 1971 – 1999
But this ratio has more than doubled to 12x since 2000 as prices rose exponentially during subprime and then QE
The reason was that after the dotcom crash in 2000, the Bank of England deliberately allowed prices to move out of line with earnings. As its Governor, Eddie George, later told the UK Parliament in March 2007:
“When we were in an environment of global economic weakness at the beginning of the decade, it meant that external demand was declining… One had only two alternatives in sustaining demand and keeping the economy moving forward: one was public spending and the other was consumption….
“We knew that we had pushed consumption up to levels that could not possibly be sustained in the medium and longer term. But for the time being if we had not done that the UK economy would have gone into recession, just like the economies of the United States, Germany and other major industrial countries. That pushed up house prices and increased household debt. That problem has been a legacy to my successors; they have to sort it out.”
Of course, as the chart shows, George’s successors did the very opposite. Ignoring the fact that a bubble was already underway, they instead reduced interest rates to near-zero after the subprime crisis of 2008, and flooded the market with liquidity. Naturally enough, prices then took off into the stratosphere.
Today, however, the Bank is finally recognising – too late – that it has created a bubble of historical proportions, and is desperately trying to shift the blame to someone else. Thus Governor Mark Carney warned last week:
“What we’re worried about is a pocket of risk – a risk in consumer debt, credit card debt, debt for cars, personal loans.”
Of course, the biggest “pocket of risk” is in the housing market:
Lower interest rates meant lower monthly mortgage payments, creating the illusion that high prices were affordable
But higher prices still have to be paid back at the end of the mortgage – very difficult, when wages aren’t also rising
The Bank has therefore now imposed major new restrictions on lenders. They have ordered them to keep new loans at no more than 4.5x incomes for the vast majority of their borrowers. And lenders themselves are also starting to get worried as the average deposit is now close to £100k ($135k).
Of course, London prices might stay high despite these new restrictions. Anything is possible.
But fears over a hard Brexit have already led many banks, insurance companies and lawyers to start moving highly-paid people out of London, as the City risks losing its “passport” to service EU27 clients. Over 50% of surveyors report that London house prices are now falling, just as a glut of new homes comes to market. In the past month, asking prices have fallen by £300k in Kensington/Chelsea, and by £75k in Camden, as buyers disappear.
The next question is how low could prices go if they return to the mean? If London price/earning ratios fell back from today’s 12x ratio to the post-2000 average of 8.2x level, average prices would fall by nearly a third to £332k. If ratios returned to the pre-2000 level of 4.8x earnings, then prices would fall by 60% to £195k.
Most Britons now expect a price crash within 5 years, and a quarter expect it by 2019. Brexit uncertainty, record high prices and vast overs-supply of new properties could be a toxic combination, perhaps even taking ratios below their average for a while – as happened in the early 1990s slump. As then, a crash might also take years to unwind, making life very difficult even for those who did not purchase when prices were at their peak.
Unsurprisingly, Friday’s US GDP report showed Q1 growth was just 0.7%, as the New York Times reported:
“The U.S. economy turned in the weakest performance in three years in the January-March quarter as consumers sharply slowed their spending. The result fell far short of President Donald Trump’s ambitious growth targets and underscores the challenges of accelerating economic expansion.”
And as the Wall Street Journal (WSJ) added:
“The worrisome thing about the GDP report is where the weakness was. Consumer spending grew at just a 0.3% annual rate—its slowest showing since the fourth quarter of 2009… As confirmed by soft monthly retail sales and the drop off in car sales, the first-quarter spending slowdown was real“.
The problem is simple. Economic policy since 2000 under both Democrat and Republican Presidents has been dominated by wishful thinking, as I discussed in my Financial Times letter last week.
The good news is that there are now signs this wishful thinking is finally starting to be questioned. As the WSJ reported Friday, BlackRock CEO Larry Fink, who runs the world’s largest asset manager, told investors:
“Part of the challenge the U.S. faces, Mr. Fink said, is demographics. Baby boomers, the largest living generation in the country are aging, reaching retirement age. “With our demographics it seems pretty improbable to see sustainable 3% growth.””
And earlier this year, the chief economist at the Bank of England, Andy Haldane, suggested that the importance of:
“Demographics in mainstream economics has been under-emphasized for too long.”
Policymakers should have focused on demographics after 2001, as the oldest Boomers (born in 1946) began to join the low-spending, low-earning New Old 55+ generation. The budget surplus created during the SuperCycle should have been saved to fund future needs such as Social Security costs.
But instead, President George W Bush and the Federal Reserve wasted the surplus on futile stimulus policies based on tax cuts and low interest rates. And when this wishful thinking led to the 2008 financial crisis, President Obama and the Fed doubled down with even lower interest rates and $4tn of money-printing via quantitative easing.
This wishful thinking has therefore created a debt burden on top of the demographic deficit, as the chart confirms:
Between 1966 – 1979, each $1 increase in US public debt created $4.49 of GDP growth, as supply and infrastructure investment grew to meet the needs of the Boomer generation
Debt still added to GDP in 1980 – 1999 during the SuperCycle: each $1 of debt created $1.15 of GDP growth
But since 2000, debt has risen by $13.9tn, whilst GDP has risen by just $4.6tn
Each $1 of new debt has therefore only created $0.33c of GDP growth – value destruction on a massive scale
It is therefore vital that President Trump learns from the mistakes of Presidents Bush and Obama. Further stimulus policies such as tax cuts will only make today’s position worse in terms of debt and growth. Instead, he needs to develop new policies that focus on the challenges created by today’s ageing population. as I suggested last August:
“3 key issues will therefore confront the next President. He or she:
□ Will have to design measures to support older Boomers to stay in the workforce
□ Must reverse the decline that has taken place in corporate funding for pensions
□ Must also tackle looming deficits in Social Security and Medicare, as benefits will otherwise be cut by 29% in 2030
It has always been obvious that the Fed could not possibly control the economic fortunes of 321m Americans. Common sense tells us that demographics, not monetary policy, drive demand. Unfortunately, vast amounts of time and money have been wasted as a result. The path back to fiscal sanity will be very hard indeed.”
US GDP growth is slowing, again, as the chart of the Atlanta Federal Reserve’s “GDP Now” forecast shows:
Forecast Q1 growth has slipped to just 0.6% from an initial 3.4% at the end of January
Consensus economic forecasts are still much higher, but even they have fallen to 1.7% from 2.2%
The decline has been accelerating, due to disappointing data from a range of key indicators. as the Atlanta Fed note:
“The forecast for first-quarter real GDP growth fell 0.4% after the light vehicle sales release from the U.S. Bureau of Economic Analysis and the ISM Non-Manufacturing Report On Business from the Institute for Supply Management on Wednesday and 0.2% after the employment release from the U.S. Bureau of Labor Statistics and the wholesale trade release from the U.S. Census Bureau this morning. Since April 4, the forecasts for first-quarter real consumer spending growth and real nonresidential equipment investment growth have fallen from 1.2% and 9.7% to 0.6% and 5.6% respectively.”
Worryingly, therefore, we seem to be repeating the usual pattern of disappointment – with New Year optimism being followed by harsh reality – as the US Federal Reserve’s deputy chairman, Stanley Fischer, noted nearly 3 years ago:
“Year after year we have had to explain from mid-year on why the global growth rate has been lower than predicted as little as two quarters back.”
The key issue, of course, is that policymakers have still not accepted that the US economy is inevitably moving into a low-growth mode, due to its ageing population. As the Chief Economist of the Bank of England, Andy Haldane noted recently, the impact of:
“Demographics in mainstream economics has been under-emphasized for too long”
There is little sign of the new policies that are urgently required to take account of the changes that have taken place in life expectancy and fertility rate. As a result, forecasts continue to be made on the basis of wishful thinking at the start of each New Year. As I noted in December:
□ Increasing life expectancy means people no longer routinely die around pension age. Instead, a whole New Old generation of people in the low spending, low earning 55+ generation is emerging for the first time in history. The average western BabyBoomer can now expect to live for another 20 years on reaching the age of 65
□ Fertility rates in the developed world have fallen by 40% since 1950. They have also been below replacement levels (2.1 babies per woman) for the past 45 years. Inevitably, therefore, this has reduced the relative numbers of those in today’s Wealth Creator cohort, just as the New Old generation is expanding exponentially
Friday’s US jobs numbers confirmed this obvious truth, as the second chart shows:
□ Less than 2/3rds of the US over-16s population now have jobs. The current percentage of 62.9% is back at 1978 levels – when the median age was 30 years, compared to today’s 38 years – and so relatively more young people were still in school and college
□ The picture for men is particularly worrying, with just 68.9% at work, an all-time low. The dcline seems to have accelerated since the Finanical Crisis began, with the participation rate falling from 73.2% in 2007
□ The percentage of women working is also still in decline, although at a slower rate. It is at 57.2% today compared to the 60% peak in 1999 before Boomer women began to retire
Even more worrying is the data shown on the 3rd chart, which highlights the changes in real wages, adjusted for inflation, since records began in 1979:
□ Average earnings in 2016 were only just higher than in 2009, at $347/week versus $345/week
□ Average earnings for men at $381/week are well below the peak of $402/week in 1979
□ Only women’s earnings are moving in the right direction, with 2016 at a new high of $312/week
□ But, of course, this highlights how women’s earnings still average only 82% of men’s earnings
It is no great surprise that US and global GDP continue to disappoint, given this evidence from the jobs market. And nothing will change until policymakers accept that today’s ageing populations require completely new policies.
Brexit negotiations are likely to prove a very uncomfortable ride for UK consumers as Russell Napier of Eric, the online research platform, warned last week:
□ ”Public sector debt remains at near-historic highs (in peace time!) and for the first time this public sector debt comes with a private sector bubble
□ Credit card debt is rising at its fastest rate in a decade — 9.3% in the year to February
□ Unsecured debt as a whole is rising at more than 10% and some 6,300 new cars are bought on credit in the UK every day”
Companies and investors already face growing uncertainty as March 2019 approaches, as discussed on Monday. UK consumers now face similar challenges as their spending power is further squeezed by the pound’s fall in value since June, as the chart confirms, based on official data:
UK earnings for men and women have been falling in real terms since the financial crisis began in 2008
Male earnings are down 5% in £2016, and female earnings down 2%
Since June, unsurprisingly, cash-strapped families have had to raid their savings to fund consumption
New data shows the UK savings ratio hit an all-time low of just 5.2% last year – and was only 3.3% in Q4
One key issue is that monetary policy has reached its sell-by date, with Retail Price Inflation hitting 3.2% in February as a result of the pound’s fall. Interest rates may well have to rise to defend the currency and attract foreign buyers for government bonds. Foreigners currently fund more than a quarter of the government’s £2tn ($2.5tn) borrowing, and cannot easily be replaced.
Unfortunately, these are not the only risks facing the UK consumer. As I feared in June:
“ Many banks and financial institutions are already planning to move out of the UK to other locations within the EU, so they can continue to operate inside the Single Market
There is no reason for those which are foreign-owned to stay in the country, now the UK is leaving the EU
This will also undermine the London housing market by removing the support provided by these high-earners
In addition, thousands of Asians, Arabs, Russians and others will now start selling the homes they bought when the UK was seen as a “safe haven”
Lloyds, the global insurance insurance market, has just announced plans to move an initial 100 out of 600 jobs to Brussels, so that it can continue to serve EU clients. Frankfurt, Paris, Amsterdam, Dublin and Copenhagen are also lining up to offer attractive deals to companies wishing to maintain their EU passports to trade. And last month saw an ominous warning from JP Morgan Chase CEO, Jamie Dimon:
“The clustering of financial services in London is hugely efficient for all of Europe. Now you’re going to have a de-clustering, which creates huge duplicative cost which is expensive to clients. Nevertheless, we have no choice.”
Dimon’s warning was reinforced on Tuesday by the leader of the powerful European People’s Party in the European Parliament, who told reporters 100k financial services jobs would likely relocate from London due to Brexit:
“EU citizens decide on their own money. When the UK is leaving the EU it is not thinkable that at the end the whole euro business is managed in London. This is an external place, this is not an EU place any more. The euro business should be managed on EU soil.”
Until now, many consumers have been cushioned from the fall in real incomes by the housing bubble. But as I discussed in December, the end of such bubbles is normally quite sudden, and sharp:
Worryingly, UK house prices fell in March for the first time in 2 years
The Bank of England also reported that mortgage approvals are falling
And normally, lower mortgage volume leads to lower house prices
Certainly it would be no surprise if prices did now start their long-overdue collapse, as highly-paid financial professionals start to leave the UK. One key indicator – the vastly over-priced 9 Elms development – now has an astonishing 1100 apartments for sale. And if the housing market does collapse, then recession is inevitable.
The key problem is that consumers do not have many options when the economy moves into a downturn. New sources of income are hard to find if mortgage costs start to rise. All they can do is to cut back on spending, and boost their savings – to help them cope with any future “rainy days”. This in turn creates a vicious circle as consumption – over 60% of the economy – starts to fall.
There are therefore no easy answers when trying to plan ahead for likely storms. But being prepared for a downturn is better than suddenly finding oneself in the middle of one.
London’s housing market was always going to have a difficult 2017. As I noted 2 years ago, developers were planning 54,000 new luxury homes at prices of £1m+ ($1.25m) in central London, which would mainly start to flood onto the market this year.
They weren’t bothered by the fact that only 3900 homes were sold in this price range in 2014, or that the number of people able to afford a £1m mortgage was extremely limited:
□ The idea was that these would be sold “off-plan” to buyers in China and elsewhere
□ They had all heard that London had now become a “global city” and that it offered a safe home for their cash
□ There was also the opportunity to “flip” the apartment to a new buyer as prices moved higher, and gain a nice profit
Of course, it was all moonshine. And then Brexit happened. As I warned after the vote, this was likely to be the catalyst for the long-delayed return of London’s house prices to reality:
□ “Many banks and financial institutions are already planning to move out of the UK to other locations within the EU, so they can continue to operate inside the Single Market
□ There is no reason for those which are foreign-owned to stay in the country, now the UK is leaving the EU
□ This will also undermine the London housing market by removing the support provided by these high-earners
□ In addition, thousands of Asians, Arabs, Russians and others will now start selling the homes they bought when the UK was seen as a “safe haven””
Confirmation of these developments is now becoming evident. A new study from the Bruegel research group suggests up to 30,000 bank staff and £1.5tn of assets could now leave London, as it becomes likely that the UK will not retain the vital “passport” required to do business in the Single Market after Brexit. This would be around 10% of the estimated 363k people who work in financial services in Greater London.
They will also likely be more senior people, able to afford to buy London homes with cash from their annual bonuses, rather than the more junior people who need to rely on a mortgage based on a multiple of their income. And there is no shortage of tempting offers for these bankers, with Frankfurt, Paris, Amsterdam and Dublin all lobbying hard for their business.
Now, another threat has emerged to prices, in the shape of China’s new capital controls. China has seen its foreign exchange reserves tumble by $1tn over the past 18 months, due to its revived stimulus programme. January data showed they were now just below $3tn, perilously close to the $2.6tn level that most observers suggest is the minimum required to operate the economy. As we have reported in The pH Report:
□ China has now banned the use of the annual $50k foreign currency allowance for foreign real estate transactions
□ It has also banned State-Owned Enterprises from buying foreign real estate valued at $1bn+
The rationale is simple. The country can no longer afford to see money disappearing out of the country for purposes which have nothing to do with the real needs of business. And the impact on London’s property market (and that of other “housing bubble” cities such as New York, Singapore and Sydney) could be huge, as Chinese have been the largest buyers of new residential homes globally according to agents Knight Franks – and were responsible for 23% of commercial deals in central London last year.
Central London prices fell last year by 6%, and by 13% in the most expensive areas according to agents Savills. And now London’s Nine Elms development (pictured) at the former Battersea Power Station has just revealed a serious shortage of new buyers.
It was intending to build 3800 new homes, and originally found an enthusiastic response back in 2013 when the first 865 apartments went on sale. But 4 years later, just 1460 homes have been sold in total – and yet residents are supposed to be moving into the first phase later this month. Even worse, 116 of these original sales are now back on the market from buyers who no longer wish, or can afford, to take up residence.
Some of these buyers have already taken quite a hit on price. As property journalist Daniel Farey-Jones reports, one anxious seller originally listed his apartment for sale at £920k. Having failed to sell, he had cut the price by Friday to £699,995 – a 24% reduction.
Nine Elms is just one of many sites where developers are anxiously watching their cash flow, and hoping a flood of new buyers will rush through the doors. Sadly, they are not the only ones who may soon be panicking.
In recent years, large numbers of home buyers – many of them relatively young and inexperienced – have been persuaded to buy unaffordable homes on the basis that London prices could never fall. I fear that, as I have long warned, they are now about to find out the hard way that this was not true.