Coronavirus and property investment - can we restart the economy using this simple analogy of a manual car?
Todays focus in more on the property side of things and the impact of the current path of the UK Government.
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Video Transcription:
Cheers guys so welcome to today's presentation coronavirus in property so I want to bring it back now and just really focus on two main things number one is recovery and number two is property and how it's going to be affected by what's going on. So each day is obviously we do this daily I'm gonna do a bit earlier so that I can actually spend time putting the kids to bed obviously I'm in Singapore so it's four o'clock now so four o'clock we'll go live in Singapore time which I believe is 9:00 a.m. UK time. So yeah if you want to tune in 9:00 a.m. that's that'll be the new time from now on Monday through Friday.
Coronavirus and property investment and today what I really wanted to cover was the manual car analogy for recovery and I guess the key thing for that is what the hell is it but is it possible and can we actually do it. And I think it'll be an interesting take on how things work. Look it's an immensely simplified version of what is a very complex concept which is money supply and you know right now we are flooding the markets with liquidity we've been flooding the markets with liquidity ever since the last recession arguably and I've said this before I don't think we really address the issues from the last recession you know properly. Normally you would have some sort of correction we didn't really we had a correction but did we really solve the issues and I'm not sure we did. The challenge now is we're addicted to the debt we're addicted to this you know in the insertion of liquid effectively buying bond markets and things like that which is pretty full-on a pretty scary actually when you really get down and dirty with the details I mean you really think about it.
The normal stuff that we do but look 11 days so originally I've been counting down for 30 days I can't believe that it's so long and so far along I mean that's just incredible. I'm just gonna stop my live feed to my thing this I think they're throttling the Internet I don't know but uh it certainly appears to be that way that you know live stream just isn't working like it used to even though I've tried everything I've spoken with to go the providers you know I have one Giga port but anyway.
Let's get back to little start streaming well on our so good I'm so yeah 11 days if you guys liked what it saw that the infection I have to say that is looking a bit close now you know if you think I started out from 30 days you know the government said twenty-one days you know they're 9 days in left. I mean I think this week is gonna be a really full-on week with it in terms of everything in terms of just how serious the number of deaths and the number of cases I mean we're seeing it just shoot up you know massively but yeah I still think that 2020 and we'll go a bit more into what I think recovery and how long and all that so stuff today. But anyway so we have looked so 1.274 million cases actually it's 1.276 because it's gone up 2,000 already since I actually put this when I just looked at it but yeah I mean and that's you know down from just over the weekend. I don't track it on the weekend I take some time off for the kids you know it was just over a million so we've got 250,000 more cases just over the weekend in 2 days so it's pretty serious I mean the US is getting absolutely hammered and the thing is it's gonna be Constantino effect so New York will slow down Washington State I believe they've said is slowing down now one of the first and what will happen is all the others will start coming out now. But you know even this list here I originally started off and there were 8 countries on the list and you see how many more and that's over 10,000 cases so the issue is there are over 210 countries now they've all got to work their way through so this ain't going away in the next weeks this potentially is going to be a month. Most countries, however, have locked down I mean you know 2/3 of the world population has effectively locked down you know in America there's still 7 or 9 I don't know it depends on who you believe states that haven't cut down and haven't locked people away and said you know get stay at home. They're still allowed out they're still they know and they're going down the option of I guess the herd mentality everyone gets it you know 60% to 80%, Wow you know it's a brave move politically look you might work out it may work out economically but it's a brave move politically.
So if look at the recovery 334,000 outcomes so that 1.2M there is 334,000 outcomes and 264,000 have recovered it so 79% so there's you know there are 50,000 more people recover so we added 250,000 and 50,000 recovered so 200,000 net if you like so I'm gonna guess that's a little bit of a positive look so yeah it's really you know it really full on this and I've taken to cut you know tracking the recovery but as I said there's just not the stats to work out the exact figure that's right now.
Let's talk about the impact on the UK economy now, first of all, I think this is really important to understand the framing with which I'm talking about. Because we consider and say what's being done now but I think where the UK is in a very different place than most other countries. We did an act of self-harm if you like whether it turns out to be self-harm or it might save us I think actually it's looking pretty damn good having done that and that is Brexit. You know for many years we had political uncertainty and we had Brexit yeah so what that did is that kept everything. Except for the volume of sales in because we're talking about property now a property market that kept our volume of sales low okay but what it also did it kept the volume of sales low they didn't perk up we had like two months because December was when we got some clarity and then it started perking up you know for a couple for that but not really and then it got cut away with the virus. So we haven't had this we're ready to low base if you think about when most pit times you go into a recession what happens is you're at full use of the economy full productivity and everything's going, you're going, going and so when the economy here hits the recession yeah all of a sudden you've gotta this overhang of where we're producing lots of sites we're developing lots of property and that has to see it through to completion but of course the prices drop away. We haven't had that we haven't had this full productive economy we've had you know this economy kept down, kept down, kept down and I think that will play a big part. We've had a lot of prices, we've had a lower sales volume, we've had low you know building quantities all these things are gonna play into our benefit and then the great thing was thank goodness we got this before thee imagine if we went into this without having had the election and where it was all stalemate than that. I mean that would be tragic but we didn't in December we got a decisive election we got Brexit in January so now we've got some clarity around things and we've got some leadership. And I have to say you know as much as you can you know make fun of them and all that stuff they are doing a bloody good job and you know I'm very impressed with this you know that side of them. I think you know 100% that's you know great.
So look we've had that the other side of it is the other side is we've had austerity for ten years and in fact, longer than 10 years since the last recession we are in just literally last budget a week before two weeks before we actually decided to lock down you know was when we come out of austerity. You know which so what that is meant is there isn't this overhang of so many people in jobs that didn't need you to know there's not this excess yeah that we have to get away which means a wall that excess is going the economy's doing this we don't have that. America does Australia do most other countries do yeah we haven't got that in the UK and that above all else will put us in comparatively a much better position I think alright. Look you can argue with me and you know there's always an argument to be had in a discussion to be had in that you know and I'm sure there are other points in this I'm trying to keep everything really simple. For me, that is a big thing.
So look the problem is the borrowing and the stimulus across the world is huge. The borrowing and stimulus across the world are huge, I haven't got the numbers yet because we're still being decided and this is the first tranche there are even first second third fourth tranches in some countries like the UK you know they've come back and changed it four times. Low debt countries and this is the interesting low debt countries so for instance in Singapore they haven't borrowed money to do this. What they've done is they've gone into their reserves and they're pulled 17 billion out to fund their stimulus package. Those countries and countries that were less affected by the virus-like Taiwan like South Korea like Singapore you know perhaps even China because when you think about the population of China and how long they are down for they're actually booming back or they've come back quite strong. Now understand in the reference of the rest of the world it's still pretty drastic, yeah you know and what I mean about drastic, it's still you know they're still trillions being wiped off everything every day. And people say oh yeah but then they'll be pent-up demand well okay pent-up demand great but you know if you're gonna go out to dinner you're not going out to dinner twice instead of once. The other side of it is if your business has been hit if you're you know career has been hit if your savings have been hitting you've been using those you don't have them anymore so you're gonna be more conservative and that's what I think it's gonna take a little while longer than what a lot of or saying to come out of this and see the growth back again.
So I don't think we're out of it by any stretch of the imagination at this stage you know but I think the interesting thing is if you want to tell the differences between those that are pumping huge amounts of liquidity into their business huge stimulus and those that actually have fared well what's the currency differentials. Look what happened to the pound when we announced Brexit you know it effectively you know died off and I know because I live in Singapore and I earn money in pounds and Singapore and basically I've seen it's more expensive for me living here now because of Brexit. All right bounced back a little bit but you know and now with this stimulus package well that's probably gonna hit me even more you know might become too expensive for me to live in Singapore you know paying school fees for four kids. But look guys the bottom line is with this is I think 2020 is still cancelled.
You know right now let's get into my effectively the motor vehicle or the sorry the clutch manual car analogy. And what that is is if we're talking about inflation, deflation stagflation and depression all right so those are four words you're gonna hear you might also hear hyperinflation I'm not as concerned about hyperinflation as such because hyperinflation isn't necessarily going to happen across the world I don't think it could. You know anything's possible in these days because it is really really interesting times this is what this is and it's explaining stimulus and money supply very very simply.
Anyone who knows on this subject is going to look at me and go, Brett, you're a friggin idiot this is way too simplistic and it probably is. But you know what for the average person out there who doesn't study economics it hasn't done a degree and hasn't been in university-level economics. This is for me how I explain this all right now we can talk about m0 m1 m2 m3 supplies we don't really use m3 anymore but the bottom line is I don't wanna get into that's two weeks in thing and you know there's plenty of economists that explain that a lot better than I do.
So here we so imagine we're driving a car for anyone who drives a manual car if you only ever driven that automatic this might be a bit hard to imagine but there's a biting point correct. So basically what you want to do is if you're sitting there driving the car and the cars going along and you basically want let's say you want to take off okay so let's say we've come out of the recession or so we're in a recession things have stopped now we're our two choices. If we put too much gas on yeah without the clutch what's going to happen yeah basically we're gonna stall thin but effectively what happens if we put too much stimulus in too much accelerator in other words too much cash into the economy what happens there's more fuel in there yes the car's gonna stall okay but more than that this car gonna stall but to get rid of all that thing that's inflation. So what happens is there are lots and lots of money around but only a certain amount of goods. So what happens is those goods become more precious and drives the price up. That's effectively had too much inflation or too much stimulus yeah into the thing now we're getting a lot of stimulus in so this is a potential and probably the most likely outcome of that it's good for property investors because it deflates away our debt. But it's not necessarily good for an economy because people can't afford it wages things slow down and then you get an up into stagflation which is you know another thing where you have high inflation but high unemployment and the economy is just not moving. You've effectively stalled it. So that's where stagflation is a potential of these now imagine you just didn't stimulus you had no signals okay so what happens there's very little money okay for the number of goods and services that are there. Well, all of a sudden the price is too many goods so the price will go down to supply and demand and what we have is deflation, prices dropping okay so that's if you put the brake on the economy by not stimulating yeah then you're gonna get deflation.
Alright now here's the real thing all right the other side is if you sit there and you put exhilarator on and the clutch on you ride the clutch, you're gonna stagflate the economy effectively. Alright because what you're doing is you're stimulating yeah which is gonna cause inflation but you're not actually the economy is not moving yeah for any of you know that you know that that's sort of biting point if you're before that biting point you're just sitting down you're riding it's any faster and faster more stimulus, more stimulus but the economy is not moving stagflation. So they're the three things now the real thing is and what we're going to try and do is find that biting point and we're a take off slowly, in other words, we're going to stimulate, enough but not too much and if we do that then potentially we can come out of this now look make no mistake it's still gonna be a bloodbath doesn't matter how this loose ends this ends in a bloodbath. And what I mean by that is that shares are going to be down you know airlines are gonna be on their knees debt is gonna be you know increase so we have to pay those debt that debt back to some degree that devalues the debt which means the impact of the debt isn't much.
So inflation from that perspective and that's where this boiling point is so that's what we're aiming, for now, there is one more word depression all right if we totally screw this up yeah and we do everything wrong. Then we're likely to hit depression I don't think from and this is just my opinion and there's plenty of people who don't I don't think we're heading for a depression. I think tank and actually we'll chuck it out as a reserve currency arguably if it is still the reserve currency and that's a big argument there but anyway you know but it's you know because when you add all the derivatives and lots of stuff there's actually a lot more currency in circulation potentially but that's all yeah forget about that it's too much for this.
But bottom line is what we need to do is we need to find the correct biting point yeah right now we need to be stimulating. We need to keep people in jobs because that's the only way we get a V-shaped rebound. Do I think it's gonna be a rebound no I think we're pushing it. Okay so let me just explain now this so this is effectively how when are we going to come out when can we get an idea for the I guess if you like the four for property investors, when are we likely to see what happens with property prices.
So I think this is an important one all right and look the challenge right now is you have two things you've got shares and equities which are liquid yeah currencies they're liquid okay property is not liquid. So right now nobody can do view I mean okay we can do viewings but the very restricted. So the market property markets not moving we don't know it may have dropped 50%, 100% by now you know we just don't know I don't think it will have. But the reality is we don't know it may be going up people are reporting people want to do viewings people want to move people want to do these sort of things still you know so we don't know right now and the reason I put on this side the shares and equities is been up sorry because the market is more liquid and so it's being traded right now. And so what we've seen is we've seen it drop and then the likelihood is it could drop further because you know we're riding it to the bottom we don't know where the bottom is nobody's picking the bottom. I mean interestingly Warren Buffett just sold his airline stocks okay he had more than 10% so he disclosed it. Why because clearly he feels that you know even after this and I think this is a I think it's a masterful move on his part in that the challenge with the airline's now is they've got all this hugely expensive stuff. This hugely expensive planes and infrastructure and things like that but now we've all learned how to do things I have a video conference, so my question is where all the profit was or a lot of profit wasn't in the economy class it was in the business class business travellers now if they've actually been in Australia in the UK in Spain I've got various businesses around the place that I run via videoconferencing yeah which means I don't have to be there as often as I used to be before video conferencing you know and it's come so far in the last 10 years that I've been you know settling in I mean I live in Singapore but we have a very small businesses affect Airlines that's one of the reasons why I think you know airline stocks a 60% down but you know maybe they'll be 80% down. So there could be another drop okay we could say that so watch out for the second drop and a lot of my mates and equities are saying this and you know saying yeah watch out don't get in yet necessarily maybe you want to put a bit of play in here but no you know to save it and then we get to the bottom once we're at the bottom who knows and that's where the manual car analogy depends on how we did with the biting point.
yeah but once the markets reopen and once this lockdown it goes back and we get back to normal that's when we will start to see the property prices and invariably they will drop but the great thing is because they've been so low yeah for so long they may not need to because there's not an excess of supply. There's not you know there's a limited demand right now but because of that, we may see that property prices don't drop that much in the UK. Other markets I can't be so certain about and in fact, I'm not so certain about so many other markets but you know what I mean for me it's you know for the UK property market is looking pretty good compared to other countries. That doesn't mean that we're not going to see 10%, 20% off the people that have to sell even 30% I mean we used to see 30% back in the last recession you know but that was for people that we're desperate to sell. In our case developers of a desperate to sell they had to drop it by 30%, yeah a lot of the banks allow them to drop it by 30% that's not necessarily gonna happen this time I don't think yeah I could be totally wrong but my gut feel is that we were already bouncing on the bottom and we may see that we come out of this it may drop a little bit more but then we're probably likely to sit along the bottom until the confidence builds back up that we're through this, yeah iris we get certainty around the economy and then what we're going to see is people I think to come back in and we'll be ready to come back out from that.
So yeah I mean there's no definite dates right now it's still so fluid changing all the time but you know what it's pretty damn positive for the UK because we've just had three and a half years of absolute crap yeah which is now put us in a way much better position than we would have been we had a big boom.
Yeah so do you guys that's it for today stay safe, stay healthy and remember to subscribe to my channel I'm here every day you'll be it's 4 p.m. Singapore time yeah we'll chat then alright guys see you later bye
