Spring has belatedly sprung as we have rolled into Q2 of 2023. Taking a macro view of property is always hard, for someone as impatient as I am. The juxtaposition between wanting to know the answers to what are ultimately quite unanswerable questions, and trusting the process in the long run to deliver reasonable returns in a safe manner, is always interesting to live, day-by-day and week-by-week.
The overarching situation at the moment - as I have been writing about for a little over two years now, secular or endemic inflation if you prefer - takes its sweet time to play out. “How long?” is a question I obviously get asked quite a lot. There are two answers - now that people have accepted the inevitability about the secular nature of this inflation, rather than attempting to brush it off as transitory - one is the unhelpful “piece of string” related answer; the other is that we have to look back at inflationary periods in history to give us some kind of steer.
“This time it’s different” is usually the defence against doing that - past performance is no guarantee of future returns, as they say, but there’s an element of truth in that saying. It’s always different - but is it different enough to depart from what we’ve learnt in many previous cycles that have been meticulously recorded? No. The only answer lies in doing the work and understanding those previous cycles.
There are major issues in UK forecasting at the top level when it comes to inflation, and that’s due to an over-reliance on mathematical modelling with too much weight placed on the most recent times, and a lack of qualitative and historical factors being thrown into the mix. A model beyond a regression analysis. A model that still needs human input alongside mathematics, still viable before AI takes over the world (if you believe Elon’s wildest fears). We are still in that place, with weak modelling - the Bank of England and the Office for Budgetary Responsibility, arguably the two most important and illustrious forecasters in the UK, have made mistake after mistake over the past few years. They haven’t even been close on the direction of travel in some circumstances, and most recently the OBR set out an inflation forecast which sees inflation down at 2.8% at the end of 2023; the private sector fared no better with similarly ridiculous or even lower numbers being predicted by both Goldman Sachs and Citibank, to name and shame but two; offering up numbers below 2% in the US before the end of 2023.
This is fantasy territory, and the study of multiple inflationary cycles has given me the confidence to hold this position for what is now the 26th consecutive month. Is that because I’m stubborn? Perhaps - but I most definitely live by the old John Maynard Keynes quote - “When the facts change, I change my mind - what do you do, sir?”. The inevitable conclusion here is that the facts still haven’t changed.
