Jeremy grantham's quarterly report last quarter
http://www.gmo.com/websitecontent/JGLetter_ALL_2Q08.pdf
The current U.K. housing event had
become the biggest tease in bubble history, beginning to
decline almost 4 years ago, then putting together another
2-year rally before fi nally fl agging this year. The bad
news is that as usual it will go all the way back to normal
– which you can barely see from here – and very probably
will overrun just to rub it in. It will make our troubles look
like a toothache to their hip replacement. Unfortunately
for global fi nancial well being, the U.K. is not Iceland,
but a major player in the global banking business, so the
scale of the write-downs will produce yet another wave of
destabilization.
In the U.K., house prices could easily decline 50% from
the peak, and at that lower level they would still be higher
than they were in 1997 as a multiple of income! It is a
truly ugly thought that mortgage lenders and the guardians
of the fi nancial system seem never to have considered, at
least until recent weeks. If prices go all the way back to
trend, and history says that is extremely likely, then the
U.K. fi nancial system will defi nitely need some serious
bailouts and the global ripples will be substantial. Of all
the negative possibilities out there, and there are plenty,
real pain in this area is the most likely; I would say, nearly
certain.