My Latest Articles on Seeking Alpha

Posted by JYarders on February 25, 2013
Economy, Equity Research / No Comments

Seeking Alpha is a great site. Here are my latest articles. Please follow me.

Investment Dilemma – Where to Invest in Today’s Minefield?

ICAP A Great Stock for the Long Term Investor -

Is Apple a Bargain? A DCF Analysis -

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Why Apple Is Not The Next Nokia Or RIM (Now Blackberry)

Posted by JYarders on February 25, 2013
Equity Research / No Comments

Both Nokia (NOK) and RIMM (BBRY) have collapsed following the introduction of the iPhone. Nokia is down roughly 88% and RIMM is down about 86% from their highs in 2007 and 2008 respectively. Could the same thing be about to happen to Apple? History suggests that consumer preferences can shift quickly.

In my discount cash flow article on Apple (AAPL) I argued that Apple’s current market price seems to imply there is a high probability that Apple will suffer a fall like Nokia or RIMM. My analysis suggested that even if Apple never grows again it is still undervalued at today’s price. Here are the reasons why I don’t think Apple will suffer the same fate.

Secular growth in the smartphone market will drive iPhone sales in the future

In 2012 an estimated 1.7 billion mobile phones were sold. About 650 million of those were smartphones. The smartphone market continues to grow rapidly. Estimates from Gartner and Credit Suisse expect more than 1 billion smartphones sales in 2014. Apple currently has just a 6.9% share in the global mobile phone market at the moment (based onIDC Q2 sales).

The lower end of the smartphone market is likely to grow much faster than the higher end as smartphones become cheaper more consumers are able to afford them. Apple doesn’t compete in the lower end at the moment.

However there will still be growth in the higher end market. Apple still has opportunity to grow in China and elsewhere. Barring a catastrophic loss in market share Apples iPhone sales should continue to grow over the next few years.

Secular growth will be even stronger in the tablet market and drive iPad sales

It is a very similar story in the tablet market except the market is growing even faster. Research firm Gartner predicts 369 million tablet sales in 2014. That’s over three times the expected 119 million sales for 2012. Even modelling in extreme market share losses Apple will see substantial revenue growth.

Why is it different to RIMM or Nokia?

Both RIMM and Nokia suffered when the iPhone was released, a device which redefined the entire phone industry. RIMM’s products were instantly inferior. Consumers trended away from keypad phones in favour of full touch screen devices. RIMM was also very slow to react; in fact it has taken until just now for RIMM to create a similar iPhone like full screen device, (the Blackberry Z10).

The situation with Apple today is different. Apple still has one of the strongest product on the market even if the gap with its competitors has narrowed significantly. Unless another truly revolutionary smartphone is produced Apple will continue to benefit from secular growth.

Nokia is a different story. It has been slow to react to the move to smartphones and this trend has actually hurt it because of its huge non smartphone business. So whilst Nokia was hurt by the trend towards smartphones, companies such as Apple benefited and Apple is still benefiting from this trend today.

Cash and Valuation

Almost one third of Apples market capitalisation is now in cash on its balance sheet. And it adds more cash every day.

Enterprise Value versus Market Capitalisation

There has been a lot of talk of Apples huge fall in market cap. From peak to bottom it market capitalisation has now fallen 36.8%. However the fall in Apples enterprise value, the price you would pay to buy it, has fallen even more. This is because

  • Apple has a huge amount of cash on its balance sheet.
  • I estimate Apple has added $20bn in cash between September 19th and February 5th even after paying dividends and buybacks.

Apples enterprise value has actually fallen around 48% since the peak. If you wanted to buy Apple it would now cost you around $280bn compared to $542bn in September.

With so much cash it is difficult to conceive of a scenario whereby Apple falls 80% from its peak of $700. With over $144 per share in cash today the company would have to be worthless. Thus whatever happens with Apple there should be a limit to how far it can fall in contrast to Nokia and RIMM

P/E Comparables

RIMM’s P/E was around 50 at its peak valuation of $144.56 in 2008.

Nokia’s P/E ratio was around 17 when it was at its five year high in 2007.

Apples peak P/E ratio when the stock hit $700 was just 13. Apple was cheap even when it was at its peak. It’s easy for a stock to collapse when it has a high P/E ratio and the market gets disappointed. But when the P/E is already low usually the stock should fall less.

Apple is a More Powerful Brand than RIMM or Nokia

Apple has an incredibly powerful and much loved brand as well as extremely high customer satisfaction rates with their existing products. Apples ecosystem draws consumers in and makes it harder for them to switch to rival products in the future.

Apple’s app store has become less of an advantage as Android has caught up with it but it is another element which RIMM or Nokia did not have in 2008.

Unless a new ‘iPhone killing device’ is released there will be little reason for many satisfied Apple customers to switch to an alternative in the future. Much as the Z10, Nexus 4 and SIII are good phones I don’t believe such a device exists yet and I think it is unlikely it will exist any time soon.

Apple has better diversification of products

Apple is extremely reliant on the iPhone which makes up over half its revenue and an even greater percentage of its profits. However unlike RIMM or Nokia, which had no tablets, macs, etc back in 2008, Apple does derive a significant amount of revenue from other devices such as the iPad and iMac. The iPad will likely account for a greater percentage of revenue as it grows faster than other divisions. There are also strong rumours that Apple is about to enter other industries. As Tim Cook keeps saying an Apple TV remains an area of intense interest for us. Apple also benefits from the eco system its different products provide, this should make some customers who own multiple Apple products less willing to switch to competitors.

Presence on the Ground

Apple’s incredibly succesful retail stores and excellent customer service teams are another advantage Apple has.

The Market

In 2008 RIMM and Nokia’s declines were accelerated by the financial crisis and the fall in global equity markets. Today Apple is the worst performer on the S&P year to date and looks increasingly attractive as other companies continue to get more expensive as the market rises.


Apple will continue to benefit from secular growth as the market for smartphones and tablets continues to get bigger. This contrasts with RIMM, which was hurt by a move to full screen smartphones and Nokia which suffered from the switch to smartphones in 2008.

Apple was cheaper at its peak than both RIMM and Nokia were. It has a third of its market capitalisation in cash and this should limit its downside.

Apples strong brand, range of products, eco system, retail presence and high customer satisfaction levels are all further reasons as to why Apple will not go the way of Nokia or RIMM.

Only a catastrophic loss in market share would see Apples revenue decline. This is extremely unlikely to happen without a revolutionary iPhone killing device, which I don’t believe currently exists.

Finally we don’t know what else Apple is currently working on. They may have a slew of new devices coming out such as an Apple TV.

Disclaimer: This article intended as general information only, and is not intended to provide specific advice, or due diligence to be relied on. As such, the information presented in any article does not consider any reader’s personal investment objectives or financial situation; therefore, no article makes any personalized recommendations. See full disclaimer here.


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Apple (AAPL): An Opportunity in Gross Margin Confusion?

Posted by JYarders on January 21, 2013
Equity Research / No Comments

Disclosure: I currently own shares of Apple (NASDAQ: AAPL). I own March Call Options for Apple with strike prices of $590, $635, $655, $670. 

Disclaimer: This article is not a recommendation to buy or sell shares in or trade derivatives in Apple (NASDAQ: AAPL). I take no responsibility for any losses you may incur from buying or selling shares in Apple, trading derivatives in Apple or spreadbetting Apple (NASDAQ: AAPL) or any other stock. See full disclaimer below.

Primary Thesis: Current concerns over gross margins are overstated. Apple will produce better than expected gross margins in the December quarter and in the future.This is the first in a series of articles I hope to publish on Apple. The first in the series is about gross margins.

Margin Fears Are Overstated

Apple’s gross margins fell to 40% in q4 as opposed to 42.8% in q3 and 47.4% in q2. [i]These were significantly worse than most analysts were expecting. Apple also warned the iPad mini will have significantly worse margins than its other main products. Apple guided even lower gross margins of just 36% for the December quarter. [ii]

Here are the reasons Apple gave for anticipated lower gross margins in the December Quarter (Q1):

  • 80% of total revenue new products (50% is the iPhone)
  • Apple has never had so many new manufacturing processes at once
  • Lower iPhone 4 and 4S pricing in December
  • iPad mini (with significantly smaller margins)
  • Greater Deferred Revenue

This worsening of margins is unsurprising given the launch of so many new products. Whilst these fears are legitimate I think they have been overstated.

Apples margins were hit badly by the iPhone in the most recent quarter (the iPhone makes up over 50% of revenue). The gross margins on Apples new iPhone 5 were unsurprisingly worse because it is a new product and very different to the previous iPhone.

On the conference call Apple warned that any improvements in iPhone 5 margins in the December quarter would be offset by lower iPhone 4 and 4S prices. However the iPhone 4 and 4S already sold at a significant discount in the prior quarter. This drove down average revenue per phone to $636 and depressed margins as a result.

The lower priced 4 and 4S will make up a much smaller percentage of total iPhone sales for the latest quarter. In the September quarter they accounted for around two thirds of all iPhone unit sales. They will have a much smaller weight and therefore much less impact on total iPhone margins in the December quarter. I predict average revenue per phone will be higher at $650 and gross margins will be better as a result. This is $9 lower than the $659 ASP in Q1 2012. This is because whilst the iPhone 5 will make up the majority of sales, evidence suggests that a greater proportion of lower value iPhones will be sold in the Q1 2013 versus Q1 2012.

Apple puts a portion of every iPhone sold to deferred revenue. Because sales in the December quarter are expected to be greater than prior quarters, more revenue will be going towards deferred revenue than Apple will receive from previously sold phones. Therefore margins will be temporarily adversely affected and this may limit some of the effect of better iPhone 5 margins. This negative impact will be offset in subsequent quarters. Regardless the impact in the December quarter will be minimal.

During the conference call Apple said, ‘Costs will not accelerate on a per unit basis throughout the quarter’. Apple made it clear that iPhone 5 costs won’t worsen despite any supply constraints implying costs will actually fall.

iPhone 5 costs will come down. Despite the difficulties meeting demand Apple will still drive supply efficiencies. History shows us, with previous iPhones, that costs improve every day after launch. Manufacturing processes will get more efficient, yields will improve and the cost of components will fall. Indeed all the evidence suggests yields have improved throughout the quarter and this will only benefit gross margins.[iii]

As a result of all factors I am confident that overall iPhone margins will improve in the December quarter. It is difficult to conceive of a scenario as to how they could worsen. There will also be improvements in subsequent quarters. Whilst Apple is refreshing almost all its products the iPhone accounts for 63% of the revenue from these refreshed products. Therefore it will have by far the most significant impact on gross margins.

The Impact of the iPad mini on Margins

Although there are serious concerns over the iPad mini impacting overall margins these fears are also overstated. I am currently estimating 9 million iPad mini sales in q4 at an average of $335. If that is the case the iPad mini would still only account for about 5% of total revenues (assuming total revenue of $56.8bn). If we make a very conservative assumption that iPad mini gross margins are 20%, half as good as the rest of Apples products, the total impact would be about 120 bps. However this assumption is almost certainly way too conservative.

IHS has completed its analysis of the parts in the basic 16GB Wi-Fi iPad mini and it has concluded that it will cost about $188 to build. [iv]Even if we assume this is accurate the actual cost of the iPad mini will be higher. This cost doesn’t take account of quality control (something we know Apple is extremely strict on). It doesn’t take account material wasted in the manufacturing process. It doesn’t take account of packaging. Perhaps most importantly it doesn’t take shipping costs into account something Apple has been struggling with recently. Apples shipping and handling costs are included in cost of sales.[v] I have estimated $30 in extra costs bring total costs to $218. Re-seller costs are accounted for in net sales and bring down the average selling price which I am currently estimating at $335 for the December quarter.[vi] This would give gross margins of 35%.

Assuming gross margins average 40% across all Apples other products, the impact of the iPad mini on overall gross margins would be just 27bps in the December quarter. (Assuming $56.8bn revenue and 9 million iPad mini sales at an average of $335). Despite Apples warning of lower gross margins, the impact of the iPad mini will be very limited.

The new iPad has also been refreshed. The product is not significantly different from the older version from a design or manufacturing point of view and I do not expect it to have a significant impact on overall margins. The majority of the components are the same as the previous version. Together the iPhone and iPad makes up over 90% of revenue from new products and these products will have the main impact on gross margins.

Historical Guidance and Consensus

There has been a lot of confusion over Apples latest guidance. Apple guided revenues of $52bn and EPS of $11.75 with gross margins of 36%. [vii]Apples guidance is always extremely conservative and I believe this has been misinterpreted by the market (Consensus is currently for gross margins of 38.4%).[viii] I think it is especially telling when we examine Apples 2012 Q1 Guidance from a year ago.

In Q4 2011 Apple predicted 2012 Q1 guidance of $37bn and EPS of $9.30. Apple actually produced revenue of $46.33bn and EPS of $13.87. A 25.22% and 49.14% beat respectively. As a result net margins were significantly better than expected, 28.19% as opposed to the 23.67% guided.

The same was true of gross margins. Apple guided gross margins of 40% but then delivered gross margins of 44.7%. A huge 470 bps beat. It is likely we will see something similar for the December quarter.

Gross Margins Long Term

Gross margins on existing products will improve in subsequent quarters as they have done historically as component costs fall. A potential threat to gross margins is if Apple moves to a six month product cycle in order to compete with competitors releasing multiple high end phones, such as Samsung. The faster introduction of new products will hurt margins but this should be viewed as a positive for the company. Any margin impact will be more than offset by increased sales. Apples exceptionally loyal following ensures that many will buy its latest product without question. A faster product cycle will also help to prevent the huge drop off in sales prior to the launch of a new iPhone as we saw in Apple’s Q3 and Q4.

Whether this happens soon is uncertain. I have yet to incorporate a six month production cycle into my model. It seems likely this will happen if not this year, then next. It will impact gross margins but I view it as a positive catalyst for the stock.

Lower Priced iPhone

There have been different reports of a new iPhone launching in Apples Q3 and Q4 (Q2 and Q3). The latest reports are for three new iPhones this year. An iPhone max, a larger 4.8 inch iPhone, a new next generation iPhone and a cheaper iPhone for emerging markets.[ix] There has been some speculation about the potential for a lower priced iPhone for developing markets. This might have an impact on gross margins. But at the moment this is just speculation, this device may not even exist and I have yet to incorporate this in my model. The primary focus of this article is on gross margins in the December quarter.

In Conclusion

There is no doubt that margins have worsened from last year but concerns are overstated. This is primarily because of a raft of new products. As history shows Apples guidance is far too conservative and sets them up for an easy beat in the Q1 quarter. In the Q1 quarter I believe that the relatively small impact of the iPad mini and other new products will be offset by improving iPhone margins. iPhone margins will improve because of a higher average selling price and lower iPhone 5 costs. I estimate overall gross margins of 40% for Q1 2013, the same as the prior quarter and ahead of consensus at 38.4%. Going forward I currently expect to see ongoing improvements in gross margins in q2 and q3 but this will depend on future products.

I believe a significant q1 surprise on gross margins could be a major catalyst for the stock given the huge sell off in the stock, low expectations and low valuation.

Q1 2013 Revenue: $56,754 million

Consensus Q1 2013: $54,700 million

Q1 2013 EPS: $15.46

Consensus Q1 2013 EPS: $13.41

Disclosure: I currently own shares of Apple (Nasdaq: aapl). I own March Call Options for Apple with strike prices of $590, $635, $655, $670. 

DISCLAIMER: This article is not a recommendation to buy or sell apple and I take no responsibility for any losses you may incur from trading Apple (AAPL) or other stocks

 Each article or comment written by this author is intended as general information only, and is not intended to provide specific advice, or due diligence to be relied on. As such, the information presented in any article does not consider any reader’s personal investment objectives or financial situation; therefore, no article makes any personalized recommendations.

Investment strategies or securities mentioned in any article are not suitable for all investors. The risk of loss in trading securities, including options, and futures can be substantial. Options or other transactions could involve complex tax considerations that should be carefully reviewed and considered along with each reader’s personal financial situation and all other relevant risk factors prior to entering into any transaction.

While I believe the information provided in any article is reliable; however, I do not guarantee its accuracy, timelines or completeness. Financial information changes daily and articles are not updated for subsequent changes in financial position or share prices.

Past performance referenced in any article is no guarantee of future performance. You should always consider the risks of investing in the light of your personal circumstances and your due diligence should include consulting with your professional advisor.

The opinions expressed in any of my articles or comments on this website are my own and do not necessarily reflect the views or opinions of any third party. I am not responsible for actions taken, or not taken based the content of this site. 

Links to and from websites do not imply any content endorsements. I am not responsible for, nor do I control the content of linked websites which are subject to change without my knowledge or consent.

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First Time Buyers Beware – The Shared Equity Con

Posted by JYarders on November 06, 2012
Economy / 1 Comment

This article first appeared on on 24/04/2011.

First time buyers are finding it increasingly difficult to get on the property ladder. Incomes and property prices remain distorted and banks have become increasingly stringent. With the situation as it is many first time buyers are turning to shared equity housing schemes. Instead of buying the whole of a property you only buy a percentage. The local government housing authority or a building company own the rest. You pay rent on the remaining percentage but the amount you borrow is significantly reduced and so are your mortgage repayments. You also require a smaller deposit.

The government loves the scheme, it helps the construction industry and keeps the property market booming. As someone looking to get onto the property ladder I had been considering such a scheme. I was therefore shocked when I came across some of the horror stories people have had with shared equity schemes.   I felt it was important that anyone looking into the scheme should be aware of what they are getting into. Here is a selection of people’s experience.  All comments are taken from the evening standard see the full article here . (I note that since writing this the comments shown below have been taken down from the original evening standard article.)

- Marlise, Reading, 01/07/2010

Biggest mistake of my life! I bought a 40% share of a property through Thames Valley Housing Association in 2005. After a couple of years, rent had gone up by almost £200 and service charges sky rocketed, for a very poor service. Due to personal circumstances I had to move to London, to which TVHA gave me permission to rent via the local council. The council tenants did not pay rent for close to a year, and after struggling to pay living expenses in London and Rent/Mortgage on the shared ownership property, I went into serious debt, as well as mortgage debt. TVHA have been extremely unhelpful in this situation. Not making it easy for me to sell my share of the property (the costs of which are ridiculous). I am now unemployed and left to deal with mortgage debt collectors’ calls and harassment from TVHA for their rent. I no longer have an attachment to this property and would love to see it go as it has caused me so much stress, but I am trapped.

- SR, London E14, 15/04/2010

Biggest mistake of my life wish I had read this four years ago. Desperately need to sell to move closer to a disabled relative, there are errors in the lease preventing me from selling and the housing association are taking their time to sort it out. Paying a fortune in service charges for poor service.

- Lewis, Southampton – England, 02/03/2010

Very Interesting reading all the comments, only wish the info had been out there 2 years ago before I bought my 40% share. Rent and charges have jumped up by 75% in 2 years, flat has dropped £40,000 in value, can’t afford to increase my share, can’t afford to sell, and now paying more in combined rent and mortgage than I would have if I were privately renting…. 
Whatever anybody thinks, it is genuinely a mistake to get involved in shared ownership (even in a rising market) believe me!!

- Josh, London, 17/07/2009

Hi, I have just bought on shared ownership. This was the only means of myself and girlfriend to get on the ladder. We are paying a good £450 cheaper than renting in that area. Our incomes are low but we still managed to get a 4.5% fixed rate. This was the only option for us. To be honest all the problems are down to lack of research and thought. In a falling climate you will obviously find it hard to sell property. Not only this but we have gone into this scheme planning on staircasing to 100%. I don’t think anyone can say this is worse than renting as I am saving £450 per month to go on more equity.

As a long term I don’t see this as an investment but a foot up. To me it’s less risk of neg equity if circumstances change i.e break up. If you go in to this thinking it’s an easy way then you will find problems every day. As for the overpriced bit. Ours was on the market for 300,000. We got them to go down to 250,000 due to our independent survey we got and they accepted as they knew we would pull out otherwise. This is about 10% cheaper than all 2 beds in the area on the open market.

I think if you look at this as an easy way to own a home by still having the same rights as renting you will be in for a big awakening. I also have friends who have bought and sold on this scheme and because they did their research they have come out with no problems and quids in.
So I part own a 2 bed apartment right on the river in London next to canary wharf for 800pcm inclusive. Bad??!!

- Sarah, London, 09/07/2009

I am in the same situation trying to sell my 45% of shared ownership property to no success. My rent and service charge has doubled it is just ridiculous! Now in the predicament of taking it off the market to try and gain some equity as if we sold now we would lose so much, however have a baby on the way and need out! Feel completely stuck in this flat, but had nowhere else to live and no deposit so had to go shared ownership! A2 Dominion housing associations are also unhelpful, time wasters and money grabbers. Good luck to anyone trying to get out!

- Gillian, London, 16/07/2009

I too, am in a similar predicament to the other people commenting. After securing a good job in Norfolk I informed my housing trust (Metropolitan Homes) that I needed to sell my 40% share of my one bedroom flat. It has taken them 5 weeks to market the property, a valuation (for which I had to find and pay a surveyor) £15,000 below one estates agents valuation and £30,000 below a second estate agents valuation. They have sent only two people to view in the two weeks since marketing and I now have only 6 weeks till I take up my new post with NHS Norfolk. (I am a nurse) 
Everyone recognises that selling a house is stressful but the ‘don’t care’ attitude of housing associations just makes the whole situation worse!

- Aji, London, 09/09/2008

The shared-ownership scheme has been around for years and the Government are always attempting to promote it, it’s a way of getting people off council waiting lists. I have lived in a shared-ownership property for 15 years and I would never recommend it to anyone, in fact I would advise people to think very, very carefully before taking part. My housing association owns the larger percentage of the house, but do not pay a penny towards the upkeep, as a ‘home owner’ I am expected to do this myself. There are lots of pitfalls with these schemes so my advice is “buyer beware”!

I offer my condolences to all those who have suffered but I also thank them for sharing their experiences. Hopefully we can now avoid making the same mistakes they have. This was not a case of me cherry picking the worst stories. This was the majority experience; please check the evening standard article for yourself. (update: comments have now been removed)

If you are considering a shared-equity scheme the message is clear, do your research and don’t rush into anything. Make sure you read the small print.


The Next Sub-Prime Mortgage Crisis – We Have Learnt Nothing

Posted by JYarders on October 31, 2012
Economy / No Comments

Some lessons are never learned and the boom and bust of the housing market is one of them. As we finish one housing crash we are already setting ourselves up for the next one. The seeds for the next sub-prime mortgage crisis have already been sown.

It stems from a desire by all parties to encourage people to buy their own homes and keep house prices going up. This results in an unsustainable boom followed by a sharp correction, all to the detriment of stability and economic growth.

Everyone from the building companies, estate agents, mortgage brokers, banks, government, owners and even buyers all want to see the market rise. Prior to the crash we had mortgages being offered for 120% of a home’s value. We now have offers encouraging people to buy houses which are equally or more dangerous.

The reality of the situation is that house buyers (particularly first time buyers) are not earning enough to get onto the housing ladder at the moment. There simply isn’t the demand.

Desperate to sell the houses on their books, Estate agents and builders have been offering shared equity solutions to first time buyers. The buyer only buys a percentage of the property (making it more affordable and much easier for them to get a mortgage). They then pay rent to the building company on the percentage they do not own. The scheme is all over housing websites. The government has been encouraging this scheme. In fact it is taking part in it.

On the face of it the scheme looks attractive. I admit even being interested in it myself initially. However once you understand the motives behind it and the reality of it we see how dangerous it can be.

You can see how it can become very expensive for someone who takes on this scheme. They are paying a mortgage, rent and service charges, not to mention maintaining 100% of a property they don’t fully own.

Many newspapers were initially very critical, until building companies started taking ads out in their papers advertising the scheme.

The service charges and rent often rocket and the homes are almost impossible to sell leaving owners completely trapped even when they need to move in an emergency. You can read some people’s nightmare experiences here.

Now, in what can only be described as utter madness, the UK government’s latest plan is to guarantee 95% mortgages. The ‘New Buy’ or mortgage indemnity scheme (MIG) only requires a 5% deposit from the buyer and if they default the government will pick up the tab along with the bank.

The government is trying to artificially inflate demand in the short term to boost the construction sector and push house prices up so everyone feels wealthier. This should also boost consumer spending and the economy as a whole. But this is a typically short term politically motivated view. The current government cares nothing for a future crisis which might occur in 10 years’ time. At some point the market will have to correct to an equilibrium level and the more we inflate prices artificially the bigger that crash will be. All the jobs created will be lost along with many more as well.

Nothing has been learnt from the recent crisis. With a government guarantee, banks and mortgage brokers will be flogging mortgages to anyone they can. This is exactly what happened before the recent crisis in America. Just look at Fannie Mae and Freddie Mac.

When prices do start to fall owners will have no incentive to keep paying their mortgages as they move into negative equity. If house prices fall by 20% and you have only put down a 5% deposit what incentive do you have to keep paying the mortgage? As prices continue to fall this gets worse and turns into a negative cycle.

When the bubble does burst the ensuing crisis will be just like the recent one, except this time instead of the banks bearing the brunt of the loses, it will be the you and I the taxpayer.

Unfortunately we never learn from our mistakes. We must stop creating these damaging bubbles. We should just let the housing market correct itself naturally; unfortunately the government just can’t help itself. It is now just a matter of time before the next major sub-prime mortgage crisis. I just hope we can survive the fallout.

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