UK property is good value - if you have money to burn

***UK property is good value - if you have money to burn

***'The Maestro' leaves Bernanke to face the music

***RECOMMENDED ARTICLES: Why stock markets face an uphill struggle in 2006... Why high oil prices are good for Estonia...

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Here in Baltimore (we'll be back in London at the end of the week), we can hear the shouts of joy from the UK housing bulls, all the way across the Atlantic.

Nationwide's house price survey for January reported that prices rose 1.4% during the month, taking the annual growth rate to 4.4%. The average UK abode is now selling for about £158,500.

At MoneyWeek, as regular readers will know, we are resolutely bearish on the UK property market which is probably about as contrarian an investment stance as you can take these days.

So it may come as a surprise to hear that January's house price bounce isn't much of a surprise to us...

Firstly, let's not get too carried away with the Nationwide figures. Hometrack's January survey, released on Monday, showed a tiny 0.1% monthly gain in house prices, and suggests that prices are still down 1% year-on-year.

And even if you take Nationwide's reading at face value, the average house price is still only at the same level as it was in July. The latest rise has merely clawed back the ground lost over the past six months.

But more important than that is the question of where the gains have been made. And this is where the Hometrack data comes in very useful.

The main driver of January's house price gains, according to Hometrack, was a 0.2% rise in London property prices over the month. The North saw a 0.1% fall, the South West gained 0.1%, and the rest of the country was static.

Why have prices gone up in London? Well, as we said in Money Morning only a couple of days ago, money has to find a home. And money has been pouring into one very specific part of the capital in the past month or so. Hometrack's figures show that the Central London and City region saw house prices rise by 0.8% in January.

So we can't help but conclude that the current bounce in house prices might just have something to do with the stellar Christmas bonus season enjoyed by the boys and girls in the City.

The fact that the number of sales agreed fell by 13.7% over the month seems to back up the idea that prices have been pushed up by a small number of unusually expensive deals.

But there are only so many City bachelor pads and cottages in the Cotswolds one stockbroker can live in. And as for the buy-to-let option - if they're all as smart as they'd like us to think they are, they'll be able to find far better places to invest their money. Like Japan for instance. Or gold.

And for anyone who still thinks the housing market is in fine fettle, we'd refer you to the annual results from 'specialist' mortgage lender Kensington. As you can tell by the word 'specialist', combined with the faux-posh name, Kensington is one of those companies that lends money to people that no one else will touch.

The group had a good year in 2005, because although gross mortgage lending fell by 4% across the year, 'the specialist mortgage market continued to grow faster than the overall mortgage market.'

It has also started writing 'second-charge loans' - these are loans secured against the value of your house, which you repay on top of your mortgage. They are typically used to consolidate and pay off other debts, or are taken out by people who simply cannot get anymore money from anywhere else.

Prospects look good for this type of lending, says Kensington, because of 'high levels of customer indebtedness and...recent increases in arrears and losses across the market... We believe that this may present further opportunities...as borrowers look to consolidate... debt through remortgaging their primary residence.'

So to sum up, in 2006, you can expect to see more over-indebted people with poor credit ratings trying to pay off their overdrafts by putting their homes at risk of repossession. And all the while, unemployment is steadily grinding higher.

That doesn't sound like a recipe for rising house prices to us.

Meanwhile, back here in the US, Alan Greenspan's last action as Federal Reserve chairman was to hike the key US interest rate one last time to 4.5%. However, the accompanying statement suggested this could be the last in the series. In December the Fed said further rate hikes were 'likely', while this time round it said future rate rises 'may' be necessary.

Some commentators suggest that Mr Greenspan has left his successor Ben Bernanke a clean slate. He's saying: "Here you go, Ben. You're in the driving seat. Up, down, or steady as she goes it's your choice."

But the reality is that the ex-Fed chairman's move is just another attempt to wash his hands of responsibility for the US economy. It's like the warning he gave investors just a few months ago, in one of his pre-retirement speeches. He pointed out that periods like this, where people are willing to take huge risks with their money without expecting correspondingly huge returns, rarely end well.

What he didn't point out was that investors have only adopted this lemming-like attitude towards risk because he has pumped so much free and easy money into the economy. But that doesn't matter to the Maestro, because now Mr Bernanke will have to deal with the consequences.

When US economic growth slows as has already started to happen Mr Bernanke might be tempted to cut interest rates. But that would almost certainly hammer the dollar, which would lead to higher inflation. On the other hand, people have grown so used to the Federal Reserve bailing them out by slashing rates any time there is a crisis, that failure to do so will make Mr Bernanke very unpopular indeed.

And while Mr Bernanke is being burnt in effigy on the steps of Capitol Hill, Mr Greenspan will be able to sit back and say: "Don't look at me. I left office with the economy expanding and interest rates at a neutral level of 4.5%. If you're experiencing problems now, why don't you take it up with the Federal Reserve governor?"

Peter Warburton, author of "Debt and Delusion", and Bill Bonner, author of "Empire of Debt", demolish the Greenspan legacy in this week's issue of MoneyWeek. Subscribers can read it online by clicking here: Alan Greenspan - the savings saboteur

And if you're not yet a subscriber, you can get access to all the content on the MoneyWeek website and sign up for a three-week free trial of the magazine, just by clicking here: Sign up for a 3-week FREE trial of MoneyWeek

Turning to the stock markets...

The FTSE 100 ended lower, shedding 19 points to close at 5,760. Cable & Wireless was the main faller, down 11% to 102.25p as it issued a profit warning, and announced its chief executive will leave at the end of this financial year. Top riser was insurer Friends Provident, up 3% to 201p on better-than-expected annual sales. For a full market report, see: London market close.

Over in continental Europe, the Paris Cac 40 closed up 11 points at 4,947, while the German Dax rose 14 to close at 5,674.

Across the Atlantic, US markets were lower. The Federal Reserve's decision to leave the door open to further interest rate rises disappointed Wall Street, despite the comparatively dovish tone of the accompanying statement. The Dow Jones fell 35 points to 10,864, while the S&P 500 slipped 5 to 1,280. The tech-heavy Nasdaq edged down 1 to 2,305.

Tech stocks seem likely to fall further in today's session on Wall Street. Fourth-quarter results posted by internet giant Google after trading ended on Tuesday missed analysts' forecasts. Shares dived in after-hours trading as earnings-per-share came in at $1.22. That was up from $0.71 the year before, but analysts had been looking for $1.76.

In Asian trading hours, oil was lower, helped by oil cartel Opec's decision to maintain current output levels at 28m barrels of oil per day. Crude traded at around $67.70 a barrel in New York, while Brent crude was trading at about $65.

Spot gold slipped back, to trade at around $568 an ounce, after hitting a fresh 25-year high of $573.40 during US trading.

And our two recommended articles for today...

Why stock markets face an uphill struggle in 2006

- The omens are not good for the US economy this year, says Charles Stanley's Jeremy Batstone. The bond market is predicting slower growth, and a series of disappointing earnings reports from major companies such as Google seems to back this up. This is bad news for the global economy, and US small cap stocks in particular. To find out why, click here: Why stock markets face an uphill struggle in 2006

Why high oil prices are good for Estonia

- Russia's recent strong-arm tactics over Ukraine have cast a shadow over all the former Soviet countries of Eastern Europe. But Estonia is taking steps to ensure that it can survive even if its energy supplies are cut off by Moscow, says Kevin Kerr in The Daily Reckoning. To find out which companies stand to benefit, click here: Why high oil prices are good for Estonia