Australia is a leveraged time bomb waiting to blow

Discussion in 'Property Market Economics' started by greedy2000, 14th Jun, 2013.

  1. greedy2000

    greedy2000 Member

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    http://business.financialpost.com/2...a-leveraged-time-bomb-waiting-to-blow-socgen/

    Interesting article for the doom and gloomer's out there.

    A few key quotes:

    “We repeat the prognosis we gave this time last year that Australia is a leveraged time bomb waiting to blow. It is not a CDO, but a CDO squared. All we have in Australia is, at its simplest, a credit bubble built upon a commodity boom dependent for its sustenance on an even greater credit bubble in China. Yet even with Australia having enjoyed a commodity export boom it still managed to rack up a current account deficit of 4% of GDP last year! Australians have been living beyond their very ample means for a long, long time. Of all the economic bubbles I have seen over the last 30 years in this industry, this one is even more obvious than the rather prominent nose on my increasingly haggard face. And its ultimate fate is obvious to me too."

    “Although a Chinese bumpy/hard landing will bring Australia to its knees, what will really deliver that killer crunching kick into the solar plexus will be all too familiar to followers of credit fuelled economic bubbles. What will send Australia into a deep recession after 22 years is the collapse in its grotesquely over-valued housing market. "
     
  2. zinc

    zinc Member

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    Even though i dont have a business background at all, dont even have a degree or the like, I have been fortunate enough over the years to have read some interesting books etc on this topic.

    My question is what can average joe do here in australia to prepare for the apparent unravelling of the world economy? if at all?

    Should we be even considering buying an investment property/getting a mortgage at all?

    2016 could be a year of big financial turbulence?
     
  3. starter

    starter Member

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    If you believe it'll happen then reducing/eliminating debt and having a lot of cash on hand should be the aim.
     
  4. pinkboy

    pinkboy SS Lookerafterer

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    Preferably stashed under your mattress! :D

    pinkboy
     
  5. hobo-jo

    hobo-jo Not a bear just a realist

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    Could come sooner than that... it would seem that mining investment has already peaked and is now in decline, this will be a drag on GDP over the next couple of years, where in the past couple of years it has been the major contributor to GDP growth: http://australia.pimco.com/EN/Insights/Pages/Filling-the-Hole-We-Have-Dug.aspx

    Perhaps USD cash on hand to protect from a falling AUD or dare I say it... Gold :D
     
  6. Tano

    Tano Member

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    I have been looking at ways to protect my AUD value against the USD. You can short the AUD/USD on the futures market but i found out last night you can buy a USD ETF fund which tracks the US Dollar.

    http://www.betashares.com.au/products/name/u-s-dollar-etf/#each-overview

    Aims to track the change in price of the United States dollar relative to the Australian dollar, before fees and expenses.
    For example, if the US$ goes up 10% against the A$ (i.e. the A$ falls in value) the ETF is designed to go up 10% too.
     
  7. The Fence

    The Fence Banned

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    Why do you dare to say it?

    How much do you devote to gold in this instance, how do you work out such quantities of capital to allocate to gold and when exactly would you press the button on this manoeuvre ?
     
  8. hobo-jo

    hobo-jo Not a bear just a realist

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    Only because the recent fall in gold price is often thrown back in my face as if it somehow invalidates any discussion point I make :rolleyes:

    Allocation will ultimately depend on the goals of the investor, but I will point out the Permanent Portfolio has performed well over the long term and has a 25% allocation to Gold.

    As for timing, I would say there is no time like the present to be adding to or taking an initial position in gold, we are 2.5 years into a correction, nearly 30% below the peak reached in 2011 (USD pricing). These sorts of opportunities don't come along regularly in a bull market (assuming that gold is still in one).
     
  9. The Fence

    The Fence Banned

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    Assuming...yep.

    Interesting, 25%...I better leverage up then...!:D
     
  10. datto

    datto Member

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    Despite the pending doom, Western Sydney property market continues to grow. Maybe it isn't overvalued. Wages are growing, these properties are affordable.

    So what do we do? Sell up and buy USD? Nah! sell up in about 18 months when property prices are really overvalued, and we can recount our stories whilst sailing in the Carribean, drinking rum and playing cricket :)
     
  11. Aaron Sice

    Aaron Sice Seldom Seen Kid

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    I'm seeing a balancing situation.

    one is falling from peak, another is picking up from lows.

    still struggling to see why this is a bad thing.
     
  12. Deltaberry

    Deltaberry Member

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    Buy US$. The art is to have credit here, hoard US$ with excess cash.

    Then if it booms, you make money. If it busts, you make money.

    In the mean time the properties move ticked up, the US$ has ticked up. So double whammy.
     
  13. atti

    atti Member

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    can you explain to me why buying usd is a good idea especially they printing so much of it and will probably continue until it becomes worthless.
     
  14. robbiejuve

    robbiejuve Member

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    They are going to be reducing the QE measures in the US and slow the money printing hence why we see recent movements in the USD/AUD, only way is south for the AUD against the USD.

    I have zero concern about the US but Europe is a complete mess and most governments in that region are incompetent, thats what I'm most worried about.

    I dont want to believe the doom and gloom, I have cash and equity and I want to get stuck in but it seems everyone I know that actually gets paid to look at economic data and make corporate decisions on that data are pessimistic.

    I havent been into property long enough to know if it is normal to have this amount of uncertainty about where we are headed? Just feels that I could have made a very easy decision to pull the trigger 10 years ago but right now I just dont know.
     
  15. Ausprop

    Ausprop Member

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    the yanks sure are gunners. Many are not convinced that there is a real economic recovery nor that they are in a position to reduce QE. Not that it is bad for Aus so I hope it is real.
     
  16. MichaelW

    MichaelW Little Guy, Big Dreams

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    Yep, its normal and its called the business cycle. Google it... ;)

    Cheers,
    Michael
     
  17. handyandy

    handyandy Member

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    One reason not to invest in gold is that the USD is stable and as such there is no longer a need (insurance) to hold gold.

    Another reason is that ultimately gold is just another 'resource' and with resources on the decline gold will decline just the same.

    Further if you buy into the Harry S Dent scenario with the peak in Baby Boomer spending then we are on the verge of a deflationary period and this will have the same deflationary effect on gold along with all other assets.

    Cheers
     
  18. hobo-jo

    hobo-jo Not a bear just a realist

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    IMO one of the main reasons the USDX has stabilised (trading in smaller range) is a reduction in the financial instability that we saw over late 2008 - 2011. The financial instability (and policy reaction to it) was a primary driver of the Gold market over that period. However, after several years of QE it appears to have stabilised the financial system (for now). If recent reaction to the talk of reducing QE is anything to go by we can expect instability to return when they try. As for no need for insurance... if you live in a bushfire zone, would you cancel your house insurance just because it's off season?

    Gold is not just another 'resource' (like other commodities), it is a monetary asset also. Suggest you start with this video to begin the learning process :) http://www.youtube.com/watch?feature=player_embedded&v=au3wfKFIXVo#at=24

    You make the assumption that the banking and monetary system which relies on increasing debt / inflation will remain viable through the sort of deflation Harry Dent talks about. I doubt it would. Just look at what happened in 2008.
     
  19. oracle

    oracle Member

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    Care to explain what you mean by monetary resource?

    Based on my understanding and the following link on Gold Standard

    Beyond this, Gold being a monetary resource is just a belief. Just like religion. If enough people believe in it than it might retain some monetary value...else it might have no value.

    There are very good reasons for what happened in 2008. Fiat currencies were not the problem. The problem was human greed, regulators lack of proper oversight and governments out of control spending habits.

    Humans have constantly gotten themselves into all sorts of problems in the past due to their inability to control their emotions of fear and greed. New problems in future will keep occurring because of this.

    Look at what's happening now...stock markets in US recently hit all time highs and US businesses have never been more profitable and capitalised

    Cheers,
    Oracle.
     
  20. hobo-jo

    hobo-jo Not a bear just a realist

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    I agree there is a degree of faith/belief to Gold retaining it's value, just the same as there is for those who hold fiat money in their wallets or bank accounts. Gold's lack of practical utility (and high stock to flow ratio) is what makes it such a good monetary asset.

    You can't separate fiat currencies from debt (public or private), they are one and the same in the current system.