Bill Zheng newsletter - lack of global credit to cause price crash.

[AUSPROP...]

I think he means you have to 'produce' your own growth via value adding.

Either that or we all have to do some work to produce stuff, rather than just make money out of nothing.

maybe he hopes that by sounding smart he will bamboozle us and just go along with the flow of the argument

 

[Player]

I think he means you have to 'produce' your own growth via value adding.

Either that or we all have to do some work to produce stuff, rather than just make money out of nothing.

In addition to that, when I heard him speak a couple of months ago, he indicated that we should also spend less than we earn individually, corporately, and as a nation. Increase production, increase productivity, reduce waste. All common sense stuff at face value, however not being done by the masses or our governments.

He claims the entitlement era is over, viz: don't use new debt to pay out or fund old debt. In this climate only have properties that stop you from becoming poor. Creating value has a better chance to create real wealth rather than just accumulating negatively geared assets. Only buy properties now with potential to value add by either developing or renovating and with some land content.

Basically he was saying have a production focus and avoid unnecessary debt, increase saving, pay down loans and as I posted several times since hearing him speak.....keep LVR's sensible in this climate. Less that 70-75 % and lower before one accumulates more debt.

I haven't got time to go on with all he spoke about, however this may clarify the link to the article above and the gist of his sermon.

Certainly a change of approach from his once very aggressive accumulation model with capitalised interest products. He is not a great speaker as such, however very interesting bloke to listen to and talk to.

Not sure who else on this forum heard him during his recent tranche of talks, they might have something to add also.

Has the pride of South Australia anything to add?

 

[josko]

Hi

Isn't this the guy that was in with Ed Chan and Co. Mortgages are your friend get yourself into debt up to your eyeballs debt is good brigade.

Gee i would hate to be at he level of debt they were suggesting it seems not that long ago.

How quickly the tune changes.

What solutions are these people offering absolutely none they are incontrol so it seems with the debt rising and now it is out of their control.

If you followed their model your fate lies in
Financial Markets
Govt Borrowings
Credit expansion
Values being maintained
LVRs not being decimated

Gee alot of variables there in my books.

If you lose your job its curtains.

cheers
BC

You said it BC, (edited to make my post shorter!)

I know it only too well. The tune has changed and I would love to corner Ed and try and have him say to me again :"Don't sell Jo, you're about to win the Lottery."


I too saw Bill in Sydney 7 months ago. Below are my notes which I posted in an old thread. You will be interested to read and comment on his foresight or lack of it.

John Edwards – Residex – nearly 20 years experience predicting markets.

~ Doesn’t think the resources boom will slow for another 2-3 years.
~ Thinks we are at the highest part of the cycle for interest rates, don’t fix now.
` Consumer confidence is at it’s weakest for 15 years.
~ China is exporting its inflation and has been closing factories. We can expect goods from China to go up to a higher price. China is sourcing labour from Vietnam as it is cheaper.
~ Growth for GDP was 3.9% in 2007.
~ Predicted to be 4.7% in 2008.
~ Interest rates are still lower than in crisis years previously.
~ Migration is the highest it has been in 19 years.
~ Dwelling approvals are up by 5% in past 12 mths.
~ Housing finance has increased.

Long Term
There is no correlation between interest rates and house prices.

Short Term
If interest rates go up, then it’s a great time to buy.

~ Believes there is no rational in predicting the market for upper socio-economic classes because they can afford to be unpredictable and buy what they want.
~ No recession for Australia.
~ Queensland has seen its peak and is grinding to a halt with 18.22 % growth last year. 2007.
- Infrastructure problems (but then so has Sydney)

Thinks QLD has very slow growth in long run for next 5-7 years.
~ Darwin is where the growth is in next few years.
- Darwin units high rent but higher risk. Median $333k, yield 6.4%.
~ Sydney growth will be around 8%
-Sydney Units – low risk
~ Melbourne stagnant and then about 5%+ fro 2009
` Tasmania short term high growth but this is a high risk market. He believes as QLD is becoming unaffordable for retirees they are heading to Tasmania. Don’t put all your eggs in this basket.
- Kings Meadow median $232k yield at 5%.

Biggest thing to thing about when buying your next investment property in today’s market:

~ How available is money?
~ How easy is it for people to buy your property?
~ How easy is it to rent your property?

Bill Zheng- Investors Direct

1-3 years we will peak at 10-20% then we will see a drop in prices of 20-40%.

Technology has allowed for a greater percentage of our income to go into financing our mortgages.
The technology age has matured. Because our wages have increased and technology has made life a lot easier for us as consumers, we have been able to afford to put a higher percentage of our incomes into our mortgages than our parents.
Houses are unaffordable now and they were for our parents. Ask your parents if they thought houses were affordable in their day.

Gen Y are the biggest consumers of our time. They are renters and not home owners. When the Baby Boomers retire, they will be supported by Gen Y. There are not enough Gen Y’s to take the places of the Baby Boomers. Gen Y’s will not be buying houses and therefore prices of houses will not go up as they have done in the past.


Bill believes we “may” see the biggest struggle we have had in our economy since the last recession 80 yrs ago. He believes it will be something between a normal bottom of the cycle period to a recession. How big or small it will be depends on a few factors.

Unlike America Australia is a small country of @ 20mil people. We rely mostly on rising economical markets of China and India for the prosperity of our economy. If we can hold on to the ‘tails‘ of these markets we will ride the storm out. He believes we will see a steady increase in housing prices for 2-3 years where they will peak, before the fallout from the American ‘recession’ will effect us. He also believes, like John, that the American crisis has not reached the bottom and they still have 1-2 years to go. Therefore we will see the full impact of the sub-prime crisis in 2-3 years.
If anyone can avoid a downturn, we can. We have room to drop our interest rates to fix a falling economy.
Australia going into a recession is the worst case scenario however, like any property or car, we need to ‘take out insurance’. Be prepared for the worst case to be sooner and longer.

If Recession:

Properties can fall 40% in 5-7 years.
Remember:
Money follows Money.
Money follow's Return. (Profit or/and Interest)

The more money that is invested in Australia the more the AUS dollar will rise and interest rates will go up. This is a good thing. Property should follow.
Money’s will only leave when humans can’t produce more ‘returns’ to feed them.

The Economy Now

We need interest rates to stay high and the dollar to rise.


Insurance and Money Strategy

1. Cover the next 7 years of interest shortfall.

2. Don’t rely on tax returns/ benefits.

3. Create a cash reserve now
Consolidate from more sources.
Create a facility to max your LVR against properties but try and stick to 70% LVR.
Use it as a redraw offset account against the property.
Finance to safer banks.

4. Manage Lenders Risk.
Reduce debt exposure to a single lender
Use Discretionary Hybrid Trusts to hold property.
Avoid high risk property. (Industrial, Commercial, Holiday Let, etc.)

5. Lower Gearing on Properties.
Do not lower your credit facility.
Add equity to your properties.
Allow your property to grow more in value before purchasing more.

6. Manage people risk.
Reduce or stay away from Joint Ventures with family or friends and stop lending them money – you may not get it back when you need it.

7. Manage your money with more discipline.
Cashflow will be more important than equity.
Reduce unnecessary ongoing expenses.

Regards Jo

 

[Max Carnage]

I started my research into the global financing space after the sub-prime started last year, and have been warning our clients in both our April and August seminars across the country.

That's fairly telling. A lot of people could see this coming well before then...

And the rest of the letter is such a scrambled mishmash of sense and nonsense that I have to wonder upon what resources he is basing his "research into the global financing space"?

Does anybody know if he reads and responds to personal emails?

 

[StuartW]

I don’t believe any of this. Fundamentals have not changed. If you invest in good quality assets and borrow safely you’ll make money – it worked yesterday, works today and will do tomorrow. This has worked for decades. Markets move in cycles – that’s nothing new. If you are a long term investor, you’ll experience booms, busts, strong price growth and price depreciation. That’s just the way it goes.

Let’s remember, this was caused by extreme stupidity and greed. Lenders approving crazy loans in an already over supplied property market, then passing on the loan book as quick as possible. Blind Freddy could have seen this come undone. This crisis was NOT caused by investors who invested in good quality assets and borrowed safely. It was caused by greedy property buyers in for a quick buck, greedy mortgage brokers and greedy investment bankers. No to mention a government that was asleep at the wheel.

Can you remember the headlines after S11? The tech boom crash? The 1987 crash? When CGT was introduced and negative quarantined in 1985? In every crisis we are promised that things will change for ever... fundamentals don’t change. But it sells newspapers!

When it comes to economics, I think I would prefer to listen to the experience time-tested economists.

The cynic in me suggests that Bill now makes a bit of money from seminars and DVD sales. Fear is a great motivator. I think (but not sure) I saw Bill advertising consultations for a fee. Therefore, suggesting an Armageddon isn’t necessarily bad for business when maybe his focus is on consultations.

Just stick to the long boring but tested road of investing in good quality assets and borrowing safely.

This is in no way having a go at Bill. I am sure he runs a professional business. This is just simply a difference of professional opinion.

 

[Peter Parker]

Glad you are all enjoying it. Make sure to check out the full version as it has a good set of graphs. I thought it was very interesting too.

It was John Fitzgerald that first introduced to me that the ones who control property prices are banks through the amount of lending they provide. This was in his book '7 Steps to Wealth'.

Yep.

I disagree with Fitzgerald on some things (why settle for 30% land value component when 70%+ is so easy plus his bias towards new properties) but one of his good ideas is to only buy houses that most people can afford.

This basically means (i) buying around median or below AND (ii) not buying at all during boom peaks when houses are overpriced (ie repayments are above 40% of median incomes).

Add me to those who heard Bill's theories on 'capitalising interest' and 'cashflow mortgages' a couple of years back and is amazed at the change today. As noted previously, gurus can make quick changes to their tune (and can gain kudos for it), but this is not possible (or sensible) for long-term investors with seven-figure portfolios.

Relevant to this thread is this other Bill Zheng thread here: http://www.somersoft.com/forums/showthread.php?p=439438

Note this sentence, said as recently as 3 months ago: 'the affluence effect should keep the inner areas growing for another 1-3 years dependent upon no major global financial meltdown occurring'

How things can so quicky be turned on their head!

Though for those of us who ignored Bill in 2006-7 and maintained conservative settings (eg about 50% LVR & CF neutral) throughout it should be business as usual, with the lower interest rates more than compensating for expected increased unemployment, lower population growth (migration) and rent increases moderating (or even reversing in high-end suburbs).

Peter

 

[stargazer]

Hi Stuart

I agree with most of what you say, the only difference this time is that we are in unchartered waters with the whole system unravelling across the globe and that is what is making many people unsure of what to expect next.

When there is fear in the air or prosperous times the Seminar people will find a way to make a buck.

StuartW
When it comes to economics, I think I would prefer to listen to the experience time-tested economists.

Anyone in particular haven't economists got a bad name with predictions etc.

cheers
BC

 

[stargazer]

Hi

It appears you may have had some experience with these people Josko

Bill Zheng- Investors Direct
Use it as a redraw offset account against the property

Cover the next 7 years of interest shortfall.

I may be wrong but i seemed to think they use to promote LOCs and borrowing against these, using them as a buffer and shortfalls etc.

Now this has changed also Redraw offset etc.

If you have high LVRs and negative cashflow as they use to promote with LOCs surely you would be Shixxting yourself now.

How the hell do you get 7 years of interest out of that to cover yourself is beyond me in such a short space of time.

Cheers
BC

.

 

[DavidMc]

One of Bill's reasons for his crash is that he believes many people will move in together. Whilst I do agree we have a large number of empty rooms, I can't see Australians doing this to the same extent as say Chinese people do currently (for those who don't know Bill has a Chinese background).

That's not to be racist, just a cultural difference. If anything I think we believe we are 'too good for that'. I'm sure when push comes to shove more and more Australians would move in with each other but we've got a lot to give up before that would happen.

I remember sharing a room with my brother as a kid but that's almost unheard of these days isn't it?

 

[plusnq]

My two littlies 7 and 5 have shared a room for four years.

Cheers

Shane

 

[Trogdor]

Agree with this as a short - medium term theory (i.e. now to 3 - 5 years from now).

Longer term its all about GDP growth, inflation, and fundamentals (i.e. population, available land, etc..), and less about availability of finance. If the former occur the latter will follow.

Also agree that the next few years will deliver pretty unexciting returns.

The sharemarket will turn up before the property market IMHO.

 

[handyandy]

One of Bill's reasons for his crash is that he believes many people will move in together. Whilst I do agree we have a large number of empty rooms, I can't see Australians doing this to the same extent as say Chinese people do currently (for those who don't know Bill has a Chinese background).

That's not to be racist, just a cultural difference. If anything I think we believe we are 'too good for that'. I'm sure when push comes to shove more and more Australians would move in with each other but we've got a lot to give up before that would happen.

I remember sharing a room with my brother as a kid but that's almost unheard of these days isn't it?

I agree with your doubts about cultural impediments to sharing but unfortunately they will be overcome by need.

If we really are to have a complete global meltdown (which at this points look more likely than not) with associated job losses and restricted purchasing power then this need may arrive.

Lets hope it doesn't get that bad because if it does then all property investors will be affected.

We are certainly planning to convert some of our units to multiple occupancy (aka slum landlord) not only to increase returns but maybe just to ensure a continuing income.

Cheers

PS I won't worry to much about council approval as I think the need to accommodate people will pretty well supersede any government red tape.

 

[urchin]

In addition to that, when I heard him speak a couple of months ago, he indicated that we should also spend less than we earn individually, corporately, and as a nation.

that's crazy talk.

 

[leicachamp]

"Packed to the Rafters", may make living togather a trend

One of Bill's reasons for his crash is that he believes many people will move in together. Whilst I do agree we have a large number of empty rooms, I can't see Australians doing this to the same extent as say Chinese people do currently (for those who don't know Bill has a Chinese background).

That's not to be racist, just a cultural difference. If anything I think we believe we are 'too good for that'. I'm sure when push comes to shove more and more Australians would move in with each other but we've got a lot to give up before that would happen.

I remember sharing a room with my brother as a kid but that's almost unheard of these days isn't it?

 

[nonrecourse]

If the messangers truth hurts shoot the messanger

Alan Greenspan was quoted today as saying the world is facing a financial tsunami unlike anything since the 1930's.

For almost a year now I have been saying that a soft depression is headed our way. It amuses me how politically incorrect it is to say the D word depression.

I can see from the feed back on this thread that most of you are in denial about what is happening. Never mind that we now have the property trusts in Australia freezing redemptions of capital or we have the federal government so concerned about a run on the banks it has made the silly call to guarantee bank deposits with no thought of the repercussions that are now unfolding.Most of you naively believe that property is immune to the fiscal tragedy that is unfolding

Your property portfolio is not like a castle that you can pull up the draw bridge to ward off the barbarians from your keep. Unless you own the property outright and have a steady cash flow to pay the holding costs your eternal source of wealth is exposed to the irrational vagaries of the financial
tsunami that is unfolding.

There is nowhere to run there is nowhere to hide. If you have not recognised the problem your debt will eat you and your family alive in the next three years.

Bill Zheng is just another messanger telling the truth. I see some wanting to attack him because in the past he has made money advising people to gear.
The time for negative gearing has long past. If you do not adapt you will perish.

His advice of having seven years of interest reserve rings the warning bells loud and clear. Prepare yourself and your loved ones for the property melt down. This is not a rational market. He is not suggesting you slit your wrists. He is suggesting that you look at your property portfolio and sell that part that will pull you down when things get nasty.

The law of the jungle applies to investing; only the fit will survive. A moron could make money during the 16 year boom we just went through. We are about to find out if we are really as smart as we have been telling ourselves By gearing to the hilt many are about to discover the downside

 

[evand]

Wow....nonrecourse....what a post. I'm not sure whether its brilliant or the ramblings of a madman.

I think i'm leaning to the former tho as i'm a self confessed bear and getting more bearish by the day.

Looks like more and more financial/property spokespeople are jumping on the financial oblivion band wagon, and the forecasts just keep getting worse and more frequent.

 

[AUSPROP...]

Bill Zheng is just another messanger telling the truth. I see some wanting to attack him because in the past he has made money advising people to gear.
The time for negative gearing has long past.

no he was attacked because he was making crazy rolling statements that made no sense and weren't related. we couldn't/can't follow his logic and thus his conclusions.

 

[joe jo jo]

Alan Greenspan was quoted today as saying the world is facing a financial tsunami unlike anything since the 1930's.

For almost a year now I have been saying that a soft depression is headed our way. It amuses me how politically incorrect it is to say the D word depression.

I can see from the feed back on this thread that most of you are in denial about what is happening. Never mind that we now have the property trusts in Australia freezing redemptions of capital or we have the federal government so concerned about a run on the banks it has made the silly call to guarantee bank deposits with no thought of the repercussions that are now unfolding.Most of you naively believe that property is immune to the fiscal tragedy that is unfolding

Your property portfolio is not like a castle that you can pull up the draw bridge to ward off the barbarians from your keep. Unless you own the property outright and have a steady cash flow to pay the holding costs your eternal source of wealth is exposed to the irrational vagaries of the financial
tsunami that is unfolding.

There is nowhere to run there is nowhere to hide. If you have not recognised the problem your debt will eat you and your family alive in the next three years.

Bill Zheng is just another messanger telling the truth. I see some wanting to attack him because in the past he has made money advising people to gear.
The time for negative gearing has long past. If you do not adapt you will perish.

His advice of having seven years of interest reserve rings the warning bells loud and clear. Prepare yourself and your loved ones for the property melt down. This is not a rational market. He is not suggesting you slit your wrists. He is suggesting that you look at your property portfolio and sell that part that will pull you down when things get nasty.

The law of the jungle applies to investing; only the fit will survive. A moron could make money during the 16 year boom we just went through. We are about to find out if we are really as smart as we have been telling ourselves By gearing to the hilt many are about to discover the downside

If there is a melt-down, then a proper investor will make money out of it, like they have done so in the boom.

I look forward to your melt down, as Im prepared and plan to make plenty of $$$ out of it.

It will be interesting to see what Billy boy's strategy is and whether it really is unique. My bet is, people cant live off the equity or use it to pay all their debts (not surprising).

Property goes up and down, round and round, stick with it over time and you will do o.k.

 

[andrew_de_a]

post number 12356476436483276408732 of nonrecourses that says 'soft depression' - i think we all get the point by now

 

[APerry]

The top economists in the country, indeed the world, have trouble predicting what is going to happen at the best of times, let alone at the moment. Bill, while quite a remarkable person, is an amateur economist. Any predictions he might make should be considered in this context.