Fiscal literacy and surviving the GFC

[steveadl]

Hi Steve
I work with four seperate investment pillars that include business income, rents, private income and if need be (unlikely) a transition to retirement income. So no there is no danger of going up to 80%. The rents are continuing to climb because of the quality of the assets held and the amount of gearing continues to fall on a month by month basis with fixed loans but increasing lumps thrown at specific assets as prearranged two years ago when we saw what was coming.

Like in the great depression if your business is sound you have no debt on it and you only reinvest a dollar in your business if it will generate another $3, then you can continue to acquire assets at absolutely firesale prices.

You make your profit when you buy, not when you sell

The new business venture will be 51% internally funded and controlled by us. The financial tragedy that is unfolding is also an opportunity. Provided you can continue meet the banks increasingly demanding equity requirements
you will not be sold up.

Sounds like we're on a similar sort of path (although mine is a much smaller scale). My rents and business income continue to increase, decreasing my LVR each month (although rents are negligble in the equation for me).

I guess we just disagree on the 40% drop thing. Although if you're right, the land for our PPOR will drop from $500k to $300k which would be brilliant!

Good luck with the new business if you go ahead. Had a business deal in my industry offered to me last month but the figures didn't stack up, but there's plenty of time for that in the future.

 

[willair]

Willair. Over a year ago on this site I spoke about the world banking system being insolvent. If you sat through that entire interview with George Soros you would have heard him say that the entire world banking system is insolvent. You would also have heard him say that the banking system is going to absorb most of the growth and that things will not return to what they were. Guess what? Who do you think is going to pay for the banking cartel's sins over the next 30 years?

Some investing truths with regards to property have changed and are not going to return to recent trends for a very long time. If you continue to gear up to 80% you are going to be severely punished. We have entered an age of deleveraging. That does not mean that property as an investment class is dead in the water. What it doees mean is that the gearing model of the last 50 years can no longer be applied without major modifications.

Life is about constant change. If you refuse to change the law of the jungle will apply and you and your investments will be put to the sword. Great opportunities will arise because of so many peoples inability to change.

My time on this site is coming to a close. I have had a very large business deal dropped on my plate. If it comes to pass I will have to let go of my free time including the snipets of time I have allocated to this site as it will require my total attention to detail to ensure my new income stream takes us to the next level.

NR,Yes i did listen to Mr Soros several times to take in every angle that he was talking about and the statistics he talks about are invisible to the normal person in the street,btw no one is going too put me too the sword
in any way shape or form,if the values drop then so be it, i don't owe any bank any money,in fact they pay me 2 and 4 times a year, and i hope that the big 4 banks start buying out the smaller players in the banking system because from the start of this downturn i have been buying in all the way down at some time the downward slide will stop .it may even be at the levels you talked about, but the fact is it does not matter the bottom is not important,that's just the starting point
for the next boom..
Good luck with the new in the lap Deal of a lifetime,but at some time in your life you will ask yourself is this enough or do i take it too one level higher only to find it is still not enough,i'm just happy to wake up each morning and have a punt on the ASX,what happens in between is not important..........WILLAIR..

 

[Aaron Sice]

but the fact is it does not matter the bottom is not important,that's just the starting point for the next boom..

you mean the start of the next period of return to normal growth.

not everything is boom/bust.

 

[willair]

you mean the start of the next period of return to normal growth.

not everything is boom/bust.

Blue Card,just depends on how far the invesment tide has still left to go out and who are left with their pants on,we all suffer from distortions of reality from time to time,some plead ignorance,some think they know the secret, for a small upfront payment and 24 monthly payments
at the end of the day none of it all matters,for every boom there is a bust
and for every bust there is a boom,i'm just riding a wave that for the last 2 months shows no signs of breaking for a long time..willair..
this is a quote from Mr Kerry Packer..
“I don't want to be left behind. In fact, I want to be here before the action starts.”

 

[silversands]

^^

Pitty Mr Packer was beneath before it really began then!

 

[chilliaa]

Hi Steve
The rents are continuing to climb because of the quality of the assets held and the amount of gearing continues to fall on a month by month basis with fixed loans but increasing lumps thrown at specific assets as prearranged two years ago when we saw what was coming.

Like in the great depression if your business is sound you have no debt on it and you only reinvest a dollar in your business if it will generate another $3, then you can continue to acquire assets at absolutely firesale prices.

You make your profit when you buy, not when you sell

The financial tragedy that is unfolding is also an opportunity. Provided you can continue meet the banks increasingly demanding equity requirements
you will not be sold up.

Nonrecourse this is a decent post, and i think its what many posters here have been saying all along.

You mention the quality of your assets and the gearing falls (presumably because you purchased them at a decent price and are receiving attractive prices). This is exactly what certain forum members here have been saying.
If they are achieving cash flow positive positions, they can AFFORD to be inactive, they dont HAVE to dispose of properties just for the sake of achieving an LVR ratio of 30%.

Its those who have been opperating on negatively geared structures with high gearing levels with the assumption that future property valuation increases will automatically cover the interest short fall that could be in big trouble. (But i also noticed that most of these type of investors dont seem to be on the forum anymore).

You state you make your profit when you buy, not when you sell. EXACTLY, and if you purchased at an opportune time, then once again INACTION may be better than action based on fear.

Regarding acquiring assets at fire sale prices during this time of global fear, well thats exactly what i have been doing. Fear and short selling, has enabled me to take share positions in companies at prices that would be IMPOSSIBLE under normal market conditions.

Is being a small share holder of a listed company inherently more risky than property: YES OF COURSE, but at my purchase prices i am BEING COMPENSATED FOR THAT RISK.

Other members on this sight who are more savvy than me with regards to spotting opportunities in the residential property market, might also be doing similar things.

 

[Shadow]

The share market has a way to go down yet and my call is 2200 by October 2009. The property market from now until December 2010 is in for a shake out that is going to severly test the solvency of our big four banks.

A reminder that the ASX should fall to 2200 within the next few days, according to nonrecourse's prediction, just in case anybody wants to get out while they still can.

Nonrecourse also assured us that the Australian dollar would fall to 0.38, and that house prices would be crashing right now, on their way to an average Australia-wide fall of 50%...

I wonder if he will come back to face the music?

 

[devo76]

A reminder that the ASX should fall to 2200 within the next few days, according to nonrecourse's prediction, just in case anybody wants to get out while they still can.

Nonrecourse also assured us that the Australian dollar would fall to 0.38, and that house prices would be crashing right now, on their way to an average Australia-wide fall of 50%...

I wonder if he will come back to face the music?

MMM that would put property in my area and many places on the east coast well below replacement cost. I could just imagine when a builder gives me a quote for a new house. I say

" well thats nice mr builder but to be competitive with the market i want you to slash 20% of that quote and i want you to throw the land in for free"

Wonder what his response will be

 

[Shadow]

I am not going to be comfortable when the ASX reaches 2200 some of our banks are going to fail. That is why I have been busy refinning our structures, attending seminars on asset protection and understanding insolvency laws.

f your gearing is above 30% because you started in the last five years you have some difficult choices. Do you try and hang on and hope that because in the past residential property has not seen values drop 40-50% ?.

The share market has a way to go down yet and my call is 2200 by October 2009. The property market from now until December 2010 is in for a shake out that is going to severly test the solvency of our big four banks.

I think the article is very conservative on the worst case scenario. It talks about a 8.9% default rate as being catostrophic and a 20% fall in values.

Factor in a 40-50% fall in values and your closer to my position.

ANZ and nab would be the two that would need to seek protection by being swallowed by CBA and Wpac.

Haven't heard from nonrecourse for a while.

Does anyone have a status update on the 'soft depression', 50% property crash, 9% default rates, bank collapses, and ASX at 2200 by Oct 2009?

Are we still on track?

 

[Aaron Sice]

this was what i was looking for, for the other thread....!

 

[plusnq]

Haven't heard from nonrecourse for a while.

Does anyone have a status update on the 'soft depression', 50% property crash, 9% default rates, bank collapses, and ASX at 2200 by Oct 2009?

Are we still on track?

Bit hard since he is banned.