Fiscal literacy and surviving the GFC

[nonrecourse]

It's not your views that bother me, but in my opinion (and I'm sure there will be many who disagree with me - Evan for one obviously), you tend to stop discussing when anyone like Keith probes you that little bit further and asks you to explain further on certain points. In fact I actually enjoy your posts on commercial property etc, and I don't necessarily mind your posts in general even though I don't agree with your 40% prediction. I can however in general see why the other posters are accusing you of not answering their questions. In fact one example that does spring to mind that they have repeatedly asked and you have not answered (to my knowledge) was something along the lines of this:

You say the $A will be around 35c but also say all the global fiat currencies will collapse. They ask you why the $A will be so low when every other currency has also collapsed? (excuse me the example is not dead on accurate as it's not my focus, or if you have now answered this somewhere and I've missed it)

As far as me facing the music personally - property prices drop 40% next month?

- My debt stays the same.
- Interest rates will likely be much lower in that scenario.
- The property I'm looking at buying next year or so will now be within my reach in a few months because it's crashed 40%.

Yes, whilst my existing properties dropping 40% on paper will suck, does it actually cause any catastrophies in my financial life? What music do I have to face?

And no sorry, I don't subscribe to the theory that the banks will call in the loans - unless they're prepared to call in around 50% of the residential loans on their books throughout Australia.

Hi Steve yes you have missed the point the 38 cents is releated to the collapse in trade as things continue to go from bad to worse. Australia makes up about 1% of the worlds equity markets and as things drop our dollar is viewed as risky. The fiat currency issue is later and involves all countries including Australia as there is no government that backs its currency with gold. That too will revert.

Next point investors make up about 30% of the property market. That means that 70% of the market is PPOR. Out of that 70% two thirds of those homes are paid off from memory. If things get tough the banks will not treat investors as kindly as PPOR. If you think that is wrong think again. Back in the 1980's people who owned investment properties were charged 2% more on their interest rate.

When the banks start to feel the squeeze if you are a property investor with gearing at 80% I wouldn't want to be in that position...Think about it...is that your preferred option?

 

[Red Car]

And I can also tell you that I had internally developed software in my business in the mid 1990's that used the two digit year system and continues to be no problem. It was a nice little earner for those in the industry though.

And I can tell you that I had some minor legacy apps that we never bothered doing anything with that lost all their data come the new millennium. It all depended on what the app was. However i think you missed the point...

 

[steveadl]

Hi Steve yes you have missed the point the 38 cents is releated to the collapse in trade as things continue to go from bad to worse. Australia makes up about 1% of the worlds equity markets and as things drop our dollar is viewed as risky. The fiat currency issue is later and involves all countries including Australia as there is no government that backs its currency with gold. That too will revert.

Next point investors make up about 30% of the property market. That means that 70% of the market is PPOR. Out of that 70% two thirds of those homes are paid off from memory. If things get tough the banks will not treat investors as kindly as PPOR. If you think that is wrong think again. Back in the 1980's people who owned investment properties were charged 2% more on their interest rate.

When the banks start to feel the squeeze if you are a property investor with gearing at 80% I wouldn't want to be in that position...Think about it...is that your preferred option?

Thanks for explaining. Do you think it's feasible that currencies will go back to the gold standard though? I wouldn't have though that was possible anymore.

Going to have to agree to disagree then. You could be right that they'll start charging extra interest for IP over PPOR, but still don't see any mass calling in of loans happening. They may cancel existing undrawn LOC's to reduce some exposure, but don't see them calling in my loans when I'm comfortable never missing a payment.

To be honest, yes I would rather be in the posititon I'm in now (ie. higher LVR over larger asset base) than on a lower LVR over a smaller asset base. Obviously each investor has their own risk profile, mine is relatively high - but then I also have a steady and increasing income stream. It's also because whilst I enjoy reading about the wider economy, I focus my actual investment decisions and strategies on my own little world as opposed to global/overall markets, a lot of what you say may eventuate - my little world will continue to bubble along nicely, so I act accordingly.

 

[nonrecourse]

Thanks for explaining. Do you think it's feasible that currencies will go back to the gold standard though? I wouldn't have though that was possible anymore.

Going to have to agree to disagree then. You could be right that they'll start charging extra interest for IP over PPOR, but still don't see any mass calling in of loans happening. They may cancel existing undrawn LOC's to reduce some exposure, but don't see them calling in my loans when I'm comfortable never missing a payment.

To be honest, yes I would rather be in the posititon I'm in now (ie. higher LVR over larger asset base) than on a lower LVR over a smaller asset base. Obviously each investor has their own risk profile, mine is relatively high - but then I also have a steady and increasing income stream. It's also because whilst I enjoy reading about the wider economy, I focus my actual investment decisions and strategies on my own little world as opposed to global/overall markets, a lot of what you say may eventuate - my little world will continue to bubble along nicely, so I act accordingly.

That is the beauty of property steve you are your own master provided you can continue in your little world.

As for Gold I agree that governments will fight very hard not to go back on the gold standard because that means they are accountable. There has never been a country all through history who went off the gold standard and didn't have to go back on it. I suspect it will only happen when we see mass bank failures. Again I hope I am wrong but I believe we will see a total financial meltdown.

I do not believe that the G7 or G20 have the strength or wisdom to lead us out of the financial disaster that is entirely of our governments making. There is still a strong delusion that they can print their way out of this by encouraging even more debt. The common person on the street knows this is nonsense. But economists live in a world of theory. Economics is not and will never be a science. Its an art with many of its advocates who are adapt at finger painting 101

 

[Aaron Sice]

but NR - why will the USD be stronger than the AUD? if their system is moot, and ours is just plain stuffed, then surely our dollar would be back to 60-70-80c per dollar.

i just cant see - short of IRs and bonds falling to stupid low levels while at the same time the USD making a marked recovery - the AUD falling to 38c.

 

[Shadow]

Hi NR,

You must have missed my post (post 159). I was asking what you think will actually trigger this big crash. What aspect, specifically, of the 'soft depression' will force enough fully employed cashflow positive Australians to sell at a 50% loss that it causes the Australian median house price to crash by this amount?

You have said that you expect the 'soft depression' to exhibit the following attributes:

- Unemployment to remain a reasonably low levels
- Very low interest rates
- Increasing rents

If we have low unemployment, low interest rates, high demand for property and higher rents, then what exactly will force so many people to sell that it causes a 50% dive in residential property values.

For prices to drop 50% we would need to see massive levels of forced sales. Unless you are a forced seller, why on earth would you sell for a 50% discount? What will cause all these forced sales?

For prices to fall 50% there needs to be no buyers at 5% down... no buyers at 10% down... no buyers at 15% down. There are plenty of buyers ready to jump in right now (even before any significant falls) and even more ready to jump in at 10% down. Most people just want a house to live in and will buy when they can afford it. Many can afford it right now.

Property investors are already seeing cashflow positive opportunities without any significant falls in house prices required. Why sell for a 50% loss if you're cashflow positive?

Cheers,

Shadow.

 

[nonrecourse]

Something for you to cherish the reserve agrees with you.

Here is a post from the reserve bank of Australia that was a paper presented today by Anthony Richards who is Head of the Economic Analysis Department (means he can't chew gum and walk at the same time)

and is entitled "Conditions and prospects in the housing sector"

I particularly want the blue sky geared to the back teeth bulls to read it.

You will love it because it encapsulates everything that you have been advocating on this site. I want you to save this paper because in the next 18 months when all these arguments that you have posted are found to be so far off the mark I don't want you telling me you misunderstood our argument.

Read it and lap it up guys and girls> Someone else who believes in fairies at the bottom of the garden.

http://www.rba.gov.au/Speeches/2009/sp_so_260309.pdf

 

[Chatto]

Ok, so the head of Economic Analysis at the Reserve Bank is a fairy?
I dont follow NR.
I though the paper clearly outlined the current climate we are in, nothing too abstact, just the facts.
Im beginning to think that your views are resembling an emu with its head in the sand.
I have enjoyed reading the debates about the current market and like to hear all point of view, hell I dont even care if you play devils advocate for a good argument.
And here you are giving a link to a report FOR the bulls and suggesting that its all a snow white and the seven dwarfs.
Why do you insist on not answering constructive critisism from other posters?
If you base your views on opinion only, thats fine, its your right but do you need to go so far in your critique of other peoples views if yours are only based on your idea of the world?
You may be proved right or wrong in time but in my book its not who wins the fight but how they fought thats sums up the merit of a man.

 

[yorke]

Read it and lap it up guys and girls> Someone else who believes in fairies at the bottom of the garden.

http://www.rba.gov.au/Speeches/2009/sp_so_260309.pdf

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The file you requested has not been found: http://www.rba.gov.au/Speeches/2009/sp_so_260309.pdf

The link you provided is not working, RBA probably saw your post here and decided to remove the article not wanting to cause unnecessary stress to bears before the next IR decision.

 

[nonrecourse]

Ok, so the head of Economic Analysis at the Reserve Bank is a fairy?
I dont follow NR.
I though the paper clearly outlined the current climate we are in, nothing too abstact, just the facts.
Im beginning to think that your views are resembling an emu with its head in the sand.
I have enjoyed reading the debates about the current market and like to hear all point of view, hell I dont even care if you play devils advocate for a good argument.
And here you are giving a link to a report FOR the bulls and suggesting that its all a snow white and the seven dwarfs.
Why do you insist on not answering constructive critisism from other posters?
If you base your views on opinion only, thats fine, its your right but do you need to go so far in your critique of other peoples views if yours are only based on your idea of the world?
You may be proved right or wrong in time but in my book its not who wins the fight but how they fought thats sums up the merit of a man.

Chatty old boy Are you part of the Chardonnay chattering classe, because that is who's pocket the reserve is ********* in to give you that warm fuzzy feeling so that you don't stop spending.

Its not my opinion....... that says Japan our largest trading partners trade figures are down 49% on last years figures and last years trade figures weren't that flash either. It was'nt my opinion that same reserve bank that last july august was raising interest rates when blind freddy could see what was coming. It was the Australian reserve bank that told us 6 months ago that trade with China was going to allow Australia to avoid the financial problems that the rest of the world are experiencing.

I can only assume that many of the posters on SS concern themselves with the day to day life matters like whats for tea, have a look at the funnies and if your male the sports pages.

The Federal governments guarantee to fund the states infrastructure black hole is going to mean because of the Labour fiscal pygmies a lot of the poor that Labour likes to bleat on about are going to suffer. If your an investor your going to be paying a lot more tax over the next thirty years.

Is that constructive enough for you ?

 

[Rockstar]

When do you think that the $AU is going to hit .38c NR?

 

[nonrecourse]

When do you think that the $AU is going to hit .38c NR?

Some time after the asx drops to 2200 in october 2009. Probably in the first half of 2010.

 

[Rockstar]

Some time after the asx drops to 2200 in october 2009. Probably in the first half of 2010.

Thanks NR,

What are your current predictions for credit availability, unemployment, interest rates and rents up to the first half of 2010? Also do you see the asx moving back up quickly after your predicted collapse or will it remain flattish for some time?

 

[WinstonWolfe]

NR, do you think we'll get an Evil Knievel Formation in Australia?

 

[nonrecourse]

NR, do you think we'll get an Evil Knievel Formation in Australia?

Winston I think that throbbing machine between the investors thighs is definitely not in for a "soft" landing. Poor fellow will be a guacho, "ouch"

To rockstar see graph above

 

[chilliaa]

Hang on Non-recourse,
Firstly again i emphasise i dont know where the markets will trade in the short term.

However you have stated to look at Winston Wolfs graph as justification that the ASX trading at 2200 by Oct 2009.
But Winston Wolf himself is extrapolating from his graph that the DJIA will go to 6550 as mentioned in his graph (and again i am not commenting on this).

Now how does this justify an asx level of 2200. Even assuming the DJIA goes to 6550 as forecasst by Winston Wolf, that just brings the index to marginally below its March 2009 low.

Assuming 100% correlation, this would imply the ASX would trade at around 3000 by Oct 2009.

So again i fail to see how Winston's chart supports your decision.

 

[Rockstar]

To rockstar see graph above

With all respect NR, Any chance that you can answer my question in words? Particularly "what are your current predictions for credit availability, unemployment, interest rates and rents up to the first half of 2010"?

Thanks, RS

 

[Aaron Sice]

Some time after the asx drops to 2200 in october 2009. Probably in the first half of 2010.

we have a date.

and, while i will agree that october 2009 is a pretty fair call for the next slump, i'm calling Aug/Sept 09.

however, this is why i'm holding out. i see too many cranes in the sky here, which will mean an apartment and commercial glut in the CBD. buying apartments doesn't fit my profile, but buying commercial at the moment makes perfect fiscal sense to me and my situation.

so i'm hanging out. with a CBD glut comes OPPORTUNITY, and small terrace homes and units in inner city suburbs become cheap as they get hammered too, thinking Northbridge, Highgate, West Perth - all A1 rental and growth suburbs.

NR, you seem to be extrapolating the monthly ASX charts. i've been trying to find your 2200 average in the current fib and rising/falling channels etc, but nothing i do points to what you're talking of. it's a very erratic and jagged line to make 2200 a realistic possibility in this timeframe, especially after last week's rally. even friday's profit taking on the dow won't erode the gains too much, and if there weren't profit taking i'd be worried.

either way, i never envisaged the ASX getting this low. we've support stopping up dipping into the 2000s and resistance stopping us getting back into the 4000s. we've been rangebound for sometime - a break is very likely. the longer we are rangebound, the more folk will get worried and the more likely we are for a break to the downside - psych 101.

if you're looking at charts, i'd still like to see HOW you are predicting this 2200 level. just some trend lines, fib lines, both, something else - anything.

because i can't place it.

cheers.

 

[nonrecourse]

Stand and deliver. Wall street bandits continue to demand

Here is another snippet of information on the greed of Wall Street. This one covers the last phase of Merrill Lynch before it fell into the arms of the Bank of America.

http://www.ft.com/cms/s/2/c1b3ac7e-...uid=a712eb94-dc2b-11da-890d-0000779e2340.html

I continue to read and marvel how people still believe that what has transpired will pass in a short span of a few months or at worst a few years.

The music has stopped there are no chairs for investors to rest their weary backsides on just a lot of hackneyed banalities that the common man and woman on the street recognizes is just b.s.

Quantitative easing is fairy floss and the G20 meeting is just more expired C02
that will see those on the world stage rearranging the deck chairs on the titanic . The western economies ballast has shifted and especially those with something to lose, we the investors are no longer masters of our own destiny.

An enormous amount of wealth has been lost on the share markets with more to come. The impact on the property market to date in Australia has been confined to the commercial and high end of the residential market. With the blast furnace of diminishing credit slowly making its way through the economy. The mettle of every residential property investor will be tested and those with insufficient reserves and income will be put to the sword.

NR

 

[Aaron Sice]

or just declared bankrupt and have to start again.