Glenn Stephen's comments this week

Hi want2bewealthy,

The last event that had a major effect on interest rates was the Global Financial Crisis. Do you know anyone who forecast the GFC two years in advance? I dont. Certainly the Reserve Bank didn't forcast the GFC because they were raising rates at the time the GFC became evident. Therefore if the Reserve Bank are making such predictions my guess is that would be for reasons other than accuracy in forecasting. Basically they are trying to influence our behaviour without actually knowing what's going to happen.
 
Hi Toe.

Hate to say it, but.. I do know someone who picked the GFC around 2 years prior, and he's a moderator on this very board.

Please don't take that as an 'I told you so,' I'm not that kind of person but I do know this. Rates will move right up again, it's only a matter of time. They'll also move right down, again, in time.

Highly leveraged individuals without finance in place will be caught out so please take note of the point I'm trying to push.

Hi want2bewealthy,

The last event that had a major effect on interest rates was the Global Financial Crisis. Do you know anyone who forecast the GFC two years in advance? I dont. Certainly the Reserve Bank didn't forcast the GFC because they were raising rates at the time the GFC became evident. Therefore if the Reserve Bank are making such predictions my guess is that would be for reasons other than accuracy in forecasting. Basically they are trying to influence our behaviour without actually knowing what's going to happen.
 
Hi all.

I read in my local paper yesterday that the RBA is "forecasting" interest rates to be at 10% by 2012. Is it just me or are these cycles moving really quickly as of late?

Looking at purchasing another investment and have a meeting with my bank today, but there will be one big difference: I will not borrow for this next deal unless the bank agrees to give me an additional buffer (I have two buffers at present). 2 years is a long time so I don't believe anyone should be particularly worried just yet, that is, as long as they have a backup plan with rates at 10% or have fixed the majority of their property loans. Will keep you all posted how I go.


Mate if you think rates will be 10% by 2012, then just fix them? Don't know what all the worries are about.

http://www.nab.com.au/wps/wcm/connect/nab/nab/home/personal_finance/6/1?urid=1271039724093

10-year fixed rate at NAB is 8%.... seriously what article were you reading?
 
This one http://www.somersoft.com/forums/showthread.php?t=61289

I'm not worried. I'm saying that rates will once again rise and cause trouble for some investors and home owners.

It's all well and good to fix all your rates at 8% now for the 'sleep at night factor', but it will also affect your service-ability. Plus, study's show that in most instances, the variable rate borrower will win out over the long term, hence only around 2% of borrowers in the current climate are fixing loans.

Mate if you think rates will be 10% by 2012, then just fix them? Don't know what all the worries are about.

http://www.nab.com.au/wps/wcm/connect/nab/nab/home/personal_finance/6/1?urid=1271039724093

10-year fixed rate at NAB is 8%.... seriously what article were you reading?
 
This one http://www.somersoft.com/forums/showthread.php?t=61289

I'm not worried. I'm saying that rates will once again rise and cause trouble for some investors and home owners.

It's all well and good to fix all your rates at 8% now for the 'sleep at night factor', but it will also affect your service-ability. Plus, study's show that in most instances, the variable rate borrower will win out over the long term, hence only around 2% of borrowers in the current climate are fixing loans.

Yea well... if you believe it'll hit 10% in 2 years time and that it'll stay there, you should fix them. Why?

Let's say interest rates average 7.5% this year, 8.5% next year and 10% from 2012 to 2020. That's an average of 9.6% over 10 years.

If you fix them, that's 8% over 10 years.

So you save 1.6% pa. On a $500k loan, you save $80k over 10 years, or your kid's private school education if you like. If you don't think it'll hit 10%, then there's no problems at all.
 
Studies do show that most people lose by fixing interest rates because the long term forecast of interest rates is impossible. Add to that the premium that we'd pay to fix (unless the market is predicting a recession), and the odds are that you'll lose. Its just like playing pokies, the odds are stacked in the banks favour and the results are random. You can use it as insurence if you're vulnerable, but don't expect your prediction to pan out.
 
Originally Posted by .toe
Hi want2bewealthy,

The last event that had a major effect on interest rates was the Global Financial Crisis. Do you know anyone who forecast the GFC two years in advance? I dont.

The only people I know who DIDN'T see storms on the horizon were the fairies at the bottom of the garden and some perma-bulls who made a sport of baiting realists.

What you would find is that those of us who saw it coming (include me, and I warned of it on these boards) couldn't paint a picture and date it. Nobody can paint a picture of what a cyclone will do, in advance, either, but you still know you'd rather not be there.

Put your hand up! How many have put serious thought into life when cheap oil has passed? I know it will happen, sooner rather than later, but I can't paint a picture and date it. But again I know I'd rather not be there. Unfortunately space travel is not yet an option.

Bad things DO happen. The prudent do what they can to avoid/minimise.
 
Yea well... if you believe it'll hit 10% in 2 years time and that it'll stay there, you should fix them. Why?

Let's say interest rates average 7.5% this year, 8.5% next year and 10% from 2012 to 2020. That's an average of 9.6% over 10 years.

If you fix them, that's 8% over 10 years.

So you save 1.6% pa. On a $500k loan, you save $80k over 10 years, or your kid's private school education if you like. If you don't think it'll hit 10%, then there's no problems at all.

That's part of the unanswered questions though is it not ? Who said they know how long they will stay at 10% ?
 
Article below is from Melbourne's The Age today. It appears no-one can decide whether prices are going up or down. But the facts are there, loans have been on the wane for months, correlating directly with rate increases. Yet prices have been increasing all the while. Tends towards the position that Rate increases lead to higher prices during time of supply shortage...

LOANS SLUMP MAY POINT TO A HOUSE PRICE FALL (The Age)
http://www.theage.com.au/business/p...-point-to-house-price-fall-20100412-s26r.html

HERE'S A QUOTE... ''This data suggests that with sustained demand for housing through population growth and a weakening outlook for housing supply there is increased risk of house prices showing solid growth in 2010, although not at the growth levels seen in 2009,'' said ANZ global markets economist David Cannington.
 
Ah Sunfish, you cant claim that you know a big change in the market is comming but you dont know when to bet and profit from it. Either you know or you dont, if you know then you will profit. Anything else is a guess.

I mean really, most of the best market pickers in the world just managed to hold on without big losses. Very few actually made money making bets.

My best bet is that unless there are effective government measures to increase new home building on inexpensive land, then prices will go up, regardless of rates or taxes or wotnot. Especially since the government and economists believe we cant survive without a much larger population tax base.
 
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Hi all,

Red rag to a bull....er bear. :p

Ah Sunfish, you cant claim that you know a big change in the market is comming but you dont know when to bet and profit from it. Either you know or you dont, if you know then you will profit. Anything else is a guess.

bye
 
There is only one surefire, absolute 100%, infallible way of knowing which way the real estate market in general is headed. If my father decides that it's a good time to buy, sell up and run for the hills. He's legendary for getting it wrong. My brother in law (BIL) waits for the oracle to speak and then gets rich doing the opposite.

Father sells 2 apartments in Darwin in 2003 ("they weren't doing anything") so BIL buys an apartment block, still has it.

Father says what idiot would buy a marina berth in Glenelg, SA, when those big new developments started blotting the skyline ("what self respecting yachtie want to park in bloody Glenelg"), BIL buys 6 of them.

Late 1970's Father said it's time to sell up the houses he bought parallel to Jetty Road, Glenelg,("dead place this") BIL buys the street.

Father says only a moron would invest in a juice bar in Sydney CBD in the late 90's, ("who goes to a bar to drink juice for god's sake") BIL joins a syndicate owning half dozen.

Fathers - you gotta love 'em.
 
I'm sure if government removed the FH Vendors Grant, removed negative gearing, removed the FIRB rules that allow temp residents to buy up homes before young Aussies, and taxed capital gains on your PPOR, "investors" would be squealing like stuck pigs.

I find it funny how those for whom the rules benefit, tell others to "suck it up" etc etc. As I asked, and no one has answered, what's your OBJECTIVE opinion of the rules. It is of course hard to be objective when your wealth is built upon a Ponzi house of cards.

SYDB

Go ahead, remove all those things you said, i can still make money at the right opportunity, given that i rely on NONE of those factors.

Whats my OBJECTIVE opinion of the rules:
the rules are the rules, i dont justify them, i just look to profit from them.
 
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Same thing happened in 2003 when then reserve bank governor Ian MacFarlane raised rates and publically warned home buyers against speculating. House prices went sideways for a while but look where we are now. Glenn Stephens children will be paying more for their future housing as a direct result of his actions.

oooh i love these type of comments. they rely so heavily on near term data bias.
What can i say, i am estatic when i here this.
 
Ah Sunfish, you cant claim that you know a big change in the market is comming but you dont know when to bet and profit from it. Either you know or you dont, if you know then you will profit. Anything else is a guess.

I mean really, most of the best market pickers in the world just managed to hold on without big losses. Very few actually made money making bets.

My best bet is that unless there are effective government measures to increase new home building on inexpensive land, then prices will go up, regardless of rates or taxes or wotnot. Especially since the government and economists believe we cant survive without a much larger population tax base.

Not at all toe, most of us are imbued (spelling) with commen sense. The trouble is when we try to match comment sense with market movements.

You said most of the best market pickers just managed to hold on:
WELL WHAT ABOUT WARREN BUFFETT.

From memory soros did ok as well.

Read what Warren Buffett did during the GFC.
Now why did he do it? because he was prepared beforehand, he had cash on the sidelines, not because he forcast the GFC, but because he focuses on 'value' as opposed to 'price'.
 
A lot of bears were concerned about an impending crisis (including me), but few knew the year or month or stock market peak (including me).

If anyone who believes another serious crisis is coming, I challenge you to pick a year, let alone a quarter....and elaborate rational reasons for it.
 
A lot of bears were concerned about an impending crisis (including me), but few knew the year or month or stock market peak (including me).

If anyone who believes another serious crisis is coming, I challenge you to pick a year, let alone a quarter....and elaborate rational reasons for it.

you cant.

Collate 1000 opinions, i'm sure one will be right (including timing) but is that luck or skill?

So all you can do in my opinion is look at the gravitational pull of the mean.
History has proved that where an asset class outperforms for a period of time, there is a high probability that it will underperform for a period of time.

this has been the whole focus of modern finance with regards to diversification.

Some investors (ie Warren Buffett for one), has shown how to outperform, by instead of straight diversification for the sake of diversification (diworsification), instead look to buying when there is 'value'

So simple, yet so hard for most people to do, why? because of investing emotion, whether that is FOMO (fear of missing out) or FBE (fear of being in)
 
I agree it is seriously difficult to know when a crisis is going to hit, even to the nearest year.

I spent hundreds of hours reading various expert opinion about what pre-empted it. I think what made GFC difficult to predict was alarm bells had been ringing for so long, everyone was ignoring them. There was an inverted yield curve for several years before, and M3 and credit had bubbled at an unheard of rate. Many analysts were calling tops for years before. And then there was the unprecedented nature of the lies and corruption. The ratings agencies were complicit as were the insurers. Totally unprecedented and marked a new low in business morality.
 
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