Inflation v Deflation - next 36 months

[The Red Baron]

Going Up

Crime and Unemployment.

Most of my mates in sales jobs has fallen back on their low base wages and dreaming of decent commission. Or their employers are trying to get them off higher base lower commission to other way around.

My tradie mates have lost jobs on sites up north and come back to just paying the mortgage no more $60k utes and $10k TVs.

I work in Finance, a few left for more secure jobs, a few gone due to "restructure".

Still think with Petrol coming down, loan repayments coming down, keep your job, reduce debt and could be better off at the end of it all. I'm hoping anyway!

 

[MarkB]

Can anyone thing of something that is going up in price?

Me.

This month I take an increase in income for a new position.

 

[Sunfish]

I think I've already explained that I could buy, on special, a new Mitsi van for exactly the same price I bought my first, on special, about 13 years ago. And this week I was buying Coke cans for 49c each. They were a little over 50c in the early nineties.

But buying cheap manufactured goods is not indicative of deflation. That will be when new hirings are at a lower wage than the career employees and when assets fall measured against gold and/or (the new, lower) wages. Gold must be part of the measure because currencies are being debauched.

 

[GreatPig]

But buying cheap manufactured goods is not indicative of deflation. That will be when ... assets fall measured against gold ... Gold must be part of the measure because currencies are being debauched.

By "debauched" I assume you mean created in excessive quantities - also known as inflation. So money supply contraction - deflation - will occur despite money supply expansion - inflation?

GP

 

[Sunfish]

I'll look at that in the morn, GP. Are you just trying to give give me a hard time so late at night?

 

[Sunfish]

I'm reminded of an old story of when a rep of the meat processing industry was addressing the growers. He spoke of they (the processors) "servicing" the grazing industry. That was when a "big hat" got up and asked: "By servicing, do you mean what we have the bulls do to the cows?"

I think "debauched" has a similar meaning.

 

[LynnH]

LOL, Sunfish!!! At 6.30-something in the morning, it's good to start the day with a laugh!

Cheers
Lynn

 

[nonrecourse]

Looking ahead

During 2009 & 2010 in Australia we will see that 50% drop in property prices. That asset depreciation will be our deflationary response. With the lower Aus dollar, I don't expect that prices of manufactured goods imported will change because overseas deflation will be offset by our falling dollar.

 

[MarkB]

During 2009 & 2010 in Australia we will see that 50% drop in property prices.

Puh-lease!

Cold water > bucket > your head.

 

[Bill.L]

Hi all,

My experience with markets tells me that when lots of bad news comes out, and the market does not react accordingly, it is often a signal that prices go the other way.

We have had bad news about property for over a year, how it is going to crash, it has everywhere else, the sky is falling, worse than the depression etc etc, yet property has been remarkably resilient with some falls around the edges.

If/when the current deflationary conditions change to inflationary, due to the massive stimulation happening around the world, then the wished for high unemployment may not eventuate, with the next property boom closer than many want to believe.

All the time waiting..... waiting .....waiting for the inevitable 50% crash

bye

 

[keithj]

During 2009 & 2010 in Australia we will see that 50% drop in property prices.

Puh-lease!

Cold water > bucket > your head.

Remember that NR holds mostly commercial property...... he failed to sell his commIP at auction a couple of months ago. Commercial property may well fall by 50% (or more). The majority of the Commercial Property Trusts listed on the ASX have already fallen by between 50% and 95% (or 100% for a couple).

So if IP falls 10%, then the average across all property will be around 50%...... is that what you mean NR ?

Or do you mean that SOME residential property (eg beach houses, 1st percentile props, OTP, a few distressed sales) will fall by 50% ?

Or do you mean that ALL residential property will fall by 50% (including lower end property eg Western Sydney) to below replacement cost with $0 land value ?

Or do you mean medians will fall by 50% ?

Or do you mean something else completely ?

Are you talking about inflation adjusted falls or actual prices ?
What risk management initiatives have you taken to avoid the risks that you perceive ?
What has happened to property values since <insert 'last D&G experience you had' here> ?
Do you think that Oz res IP is in a worse state than US res IP (which has fallen 15% to date) ?
Can you tell us if you've put your money where your mouth is and sold all your property at any price with the intention of repurchasing it in 2010 at a 50% discount ?

 

[boomtown]

Just wanted to share this excerpt:

Yesterday the Treasury announced yet another huge $800 billion bailout, but this one has a different flavor. Much of the previous bailout money has come from the Treasury either borrowing money and buying assets (which does not create new dollars) or simply taking assets onto the national balance sheet, guaranteeing the debt. With this latest move, the Fed is going to buy $600 billion in mortgage bonds by monetizing, or creating, new dollars.

Normally this would set off more alarm bells, over worries about inflation. But these are not normal times. With the twin bubbles of the credit and housing crises still imploding, we are seeing a massive deleveraging and the disappearance of multiple trillions of dollars from consumers and businesses. And the bond market clearly expects more softening and maybe even deflation. The 10-year bond is below 3%. I wrote 10 years ago that we could see the 30-year US bond below 3% by the end of this decades-long cycle, which we began in the early '80s with Paul Volker.

As I wrote last April, the velocity of money (how fast a dollar moves through the economy) is slowing rather dramatically. It could fall another 10% and just get back to the average for the last 107 years. Given the growth in population, inflation, productivity, and other factors, the money supply will need to grow by 7% annually for the next several years to keep the economy at equilibrium. Remember, GDP (gross domestic product) is essentially the velocity of money times the supply of money. If the velocity slows down, the money supply needs to rise just to stay even.

The Fed is going to have some room to pump up the money supply without seeing inflation rise precipitously. I think this is the first of what will be several large injections, as they will keep it up until the economy begins to recover. They will especially do more if it looks like we could roll over into a deflationary environment next year. I will be writing more about this in the coming months.

http://www.frontlinethoughts.com/article.asp?id=mwo112608

 

[GreatPig]

A couple of recent blogs of interest:

Deflation Has Become Inevitable - The London Banker.

Humpty Dumpty On Inflation - Mike Shedlock.

GP

 

[Ausprop]

A couple of recent blogs of interest:

Deflation Has Become Inevitable - The London Banker.

Humpty Dumpty On Inflation - Mike Shedlock.

GP

interesting. trouble is - as per usual - any comment on Australia is completely over looked. The fact that our rates remain comparatively high is the reason why so much foreign funding is being diverted into Australia. that and the expectation of an upwards currency correction. As for the US, I have been scratching my head for along time as to why the USD hasn't devalued massively and I did read an interesting blog on why that was - insummary it suggested it was a temporary siutation which will reverse in the medium term.

 

[Property Meister]

I know that history is NOT a good indicator of the future,

but I reckon the property market for the lower end may drop 5-15, the higheer end up to 20-25%

but I don't think there will be a crash of 40-50% across the board....

I don't know why but........ i'd like to hear others opinions as well

 

[Ausprop]

I know that history is NOT a good indicator of the future,

but I reckon the property market for the lower end may drop 5-15, the higheer end up to 20-25%

but I don't think there will be a crash of 40-50% across the board....

I don't know why but........ i'd like to hear others opinions as well

it's already done 10-20%. another move of the same magnitude and Steven Keen gets a promotion

 

[Property Meister]

I'm not convinced that the majority of suburbs have dropped that much.... esepcially the FHB market, just seems like the drop hasn't come through the majority of suburbs... from what I am seeing

 

[Ausprop]

I just use the price of a bog standard villa in the suburbs of cannington, mandurah, midland etc. they were about $200k in 2005, then we saw them go to $300k, $330k, $360k and peaked at $380/400k in 2006 - Juen to be precise. this tracked the median almost to a Tee. now the median always lagged real sales and I knew when I was putting these villas under contract at $380k that the reported median was set to jump. These villas, now 2.5 years later, are lucky to fetch the same money and in reality are probably closer to $315-330k. in % terms that's a hefty drop, but still a big jump from $200k only 3 years ago.

 

[Property Meister]

well, to be honest, I am hoping that the property market drops another 5-10%, then I will be looking to buy more then 1, the suburbs that I am looking at, the prices only SEEM to have dropped with no real stock movement, the number of ads has increased a little but not an alarming rate!

 

[nonrecourse]

Remember that NR holds mostly commercial property...... he failed to sell his commIP at auction a couple of months ago. Commercial property may well fall by 50% (or more). The majority of the Commercial Property Trusts listed on the ASX have already fallen by between 50% and 95% (or 100% for a couple).

So if IP falls 10%, then the average across all property will be around 50%...... is that what you mean NR ?

Or do you mean that SOME residential property (eg beach houses, 1st percentile props, OTP, a few distressed sales) will fall by 50% ?

Or do you mean that ALL residential property will fall by 50% (including lower end property eg Western Sydney) to below replacement cost with $0 land value ?

Or do you mean medians will fall by 50% ?

Or do you mean something else completely ?

Are you talking about inflation adjusted falls or actual prices ?
What risk management initiatives have you taken to avoid the risks that you perceive ?
What has happened to property values since <insert 'last D&G experience you had' here> ?
Do you think that Oz res IP is in a worse state than US res IP (which has fallen 15% to date) ?
Can you tell us if you've put your money where your mouth is and sold all your property at any price with the intention of repurchasing it in 2010 at a 50% discount ?

Hello Keith, I have been away attending to business and have finished answering your lost post in the soft depression we had to have thread.

I see your at it again I hope all those resi-properties you have are not all in your name, because if your going to go with the conventional on this site your geared at 80% accross the board. I have been quite open about what I have done to protect my assets and I think its time you explain how you have covered your posterior in these rather unusual times.

You profess to wanting to understand where I'm coming from but then take pot shots. Come on keith I've shown mine so now show us yours

Explain how over the next two years your going to continue to gear your expanding property porfolio (I assume you have more than one property)