Is a recession looming?

[Kennethkohsg]

Kenneth,

Interesting post, how do you feel Queensland would go through a "global meltdown"?

Regards,

Pricey

++++++++++++++++++++
Dear Pricey,

1. Honestly speaking, I do not really know, at this point in time...

2. However, based on my own observation of the Goldcoast property market, which have attracted a lot of international overseas investors' funds, this particular market i,e Goldcoast property market as well as that of the Cairns property market, would be worse hit during a global crisis, especially those high-rise apartments in the Surfer Paradise area and in Cairns, as they are largely/more dependant on overseas investors.

3. For your kind update, please.

4. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

Dear All,

1. How's about this report on PerthNow, entitled, "End to prosperity in sight"?

a. THE current economic prosperity will continue for at least another two years, despite the recent interest-rate rises, but the party will end with a thud at the end of the decade, according to forecaster BIS Shrapnel.

b. ...However, the group warns that a significant downturn in investment looms in two to three years' time.

c ... But these cycles will start to turn down from 2007 to 2008, with the cumulative effect sending the economy into a downturn."

http://www.news.com.au/perthnow/story/0,21598,20390156-951,00.html

2. For your kind update and further comments/discussion, please.

3. Thank you.


regards,
Kenneth KOH

 

[XBenX]

Dear All,

1. How's about this report on PerthNow, entitled, "End to prosperity in sight"?

a. THE current economic prosperity will continue for at least another two years, despite the recent interest-rate rises, but the party will end with a thud at the end of the decade, according to forecaster BIS Shrapnel.

b. ...However, the group warns that a significant downturn in investment looms in two to three years' time.

c ... But these cycles will start to turn down from 2007 to 2008, with the cumulative effect sending the economy into a downturn."

http://www.news.com.au/perthnow/story/0,21598,20390156-951,00.html

2. For your kind update and further comments/discussion, please.

3. Thank you.


regards,
Kenneth KOH

BIS are not a forecaster, they are a dartboard w/ a PR dept.

 

[lowb]

long term analysis...

************************
9. Morever, given the baby-boomer generation demographic anomalcy, we can expect a time in future where there will be a sudden worldwide "over-supply" of housing around the world as the baby-boomer generation start to collectively retire and die off as from 2016 onwards, resulting in the anticipated worldwide housing slump.

Cheers,
Kenneth KOH

hi

1. Very unexpected analysis, and very impressive. When considering 'where to buy', there are so many variables/things to think about... but this is the first time we have talked about long-term predictions of 10 years later.

2. Does our model of... 'property prices doubling every 7-10 years' work all the time? If at 2016 your scenario does happen, is this model fallable? Then would a buy and hold strategy fail at around this time (or would old people dying just trigger a bust with which a boom will inevitably follow)

However, I can accept that if you think there is going to be a global melt down, Sydney and Melbourne might be marginally safer to be in than Perth.

3. if there is a global melt down... with sea levels rising (this would happen... 2050?) would Sydney be underwater?... It may be then, that the western suburbs, Canberra, ACT, etc. would be good buys for the ~50 year timeframe (but thats a bit far for me to think of at the moment )

thank you for expanding my mind

 

[Peter 14.7]

BIS are not a forecaster, they are a dartboard w/ a PR dept.

Sooo true!

I seem to remember BIS predicting a property boom to come in 2009 not a down turn?

And where was their tip on WA?!?!?!

Opps we missed that one.

As I and others have said before here:

1. BIS is one letter too many ( you guess which one)

2. Most economists have correctly predicted 10 of the last 7 recessions.

and

3. Most predict but somehow seem to often failto put thier money where thier predictions are. Even Bernaud Salt the predictor of "Sea Change" admits he did not act on his own forecasts.

The question to the original thread should be

"If a recession is looming how will it effect you?"

If you are recession proof why worry?

Regards, Peter 14.7

 

[Peter 14.7]

Hi All

Being Serious...

A further factor to consider in addition to Kenneth’s Baby Boomer scenarios is the prediction that today’s children will the first generation to live less than their parents due to obesity and sedentary lifestyle.

Less population all round?

However, this IMO will not affect Australia whilst ever we are a land of employment, freedom, opportunity, fresh air and food.

Why?

As the world shrinks due to globalisation and perhaps encouraged by global warming Australia will only strengthen as place to migrate to.

Why live in:

• Indonesia with 180M persons of disparate social , religion and views and limited resources?
  
• Europe with Acid Rain, race riots, failing economy and aging population?
  
• America with non-existent medical care, ghettos, and again racial tension?
  
• India or China with massive pollution, risk of nuclear war with Pakistan or North Korea, spiralling population growth?

Personally we are the best Country in the world (other than New Zealand) to weather the storm of resources war, social unrest and potential famine due to our vast mineral wealth, stable government, multicultural population, arid able agricultural land and significantly , remoteness from the rest of the world.

Regards, Peter 14.7

 

[Kennethkohsg]

2. Does our model of... 'property prices doubling every 7-10 years' work all the time? If at 2016 your scenario does happen, is this model fallable?

Then would a buy and hold strategy fail at around this time (or would old people dying just trigger a bust with which a boom will inevitably follow)
/QUOTE]
++++++++++++++++++

Dear Lowb,

1. It may be interesting for us take a real lesson from history and find out what exactly did happen back during the last World Great Depression of 1929-1932.

2. Did the properties prices worldwide "crashed" down? How much price decline are we talking about and whether the "buy-and-Hold" investing strategy, will continue to apply well under such contexts.

3. For me, with my own first market property market experiences in Singapore as well as based on my own observation of the property markets in HK and Japan, the long term "buy-and-hold" definitely does not apply well in these 3 Asian countries, not to mention during another similar Great Depression times in future.

4. Perhaps, it is also instructive and educational for us to consider what has happened to the Japanese property market since the 1990s.. As I understand the median house price in Japanese property market is only about 20% off its last market peak and that it has been languishing at this low level for the pasat 20 years already.

5. For your kind update, please.

6. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

If you are recession proof why worry?

Regards, Peter 14.7

+++++++++++++++++++++
Dear Peter,
"Recession-proof"?

Please show me how.

Thanks

Cheers,
Kenneth KOH

 

[Kennethkohsg]

As the world shrinks due to globalisation and perhaps encouraged by global warming Australia will only strengthen as place to migrate to.

Regards, Peter 14.7

+++++++++++++++++++++++
Dear Peter 14.7,

1. While I wish the best for Australia's continued prosperity, I think it is not realistic to continue to expect Australia to be able to avoid a recession continously into the future such that international immigration will continue unbated like the present times.

2. Once Australia has to suffer another recession similar to its previous one in 1991, I will expect the immigration trends to change too due to a lack of sufficient "attractive" employment opportunities for all.

3. For your kind update, please.

4. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

Dear All,

For the bulls, how's about this following article:
++++++++++++++++++++++++++++++
Business Times - 12 Sep 2006

Commodities bust under way

(LONDON) The drop in oil, gold and other raw materials since May is signalling an end to the five-year bull market in commodities as global growth slows and demand falls.

'The mega-run for commodities has run its course,' says Stephen Roach, the New York-based chief global economist at Morgan Stanley, the world's biggest securities firm. In May, he said the surge in oil and metals was a bubble about to pop.

Since then, the Reuters/Jefferies CRB Futures Price Index has fallen 12 per cent from a record, more than enough to qualify as the first so-called correction since the rally began in 2001.

The Goldman Sachs Commodity Index, after gaining for four years, has lost investors 5.1 per cent in 2006.

Gold and sugar are in a bear market, defined as a price drop of 20 per cent.

Commodities are plunging due to reduced growth in some of the world's largest economies.

The US Federal Reserve's report on economic conditions in each of its 12 districts last week indicated consumer spending rose 'slowly'.

Expansion in China, where growth of 9 per cent in the past four years caused raw-material orders to surge, may be curtailed as the central bank raises interest rates and curbs lending.

Some strategists remain bullish. James Gutman, senior commodities economist in London at Goldman Sachs Group Inc, says the commodities losses are nothing more than 'cyclical fluctuations'. - Bloomberg

 

[lowb]

Dear Lowb,

1. It may be interesting for us take a real lesson from history and find out what exactly did happen back during the last World Great Depression of 1929-1932.

2. Did the properties prices worldwide "crashed" down? How much price decline are we talking about and whether the "buy-and-Hold" investing strategy, will continue to apply well under such contexts.

3. For me, with my own first market property market experiences in Singapore as well as based on my own observation of the property markets in HK and Japan, the long term "buy-and-hold" definitely does not apply well in these 3 Asian countries, not to mention during another similar Great Depression times in future.

4. Perhaps, it is also instructive and educational for us to consider what has happened to the Japanese property market since the 1990s.. As I understand the median house price in Japanese property market is only about 20% off its last market peak and that it has been languishing at this low level for the pasat 20 years already.

5. For your kind update, please.

6. Thank you.

Cheers,
Kenneth KOH

hi

1. at the moment, i am only looking at property statistics, council developments, and so on... and have not learnt nor understood the effects of history or of other countries. the difficulty i find with this is that is it very cloudy, the future... (but to have predictions is to better than nothing)

2. hm, will the worldwide population increase? will australia remain, compaired to other countries, a desirable place to live/work/play in? the prevalent mood at the moment is yes/yes, i can see it being no/yes though; although Australia will have its problems hmm..

3. when i think about this, what about the effects of war and terrorism? what will happen if Australia becomes a victim of suicide bombers or gets involved with war..?

4. in dire circumstances such as general worldwide population decline, war, terrorism, etc. how does property as an asset fare..? people always need a place to live right? but maybe there are times in history where the legal system breaks down and your title to a proprety may not be worth anything..

5. sorry for offering more questions and not many solutions

keen to read more

 

[Andrew_A]

hi

1. at the moment, i am only looking at property statistics, council developments, and so on... and have not learnt nor understood the effects of history or of other countries. the difficulty i find with this is that is it very cloudy, the future... (but to have predictions is to better than nothing)

2. hm, will the worldwide population increase? will australia remain, compaired to other countries, a desirable place to live/work/play in? the prevalent mood at the moment is yes/yes, i can see it being no/yes though; although Australia will have its problems hmm..

3. when i think about this, what about the effects of war and terrorism? what will happen if Australia becomes a victim of suicide bombers or gets involved with war..?

4. in dire circumstances such as general worldwide population decline, war, terrorism, etc. how does property as an asset fare..? people always need a place to live right? but maybe there are times in history where the legal system breaks down and your title to a proprety may not be worth anything..

5. sorry for offering more questions and not many solutions

keen to read more

Just regarding point 4 I recently read that property did very well during the German hyper-inflation of 1921-23. Great fortunes were made by those who used debt to their advantage, and the collective local debt went from the region of billions to one penny in two years.

The rich did well, the middle class got whacked, the poor remained poor and so on.

I would personally choose a land title over share titles in dire circumstances.

 

[topcropper]

Dear All,
Commodities are plunging due to reduced growth in some of the world's largest economies.
- Bloomberg

Dear Kenneth.

This has been predicted constantly since the boom began. I can't see how commodities are plunging. That is simply exageration. The market is obviously forecasting commodities to plunge. They have not plunged yet. Ask a sugar grower about sugar prices. They can at least make a profit today. It was impossible 18 months ago. How can sugar be in a bear market if it was half the price 18 months ago?

When markets are in universal agreement that something is going to happen, is when the opposite often does. Currently the market is in unanimous agreement that the US is going into recession. Recession due to a property bust. 6 months ago it was recession due to inflation. A few years ago recession due to debt. Then recession due to Iraq. Recession due to the tech bust and overheated equities. When are they going to be right?

See ya's.

 

[Aceyducey]

If, over a timeframe of five years, a product doubles in price and then retreats 20%, has it's price plunged?

If you're an investor you should not be looking at the day-to-day prices for investments - be they properties, commodities, shares or otherwise.

Look at a longer timeframe to see the big picture.

Leave the day-to-day to the panicked masses and their feeders (the media).

(And some of the daytraders - who are not investing but have a J.O.B. delivering them income.)

Cheers,

Aceyducey

 

[Kennethkohsg]

If, over a timeframe of five years, a product doubles in price and then retreats 20%, has it's price plunged?

Aceyducey

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Dear Aceyducey,

1. Theoreticially no.

2. However, in practice, though the median house price for the Sydney property market has just dropped by some 12% off their last market peak, yet the number of Australians whose houses are being possessed bty their lending banks have almost increased 100% from less than 2,600 year to less than 6,000 households, with some suburbs down suffering as much price decline as 42%.

3. Thus, statistics can be quite "misleading" at times.

4. Also, some investors do not plan for such a heavy down-side and would be easily hit by a mere 10% price decline, not to mention a 20% price decline. Some of them, have unfortunately, bought in at the very top of the last property cycle.

5. Thus. depending on one's life experiences, planning limits and perspective, while a 20% price fall may not mean much to you, we can nonetheless expect to see some heavy casualities along the way.

6. Similarly for the the present peaking Perth property market, I would expect some investors to be similarly caught and adversely affected over the next few years as the boom begins to peter out/off.

7. For your kind update, please.

8. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

Just regarding point 4 I recently read that property did very well during the German hyper-inflation of 1921-23.s.

****************************
Dear Andrew,

1. How's about during the Great Depression period of 1929-1932?

2. My own observations has been that property normally does well durng an inflationary times and by extrapolation, I assume that this will also apply to hyper-inflationary times too.

3. For your kind update, ,please.

4. Thanks.

Cheers,
Kenneth KOH

 

[FrankGrimes]

If, over a timeframe of five years, a product doubles in price and then retreats 20%, has it's price plunged?

If you're an investor you should not be looking at the day-to-day prices for investments - be they properties, commodities, shares or otherwise.

Look at a longer timeframe to see the big picture.

Aceyducey

Acey, great post and good reality check for all. Couldn't have said it better myself. Have a long term goal and stick to it, don't worry about the day to day stuff. We will all look back in 10 years time and laugh.

 

[Spectre]

Good Evening

I dont know if it assists in the debate but one of my 'sources' - CB Richard Ellis has some interesting stuff on its website.

http://www.cbre.com.au/

Have a look under the picture for the icon called 'research centre' and then also the 'latest news' on the right hand side.

Too much to go thru as I havent read it all myself but if you have a spare hour sometime...

There was an intersting few pages called south east queensland residential 2006 which I thought was pretty interesting (but then again a bug on the wall fascinates me as well).

 

[Aceyducey]

*********************************
4. Also, some investors do not plan for such a heavy down-side and would be easily hit by a mere 10% price decline, not to mention a 20% price decline. Some of them, have unfortunately, bought in at the very top of the last property cycle.

6. Similarly for the the present peaking Perth property market, I would expect some investors to be similarly caught and adversely affected over the next few years as the boom begins to peter out/off.

Kenneth,

I don't classify speculators as investors.

There's a major mindset difference.

Speculators get into a hot market with the aim of making a quick profit.

Investors get into a sustainable market with strong long-term underpinings to generate a return.


There will always be speculators driving prices up and down. You cannot stop this.

All you can change is your own mindset.


Let's look at defaults in perspective.

In Australia about 30% of households rent, 30% own outright and 30% rent. (dunno about the other 10%)...

There are roughly 7.4 million households.

Based on that, 2.2 million households across Australia have mortgages to default on.

6,000 defaults is 0.3% of mortgages.

It's risen from 2,500 defaults at the lowest point in the default cycle - or around 0.12% of mortgages at the lowest point in the interest rate cycle and absolute optimum conditions.

Note the bit in italics.....you're measuring from the economic low tide mark for interest payments.

Surely it's better to look at the long-term average default rate and see how much the variation is from the standard deviation (the level of variation you could expect in a randomly chosen year).

What! (you say) - our average 20-year mortgage default rate is 0.12%!
(http://www.bankers.asn.au/Default.aspx?ArticleID=587)

How can that be that our default rate was at the 20-year average while we were at the most optimum economic point for mortgages in decades?

Surely the best-time-for-mortgages-ever should have been BELOW the long-term average.

Clearly there's something screwy here....

And I'll answer with what I think is going on a bit later

But I will say that that level of defaults doesn't worry me (or the bankers).

Cheers,

Aceyducey

 

[Kennethkohsg]

Dear Aceyducey,

1. While the default rate looks "neglible" as a statistics, I cannot imagine that even during the Australian's continued prosperity over the last 15 years, some 2500-6000 households are losing their wealth each year as a result of property investing.

2. Speak to the affected parties concerned yourself, and see if you will agree with me.

3. While I am personally NOT affected by these data, there are others who are unfortunately adversely affected by them, the young and inexperienced investors as well as the average Dad and Mum investors who have lost their hard-earned savings/monies in property investing, as a result of their lack of investing experience, inadequate property investment education or simply having invested "wrongly" either at the wrong place or/and at the wrong timing.

4. When I was in Carins in 2003, I heard many real life stories of how many investors lost their entire property property in the late 1980s as a result of the high interest rate increase.

5. Consequently, I find that holding the property protfolio long term to be a highly risky proposal.

6. Sure, based on past historical trend, property does doubled in value every 7-10 years old, all things being equal. However, the ability to safely maintain a property portfolio into the down side of a property cycle also provide a rather challenging risk in itself.

7. Some investors, unfortunately, did not manage to last through the down cycle stage and become the statistics as "casualties" in their property investing.

8. High risk, high rewards... So, if property investing is as easy and safe as well as highly profitable as you would want to suggest to me, how come there are not many successful investors among our midst or/and for that matter in the overall population.

9. One can be right 9 times and only one time wrong. However, the one mistake may/can cause us to lose the entire property portfolio if we are not careful and sufficiently prudent and safe in our own property investing.

10. The other underlying theme which I do not agree with you as well as the other bullish members is to "assume" is that Australia's economic prosperity will continue indefinitely into the future as it has over the last 15 years.

11. Based on past historical trends and economic and business cycles, it is more likely and more logical for us to think that it is about time to expect Australia to go into a recession in the near future than to expect it to continue on its economic prosperity and success path.

12. With the departure of Ian MacFarlane and change of RBA Governor, the present internal power struggle between John Howard and Peter Costello as well as the many external changes in the wider world, I think we can expect to see some changes in this respect, too, all things being equal

13. Personally, while I still remain open-minded as to whether Australia will indeed enter into a recession or not, I think it is un-wise for us to assume that there is no recession in Australia in the near future, or/and that its effects are likely to be minor in nature, even if there is one.

14. With NSW State economy technically in a recession presently, its impact and likely outcome is yet to be fully realise as yet with some near time market correction becoming "inevtiable" in the near future.

15. For your kind update and further comments/discussion, please.

16. Thank you.

regards,
Kenneth KOH