i just made it up one day when a few of us were talking about QE3.
no plagarism intended if it existed before i thought of it.
Is Australia facing an economic downturn/recession?
- Thread starter hobo-jo
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i just made it up one day when a few of us were talking about QE3.
no plagarism intended if it existed before i thought of it.
No. I hadn't seen it anywhere else. I like it.
can i just point out, that while many here were very bullish, myself included, not 18 months ago, that doesn't mean people need to grind their axes against the skulls of those that thought so.
the data 18 months ago about what would happen when where how why and who was so muddled, ambiguous, confusing and *any other adjective inserted here* that it was impossibll to tell who would be right or wrong, if at all.
it appears EVERYONE was wrong in their intial thoughts coming into GFC round 2. those that were bullish, those that were bearish and those purporting stagflation.
we've seen ups, downs, sideways, stagflations, inflations, deflations, growth, loss, higher yields, lower yields that there is no "one market", even to the point where there is no "state market".
can we all drop the "you said, i said, he said, she said"? it's really getting so repetitive it's starting to read like a Dr Seuss book.
the data 18 months ago about what would happen when where how why and who was so muddled, ambiguous, confusing and *any other adjective inserted here* that it was impossibll to tell who would be right or wrong, if at all.
it appears EVERYONE was wrong in their intial thoughts coming into GFC round 2. those that were bullish, those that were bearish and those purporting stagflation.
we've seen ups, downs, sideways, stagflations, inflations, deflations, growth, loss, higher yields, lower yields that there is no "one market", even to the point where there is no "state market".
can we all drop the "you said, i said, he said, she said"? it's really getting so repetitive it's starting to read like a Dr Seuss book.
As one of the ONLY posters here that posted economic chaos for the past 12 - 18 months, I feel I deserver to post a great big "TOLD YA SO!"
I was ridiculed for my assessments, I warned of an impeding global financial downturn, and most ppl here, in their bullish arrogancy, derided my postings, so you'll excuse me if I gloat just a little...
By the way, this is only the tip of iceberg, if Qe3 happens, they'll prop things along for another year, maybe 2, if not, it all goes down starting July. Either way, we are going to enter a decade-long collapse of asset supression...
Stuff what any slim or short fat soap box spruiker thinks,Stanford Univeristy studies conducted in the mid 80's revealed that :what we watch:does have a effect on our imaginations,out learning patterns and our behaviors,no different from today,,
Nah, you don't get off that easily Aaron
The data was not muddled 18mths ago to those that cared to look past all the short term stimulus effect, and know that there were big structural problems that were just being kicked along the road until the problems could eventually not be covered up any more.
But the same people who where bullish 18mths ago about the economy, are the same people who still believe there won't be a 30% property correction over the next 18-21mths (7 quarters)
If you are looking for a 30% correction in the lower end of the market in Sydney or Melbourne you are dreaming. The correction will be here as part of the normal cycle....it is more likely to be about 5%. These properties are still selling if they are priced correctly and are not in areas with oversupply - i.e. Mt Druitt.
However, the high end (more than 1m) is likely to take a hit ...30% falls are possible. I am already seeing a lot of places in Balmain, Mosman, etc. not sell at auction. Houses which were getting $1.4m are not selling. Some have been discounted by 150-200k about a 10-15% decrease. 30% plus reductions are only likely in properties worth over $3m.
I personally think the RBA will do an about face in Sept/Oct and commence reducing rates...they will want to ensure that property does not crash as most of the banks are heavily exposed to this sector.
In about 18 months...we will see the start of the next major upturn....this is likely to be a mild upturn and not a boom.
By the way I am still bullish about property...you just have to be selective. Not a good time to head to Brisbane or Perth...but lower end in reasonable areas (under $350k) in Sydney, Illawarra, Central Coast, and Hunter will continue to plod along nicely. The reason is because the difference between renting and buying is marginal in these areas. For example in part of Wollongong you can but a house for $310k but the renting it would be about $350. If you borrowed 95% (say 290k mortage).....you would pay about 21k in repayments assuming a 6.8% IR...whilst renting would be $18,200 per annum. The difference is about 3k...abut $4.5k if rates are included. In three years your mortgage payments would equal rents based in 5% rental inflation per annum. A family on combined net income of 60k (about 80-85k gross) could easily service this loan)....this is because the federal budget still maintains a high level of benefits for this group.
However, if you bought a $1.1m property in Sydney at 90% finance you would pay about 75k in repayments. To rent the same house would cost you 40k per annum. That would leave you out of pocket by 35k pa..if rates are included it would be more like 37k. One would need an net income of 150k (200-250k gross) to comfortably service such a loan....and with govt benefits being phased out for this group such as medicare 30% reduction and other benefits...this group will feel the pain the most. They have good incomes but are not exactly rich unless they are buying 600-800k homes. A lot these people also send their kids to expensive private schools.
However, the high end (more than 1m) is likely to take a hit ...30% falls are possible. I am already seeing a lot of places in Balmain, Mosman, etc. not sell at auction. Houses which were getting $1.4m are not selling. Some have been discounted by 150-200k about a 10-15% decrease. 30% plus reductions are only likely in properties worth over $3m.
I personally think the RBA will do an about face in Sept/Oct and commence reducing rates...they will want to ensure that property does not crash as most of the banks are heavily exposed to this sector.
In about 18 months...we will see the start of the next major upturn....this is likely to be a mild upturn and not a boom.
By the way I am still bullish about property...you just have to be selective. Not a good time to head to Brisbane or Perth...but lower end in reasonable areas (under $350k) in Sydney, Illawarra, Central Coast, and Hunter will continue to plod along nicely. The reason is because the difference between renting and buying is marginal in these areas. For example in part of Wollongong you can but a house for $310k but the renting it would be about $350. If you borrowed 95% (say 290k mortage).....you would pay about 21k in repayments assuming a 6.8% IR...whilst renting would be $18,200 per annum. The difference is about 3k...abut $4.5k if rates are included. In three years your mortgage payments would equal rents based in 5% rental inflation per annum. A family on combined net income of 60k (about 80-85k gross) could easily service this loan)....this is because the federal budget still maintains a high level of benefits for this group.
However, if you bought a $1.1m property in Sydney at 90% finance you would pay about 75k in repayments. To rent the same house would cost you 40k per annum. That would leave you out of pocket by 35k pa..if rates are included it would be more like 37k. One would need an net income of 150k (200-250k gross) to comfortably service such a loan....and with govt benefits being phased out for this group such as medicare 30% reduction and other benefits...this group will feel the pain the most. They have good incomes but are not exactly rich unless they are buying 600-800k homes. A lot these people also send their kids to expensive private schools.
QE3 will happen - but it won't happen soon enough to save the markets and commodities over the next few months.
The Fed has received enormous flack - in the media and politically - for QE2. Especially with the rise in commodity prices. A popular saying now is "Let them eat iPad" after one of the Fed Governors tried to deflect a question about rising inflation with saying that you can now buy a more powerful iPad for the same price as the original. The response was "I can't eat an iPad!". And the rise of the Tea Party, who strongly oppose QE2 mean the Fed is under a lot more political pressure than before.
In order for them to justify QE3, there has to be a massive crash. Otherwise they will be crucified in the media and politically, especially if commodities increase even more. There is an anti-Fed populist campaign just itching to start up in the US in my opinion. So unless stocks and commodities crash, there will be no QE3.
However since the market is now completely confident that Bernanke will never let prices crash they are not crashing enough to justify QE3. Eventually as we get closer to the end of June, there will be a sudden realisation that OMG, there really will be no QE3 and then stocks and commodity prices will start plunging in a panic with a crash which will probably be much worse than if the market hadn't been over-confident of a QE3. Of course part of this reason is the prices are so over the top in the first place precisely because the market was over-confident the Fed would definitely put QE3 in place and hence risk was zero. Classic bubble psychology.
People say that Greece will be the next Lehmann's, but I think it will be the end of QE2.
Paulson let Lehman's collapse because he was receiving massive flak about bailing out banks. At the time he thought, well it's a small bank right? I need to set an example and show I'm not just a soft touch, a puppet of Wall St because that's what people are saying about me and damn I'm insulted. It's small, it won't cause too much damage. I'd gain a lot of credibility by letting it fail. Part of the post-Lehman's panic was not just about the interwoven web of the shadow banking system but the sudden realisation that crap, the government might really let the banks collapse when people were confident that the government would never let that happen.
Bernanke is now in the same position as Paulson.
Another thing is - I wouldn't be too surprised to hear some really bad news from China soon as well (there are rumours the national government will be bailing out local governments who are in lots of bad debt - they want to make sure nothing embarassing turns up for the handover in 2012). I find it funny that while people are bidding up the AUD because of China, some of the biggest sellers of the AUD recently have been Chinese banks who have been noteable sellers into rallies. They are most likely front-running bad news they know is coming.
Remember Australians are very stretched financially - especially private debt and Australian banks rely on foreign funding. Even if QE3 does come eventually and save commodities, the real question is will the over-stretched, on the edge of the cliff, Australian financial system, and housing bubble last until it does? Cyclones and earthquakes are only very temporary, but during them, those who have not built solid structures, die. And the destruction left behind from the cyclone/earthquake and shoddy construction can last for a long time, even leaving permanent scars.
What I will find funny though is if the Reserve bank suddenly wants to cut rates during this crisis but can't because the AUD is dropping like a stone and it needs to save the banks. I am of the opinion that the next move the Reserve Bank will likely *try* to make is down not up. I just don't believe they will be allowed to.
The Fed has received enormous flack - in the media and politically - for QE2. Especially with the rise in commodity prices. A popular saying now is "Let them eat iPad" after one of the Fed Governors tried to deflect a question about rising inflation with saying that you can now buy a more powerful iPad for the same price as the original. The response was "I can't eat an iPad!". And the rise of the Tea Party, who strongly oppose QE2 mean the Fed is under a lot more political pressure than before.
In order for them to justify QE3, there has to be a massive crash. Otherwise they will be crucified in the media and politically, especially if commodities increase even more. There is an anti-Fed populist campaign just itching to start up in the US in my opinion. So unless stocks and commodities crash, there will be no QE3.
However since the market is now completely confident that Bernanke will never let prices crash they are not crashing enough to justify QE3. Eventually as we get closer to the end of June, there will be a sudden realisation that OMG, there really will be no QE3 and then stocks and commodity prices will start plunging in a panic with a crash which will probably be much worse than if the market hadn't been over-confident of a QE3. Of course part of this reason is the prices are so over the top in the first place precisely because the market was over-confident the Fed would definitely put QE3 in place and hence risk was zero. Classic bubble psychology.
People say that Greece will be the next Lehmann's, but I think it will be the end of QE2.
Paulson let Lehman's collapse because he was receiving massive flak about bailing out banks. At the time he thought, well it's a small bank right? I need to set an example and show I'm not just a soft touch, a puppet of Wall St because that's what people are saying about me and damn I'm insulted. It's small, it won't cause too much damage. I'd gain a lot of credibility by letting it fail. Part of the post-Lehman's panic was not just about the interwoven web of the shadow banking system but the sudden realisation that crap, the government might really let the banks collapse when people were confident that the government would never let that happen.
Bernanke is now in the same position as Paulson.
Another thing is - I wouldn't be too surprised to hear some really bad news from China soon as well (there are rumours the national government will be bailing out local governments who are in lots of bad debt - they want to make sure nothing embarassing turns up for the handover in 2012). I find it funny that while people are bidding up the AUD because of China, some of the biggest sellers of the AUD recently have been Chinese banks who have been noteable sellers into rallies. They are most likely front-running bad news they know is coming.
Remember Australians are very stretched financially - especially private debt and Australian banks rely on foreign funding. Even if QE3 does come eventually and save commodities, the real question is will the over-stretched, on the edge of the cliff, Australian financial system, and housing bubble last until it does? Cyclones and earthquakes are only very temporary, but during them, those who have not built solid structures, die. And the destruction left behind from the cyclone/earthquake and shoddy construction can last for a long time, even leaving permanent scars.
What I will find funny though is if the Reserve bank suddenly wants to cut rates during this crisis but can't because the AUD is dropping like a stone and it needs to save the banks. I am of the opinion that the next move the Reserve Bank will likely *try* to make is down not up. I just don't believe they will be allowed to.
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Couple things to keep things in perspective:
1. China is not the only market that Australia supplies from a mining perspective...the other big markets are India, Japan, South Korea. Even if demand drops...the Chinese govt knows that they can't let growth drop below 8%....otherwise they will have a revolution on their hands as millions of unemployed turn on the Central govt. Even with slow demand they will still buy out mineral just in lower quantities. So Julia not introducing the mining tax might be a blessing as this won't hurt the Fed budget as much
2. Part of China are in drought whilst we have had an abundance of rain...want to take a bet that Agriculture will be the next boom industry. Already we are seeing food price inflation rear its head. Australia is well placed to take advantage of this.
3. Whilst the Cyclone and Earthquake have affected GDP...by the Dec Qtr..we should see this reverse...particularly Qld
4. As for foreign funding....this is will reverse as Aussie saving rate is now at 11%...the highest in decades. The banks are capitalising on this and are looking to reduce their exposure to foreign funds. Albeit they won't reduce it altogether...so funding costs will remain reasonable.
5. The A$ is currently 105 - 107 cents...if it drops 30% it will still be at 73-74....this will be ideal. However, it does mean slower rate drops. As we have one of the highest rates in the world we still have some room to move.
6. The current RBA rate of 4.75% can drop 75 to 100 BP without a major shock and inflationary pressure if all the numbers - i.e. GDP, inflation, retail sales, unemployent, and building starts are not looking good. The only issue is that Right Wing Christian right RBA governor who might want divine intervention instead!
1. China is not the only market that Australia supplies from a mining perspective...the other big markets are India, Japan, South Korea. Even if demand drops...the Chinese govt knows that they can't let growth drop below 8%....otherwise they will have a revolution on their hands as millions of unemployed turn on the Central govt. Even with slow demand they will still buy out mineral just in lower quantities. So Julia not introducing the mining tax might be a blessing as this won't hurt the Fed budget as much
2. Part of China are in drought whilst we have had an abundance of rain...want to take a bet that Agriculture will be the next boom industry. Already we are seeing food price inflation rear its head. Australia is well placed to take advantage of this.
3. Whilst the Cyclone and Earthquake have affected GDP...by the Dec Qtr..we should see this reverse...particularly Qld
4. As for foreign funding....this is will reverse as Aussie saving rate is now at 11%...the highest in decades. The banks are capitalising on this and are looking to reduce their exposure to foreign funds. Albeit they won't reduce it altogether...so funding costs will remain reasonable.
5. The A$ is currently 105 - 107 cents...if it drops 30% it will still be at 73-74....this will be ideal. However, it does mean slower rate drops. As we have one of the highest rates in the world we still have some room to move.
6. The current RBA rate of 4.75% can drop 75 to 100 BP without a major shock and inflationary pressure if all the numbers - i.e. GDP, inflation, retail sales, unemployent, and building starts are not looking good. The only issue is that Right Wing Christian right RBA governor who might want divine intervention instead!
C'mon - that's just another prediction! The property market might correct on average, but there are places that won't drop anything like that amount. Conversely, there are places which could do considerably worse.
Also, correction via inflation is less of an issue if you have a yield-oriented strategy, I reckon. Holding cashflow positive property during downturns means that even if the real value drops, you can simply keep holding until the the cycle starts up again (which in this case I expect to take a number of years). I always figured that having cashflow positive investments (which have still achieved some CG, mind you) are the best defence against the short-medium term pain when adopting a buy and hold long term approach.
Agree.....based on the last recession of 1990....demand for higher yield lower priced rentals will become more sought after.
If rates drop back down to 5% again....my CF+ income doubles to nearly 70-80k. That is more than enought to cover my living expenses..if my job disappears.
Remember we have not overbuilt like Ireland in most parts and our immigration rate is still high which reduces supply. And unlike the USA we are still liable for housing loans - i.e. we can't walk away.
Sure there will be some correction but nothing on the scale of other countries.
If rates drop back down to 5% again....my CF+ income doubles to nearly 70-80k. That is more than enought to cover my living expenses..if my job disappears.
Remember we have not overbuilt like Ireland in most parts and our immigration rate is still high which reduces supply. And unlike the USA we are still liable for housing loans - i.e. we can't walk away.
Sure there will be some correction but nothing on the scale of other countries.
Our immigration rate is being killed by populist government movements. Gillard = Abbot = Meh
Maybe this country will do a bit better if Mal was in charge
Maybe this country will do a bit better if Mal was in charge
This country would do better with a leader in charge.....
No man, because of China, Australian economics is growing. Especially if you have IP rented out to Chinese student that's so great.
I voted recession, though that's hardly a big call now we're halfway into one already.
80% of a property forum?
The fun's yet to come... due to bad planning and policies, when it all comes tumbling down, it'll be painful.
- lost control of budget via NBN and other useless populist, vote buying schemes (did that woman offer Wilkes some $1.0bn to fix a silly hospital in some town with the population the size of my finger?)
- 'crackdown' on immigration and student market to further depress tourism, retail/consumer, education sectors (my intel is that these industries are in for some tough times)
- carbon tax to spike inflation up further
- inability to channel mining money back into eastern states of Sydney, Melbourne, Brisbane will continue to dampen consumer confidence
- strategic land cropping to effectively stymie Queensland coal developments without EIS, which means the eastern coal boom in Bowen Basin might be over sooner than expected (such as being over tomorrow) - and for all the Gladstone investors I sure hope your WICET expansion goes to plan because with no one to ship new coal, we won't be needing that extra 50mtpa
- inflation (exacerbated by carbon taxes etc) will cause interest rates to hit eastern state households (where 65%+ of Australia is) and eventually cause it to capitulate as a failing retail industry leads to job slashing
Pilbara is booming, sure, and so are a few other areas. But one Pilbara is not going to hold all this up. And looming over all this is the apparent China slowdown. As usual, people bring upon themselves what they sow so really I don't have much sympathy if things transpire the way I expect them to and the working class who voted Greens find themselves out of a job and unable to find one, let alone pay high electricity prices. In fact I'd expect my associates to take advantage of this to slash wages on the staff and shaft the lazy out in the process.
The fun's yet to come... due to bad planning and policies, when it all comes tumbling down, it'll be painful.
- lost control of budget via NBN and other useless populist, vote buying schemes (did that woman offer Wilkes some $1.0bn to fix a silly hospital in some town with the population the size of my finger?)
- 'crackdown' on immigration and student market to further depress tourism, retail/consumer, education sectors (my intel is that these industries are in for some tough times)
- carbon tax to spike inflation up further
- inability to channel mining money back into eastern states of Sydney, Melbourne, Brisbane will continue to dampen consumer confidence
- strategic land cropping to effectively stymie Queensland coal developments without EIS, which means the eastern coal boom in Bowen Basin might be over sooner than expected (such as being over tomorrow) - and for all the Gladstone investors I sure hope your WICET expansion goes to plan because with no one to ship new coal, we won't be needing that extra 50mtpa
- inflation (exacerbated by carbon taxes etc) will cause interest rates to hit eastern state households (where 65%+ of Australia is) and eventually cause it to capitulate as a failing retail industry leads to job slashing
Pilbara is booming, sure, and so are a few other areas. But one Pilbara is not going to hold all this up. And looming over all this is the apparent China slowdown. As usual, people bring upon themselves what they sow so really I don't have much sympathy if things transpire the way I expect them to and the working class who voted Greens find themselves out of a job and unable to find one, let alone pay high electricity prices. In fact I'd expect my associates to take advantage of this to slash wages on the staff and shaft the lazy out in the process.
Not since you voted Julia Gillard and Bob Brown in. Though I doubt Tony Abbott makes much difference.
Was just talking to an education entrepreneur today at lunch who owns one of the relatively successful diploma schools in the CBD - so she had 2700 students in her 'instituion' at the peak. Now she has around 800. Anyone invest in student apartments here?? I hope you're debt free...
Incorrect.
It was Abbott that offered $1billion that he rejected and ultimately choose Julia, who had offered $360m.
And the city was Hobart, with a population of ~220,000.
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