Last tooth pulled from RBA toothless tiger

http://www.news.com.au/business/miners-face-billions-in-new-taxes/story-e6frfm1i-1225857676969

I am afraid I have to repeat what I have told many times.

Since 2008 RBA managed to maintain highest in the world interest rates. It is crear as a whistle that current level of rates is way above unsustainable.

First, some primitive explanations. Lifting rates is a way of removing money from the economy (it is just a form of variable tax on a new money supply). When economy heats up, central banks sells money they "print" at higher price (by lifting rates), when economy slows down new money sold cheaper (by cutting rates).

In alast few decades RBA adopted (highly irresponsible) approach of lifting rates to the extremely damaging levels. 1990s they lifted rates to 16.5%, killed the economy, and then (surprise-surprise) wound them back very quickly.

History was repeated 2008, when they lifted it even higher to 7.25% - and again (surprise-surprise) they had to cut rates extremely quickly to the lowest level in the history.

If someone thinks that I am mad telling that 7.25% is higher than 16.5% - take a long hard look at the mirror. Yes it is higher.

Thing is that in 1990s for every dollar earned we had 45c in debt, while in 2008 that ratio was $1.65 of debt per every dollar earned. In other word, every percentage point in 2008 removed from the economy 3.7 time the money it did back in 1990s. Accordingly, 2008 rates were equalling 26.5% in 1990s terms.

I know it will come a surprise (for some obscure reason) for people who were jumping over themselves yelling "deleveraging! deleveraging!" - but during the slump individuals and (mostly) businesses had to borrow even more - so current debt/income ratio got very close to 1.8. Which means that in terms of rate we again went higher than 1990s.

What allows blockheas from RBA to do this insanity? Simple - phenomenon that is known as "two-speed economy", in simpler terms- "resource bubble".

From one side multinationals robbing our mineral resources 24/7 leaving us breadcrumbs in form of "state royalties", form the other side is the rest of the country who gets nothing but high rates.

In other words, manufacturing, agriculture, education (everything that is not mining) and ordinary people pay the price of us being resource appendix of the third world.

Curing resource bubble with interest rate hikes is the same thing like curing acne by strangling a person.

Now finally we have some clearasil applied to this pimple - resource tax is more than doubling. Not enough I would say - but it is step in right direction.

And this is not only good because it makes RBA completely toothless. It is good because every ton of ore and coal we do not sell today we sell tomorow at higher price. It is good because every ton of coal we do not sell to the countries with backward technologies means less greenhouse emissions.

The next best thing would be sharemarket crash, but theoretically current sucker's rally is set to continue until indexes reach 90-95% of 2007 level - although can happen at any moment.

BTW, yesterday's auction clearance rate in Sydney was at 73%, so new leg of the property boom that is coming is going to set market ablaze. For those with short memory - back in 2008 I warned that mother of all property booms arrived. Now she is dressed up and ready to party.
 
you know - for once, i actually agree with you.

and i am also quite angry that most of this news has been hidden away from the mainstream media.

seems the wealth confiscation vehicle has become a smarter operation. they can now oficially overcharge us for everything and not have to spend / redistribute any of it.

i wonder where it's all going.....?
 
http://www.news.com.au/business/miners-face-billions-in-new-taxes/story-e6frfm1i-1225857676969


If someone thinks that I am mad telling that 7.25% is higher than 16.5% - take a long hard look at the mirror. Yes it is higher.

Thing is that in 1990s for every dollar earned we had 45c in debt, while in 2008 that ratio was $1.65 of debt per every dollar earned. In other word, every percentage point in 2008 removed from the economy 3.7 time the money it did back in 1990s. Accordingly, 2008 rates were equalling 26.5% in 1990s terms.

I don't think you're mad, I think you're analysis is spot on. But the fact that you don't see a problem with the extreme levels of household debt you yourself denote, is what concerns me, in fact, it astounds me.

We in Australia have some of the highest in the world. When you build your "wealth" upon a house of debt rather than production and productivity - this is what happens. The RBA are both brave and correct in their actions. Stop borrowing and relying on the sweat of others to make a living for yourself. Go out and contribute to society.

If the only way you can create wealth is by selling something to the next sucker at an overvalued price due to inlationary fiscal policy settings, sooner or later, the masses will cry out (as they are now - see article in today's SMH) and the powers that be (govt, RBA) will pare back all the freebies. Those left holding the bag (the bag being overpriced dung hole properties) will be the biggest losers in all this. Sell now before it's too late for you. This madness has now reached the point that the govt is shifting gears too, not just the RBA. Rates to the moon my friend, rates to the moon. Hold cash for a while.

http://www.smh.com.au/opinion/politics/rising-wave-of-voter-anger-over-housing-20100426-tmma.html
 
http://www.news.com.au/business/miners-face-billions-in-new-taxes/story-e6frfm1i-1225857676969



Since 2008 RBA managed to maintain highest in the world interest rates. It is crear as a whistle that current level of rates is way above unsustainable.

Sorry, what about prices that are the highest as a multiple of incomes on earth (Canada maybe our only competitor). Are prices sustainable? I'd love to hear your thoughts on prices? Who's buying now that the FIRB rules are changing? Not the next generation, they are locked out. So unless boomers can shuffle properties to eachother until they shuffle of this mortal coil, a real demand side issue is surfacing.

http://www.mfaa.com.au/default.asp?artid=2422&menuid=381

I think the RBA is concerned with the insanity of property prices (they have said so) as opposed to your ability to pay down ridiculous borrowings that were always based in the fallacy of a rising market. I'd really weigh things up because it will be ugly for those left holding the bag.

Good luck.

SYDB
 
Sorry, what about prices that are the highest as a multiple of incomes on earth (Canada maybe our only competitor). Are prices sustainable? I'd love to hear your thoughts on prices? Who's buying now that the FIRB rules are changing? Not the next generation, they are locked out. So unless boomers can shuffle properties to eachother until they shuffle of this mortal coil, a real demand side issue is surfacing.

http://www.mfaa.com.au/default.asp?artid=2422&menuid=381

I think the RBA is concerned with the insanity of property prices (they have said so) as opposed to your ability to pay down ridiculous borrowings that were always based in the fallacy of a rising market. I'd really weigh things up because it will be ugly for those left holding the bag.

Good luck.

SYDB
The minute you start to think that media spinners know what will happen over any six month period,then you want to take a long look at what you are doing,for several years now people have came and gone all thinking property was about to go belly-up,what do you think will trigger the property fallout,??get-rich fast buck sprukiers telling everyone the truth, median property prices dropping for three months in a row,unexpected interest rates hikes by the "Banks",?a serious political crisis,?Tax changes to depreciation claims,a rush of mortgagee sales in the middle or upper class area's,that is happening every day in property only the location is different,so what do you think will be the trigger??..willair..
 
I'd really weigh things up because it will be ugly for those left holding the bag.

Good luck.

SYDB

okay that's just short sighted.

what do you do between now and the future issue of being left holding the bag? nothing? twiddle your thumbs? whittle your kids a toy wooden horse?

sorry, but there are ways to profit from anything - and staying out because "it's gonna end in tears" eliminates any profitmaking ability between now and "then" - whenever "then" may be.
 
okay that's just short sighted.

what do you do between now and the future issue of being left holding the bag? nothing? twiddle your thumbs? whittle your kids a toy wooden horse?

sorry, but there are ways to profit from anything - and staying out because "it's gonna end in tears" eliminates any profitmaking ability between now and "then" - whenever "then" may be.

My posts addressed issues beyond the ability to make profit from property investment (which itself is in grave danger given the circumstances described by OP and others I have touched upon).

When there are no more buyers at the given price level, and the expectation shifts to falling prices you wont be worried about opportunity cost, as per your above post. You'll be worried about real cost.

If you disagree, continue to highly leverage into property. One of us will be right, one of us will be wrong. I'm not asking you to believe what I believe.
 
Quote:
Originally Posted by ToDo
http://www.news.com.au/business/mine...-1225857676969


The next best thing would be sharemarket crash, but theoretically current sucker's rally is set to continue until indexes reach 90-95% of 2007 level - although can happen at any moment.
Geez I hope you're right, because I couldn't buy after the last crash due to other commitments. :(

But if the next one occurs in the near future.....I'm ready.

Straw hats in winter.

Thanks for the kind words. :eek: Nice to know that there are investors out there wishing me harm for their own perceived good. Are you guys orphans with no friends or rellies dependent on income from investments/super?

Be careful what you prey for. I doubt property will survive unscathed next time there is a collapse. And if it does, you guys won't mind me crowing about how cheap I can buy your house will you?
 
Sorry, what about prices that are the highest as a multiple of incomes on earth (Canada maybe our only competitor). Are prices sustainable? I'd love to hear your thoughts on prices? Who's buying now that the FIRB rules are changing? Not the next generation, they are locked out. So unless boomers can shuffle properties to eachother until they shuffle of this mortal coil, a real demand side issue is surfacing.

http://www.mfaa.com.au/default.asp?artid=2422&menuid=381

I think the RBA is concerned with the insanity of property prices (they have said so) as opposed to your ability to pay down ridiculous borrowings that were always based in the fallacy of a rising market. I'd really weigh things up because it will be ugly for those left holding the bag.

Good luck.

SYDB

Yaaaawwwwnnn...... First, RBA is concerned about two things:

1. How to save their belowed Liberal party from electoral annihilation. Political *******ry is 50% of their motivation. Without raising rates at the eve of the election Mr Abbott with his (mildly speaking) intelligence is leading party deeper into wilderness. So here we see orchestrated effort of the media and RBA - one raises rates, another is hysterical that it has been caused by stimulus. This is true, but RBA has gone too far in their sabotage.

2. They want to repeal money away from property market, so their beloved share market stays in the zombie mode longer that it normally would. Vested interest is the name for it.

Second, "highest propotion of income" is a myth. Gail Kelly has bought $8.73M mansion, but her income is $10M pa. Family on 2 incomes of $50K can buy free standing house in Tregear (Sydney Metro) for about $200K, which is 2 yearly incomes.

Myth that during 70s house was worth 3.5 times average income does not hold the water. Just read job ads section in 1970s newspaper. 99% of all ads contain magic worlds: "Men and boys only". Unscrupulous rascals from media comparing single income families of 70s to double income of today.

"Mortgage stress" is also a myth for naive people. In 1970 you could have bought brand new house for $9000. Your interest payments were about $20 a week, which was 33% of average $60 pw salary.

Tattoo it on your forehead: for the last 150 years property grew 8% a year long term average. It will continue to grow at the faster pace, as we have run out of land in major centres.

The only thing that is different - we have brought up generation of lazy parasites who want everything at once. They do not want to start their climb on property ladder from outer suburb gradually upgrading to better places like all previous generations did. They do not want to embrace concept of hard work, they want to live ehre they can not afford.

And whether they cast their black magic spells or not, property will double in price every 9 years.
 
Yaaaawwwwnnn...... First, RBA is concerned about

The only thing that is different - we have brought up generation of lazy parasites who want everything at once. They do not want to start their climb on property ladder from outer suburb gradually upgrading to better places like all previous generations did. They do not want to embrace concept of hard work, they want to live ehre they can not afford.
I laugh when "hard working" boomers/older Gen Xers don't realise that alot of their "success" was built on nothing but pure dumb luck (I use the term loosely, as this refers purely to mythical balance sheet success, not actually living a successful, wholesome life).

Gen Y'ers just wont fund your retirement by entering the ponzi scheme. And for that they are lazy. Typical boomer attitude, enslaving their own children. What a strange bunch you are.

Gen Yers work just as hard as you, if not harder, but get a much more average deal because you are still in power. But that wont last.

I sense fear in the changing policy settings - it's a bit scary all that leverage and the prospect of declining prices, isn't it. Sounds like you'll have to work longer, and the govt knows it. If you dont believe me, check out the intergenreational report and the Henry review released next week. Or maybe such is too difficult to consider and its easier to keep preaching the mantra in hope.

Good luck to you

SYDB
 
Yaaaawwwwnnn......

Good answer. I still note NO ONE has addressed the concerns I raised with regards to the OP's post. NO ONE seems to want to discuss the extremely high IR rate sensitivity of massively geared households.

Everyone just wants to talk it up. I notice Nathan even has his own website. So no vested interest there. Oh, it is hilarious. The government should regulate the property industry, not financial planners! Laughable, unprofessional and uneducated industry.
 
Nobody likes high interest rates. We are with you on this, even if some of us can understand the reasons why the RBA sometimes hurts us by raising rates, in much the same way as mummy dearest spanked us when we got too noisy all those years ago.

From one side multinationals robbing our mineral resources 24/7 leaving us breadcrumbs in form of "state royalties", form the other side is the rest of the country who gets nothing but high rates.

You probably have no problem about us 'Strayans investing overseas and bringing home the profits. Why should it be different for foreigners? Our beloved RIO and BHP, not to mention our major Banks, do to those Godless foreigners exactly what they do to us. If foreign miners raped and polluted our country the same way Aussie miners do in the third world we'd be screaming murder. But ah, I hear you say - they should be grateful we are investing in their maggot infested countries.

every ton of coal we do not sell to the countries with backward technologies means less greenhouse emissions.

You've forgotten something. Australia produces, per capita, more greenhouse gases than any other country. But greenhouse gases can't harm the world - it's all a conspiracy to hold us back. *cringe*

You scare me. It's nice that you own property. But it's distressing when people like you fly the flag for us when you travel overseas, making the rest of us look like a bunch of thoughtless, unrefined, unsophisticated hillbillies. Were you the one at Gallipolli last year, pissed as a parrot and shouting oi oi oi?
 
The government should regulate the property industry, not financial planners! Laughable, unprofessional and uneducated industry.


SYDB
Have you been a previous member of this forum with a different name?

Your statement that the Government should regulate the property industry is interpreted by me that you have little knowledge of building.

The property industry is highly regulated, development applications approved or not approved, construction certificates need to be applied for an issued, basix requirements, qualified builder, [Home Warranty Insurance] or do an Owner Builder Course, insurances, Superannuation, Workcover, Council Building Inspections during the course of construction.

The property industry is so regulated that we are building a duplex with a front facade/design that I don't like as that was the only way the Development Assessor would approve.

Fancy not being able to build a residential design that you personally like. Standard brick and tile with alumium windows.

Hmm.... cough up 500k

SYBD

FYI
Builders and other trade professionals have to do CPD points each year to maintain their licences.

What profession are you in and how much CPD (continued professional deelopment) points do you pay for and do in your own time for your profession to maintain your education?

So you state that the building industry is laughable - I guess you live in a tent and not a building.

Do you know how long and how hard timewise it can take to get a residential development through council in our instance 5 months - who is going to pay for all that time, letters, applications, meetings, debates, requests and finally having to build something with bars on one side of a building?

Regulations have increased costs enormously for example we have to pay an extra $500 for 3 federation designed windows on one unit so it doesn't look like the other unit.


Sheryn
PS.
How many buildings have you contracted to build?
Talk about your personal experiences as we are all here to learn and share information.
 
SYDB
Have you been a previous member of this forum with a different name?

Your statement that the Government should regulate the property industry is interpreted by me that you have little knowledge of building.

The property industry is highly regulated, development applications approved or not approved, construction certificates need to be applied for an issued, basix requirements, qualified builder, [Home Warranty Insurance] or do an Owner Builder Course, insurances, Superannuation, Workcover, Council Building Inspections during the course of construction.

The property industry is so regulated that we are building a duplex with a front facade/design that I don't like as that was the only way the Development Assessor would approve.

Fancy not being able to build a residential design that you personally like. Standard brick and tile with alumium windows.

Hmm.... cough up 500k

SYBD

FYI
Builders and other trade professionals have to do CPD points each year to maintain their licences.

What profession are you in and how much CPD (continued professional deelopment) points do you pay for and do in your own time for your profession to maintain your education?

So you state that the building industry is laughable - I guess you live in a tent and not a building.

Do you know how long and how hard timewise it can take to get a residential development through council in our instance 5 months - who is going to pay for all that time, letters, applications, meetings, debates, requests and finally having to build something with bars on one side of a building?

Regulations have increased costs enormously for example we have to pay an extra $500 for 3 federation designed windows on one unit so it doesn't look like the other unit.


Sheryn
PS.
How many buildings have you contracted to build?
Talk about your personal experiences as we are all here to learn and share information.

No Sheryn, never had another name. Don't assume there is only one person out there who sees the downside in the current madness. There are many and their numbers are growing.

Apologies, I may have been unclear. I was not referring to the building side of the industry at all. I have no knowledge of this part of the industry.

I was referring to the sell side. This refers to real estate agents, buyers agents and those offering education or advice on property investing.

I am a FHB who works for a bank and it scares me to see the differential in regulation around advice for what is such a major part of everyone's lives. The sell side of the property industry is a law unto itself.

Considering this is one of the most important financial decisions people will make in their lives, surely they should be properly advised as to the risks of highly leveraged property purchases, not just the benefits. Surely, those advising them should have to go through a rigorous educational, licensing and on-going monitoring process? Surely, there should be significant disclosure requirements? Surely, there should be an agency that monitors conduct and is punitive towards unscrupulous advice (such as ASIC for financial planning)?

The government yesterday announced massive changes to the financial planning industry's regulation. The same sort of prudence should be in place around real estate selling/investing. It is not, of course. This is extremely unfortunate for society as a whole. The industry is, as I said, a law unto itself.

Can someone who disagrees (90% of this forum I'm sure) tell me why the above should not be so?

Ans one final question - is it ever a good time not to buy or to off load property? With any other asset class, it is of course - but with residential property, it always seems a good time to buy. Don't want to get too circular here, but it goes to my above points.......it's always buy, buy , buy......

Cheers

SYDB
 
prices that are the highest as a multiple of incomes on earth (Canada maybe our only competitor).

Ummm.... nope. You're not even close.

http://www.numbeo.com/property-investment/rankings_by_country.jsp

House Price To Income Ratio, Country
67.5 Morocco
40.6 Pakistan
40.0 Belarus
30.0 Montenegro
28.6 Russia
24.3 Romania
20.8 Lithuania
18.8 Serbia
18.3 Latvia
17.4 Ukraine
17.1 China
16.7 Spain
16.5 Hungary
16.3 South Korea
16.0 Thailand
15.8 Indonesia
15.6 Paraguay
15.4 Albania
15.3 Bosnia And Herzegovina
15.1 Slovakia
14.9 Czech Republic
14.6 Iran
14.4 Singapore
14.3 Italy
14.1 Estonia
13.9 Bulgaria
13.6 Japan
13.6 Poland
12.7 Croatia
12.7 France
12.2 Greece
12.0 United Kingdom
11.8 Argentina
11.6 Portugal
11.3 Malaysia
11.0 India
10.9 Jordan
10.9 Israel
9.8 Sri Lanka
9.5 Colombia
8.6 United Arab Emirates
8.1 Norway
8.0 Denmark
7.7 Ireland
7.6 Venezuela
7.4 Mexico
7.2 Kyrgyzstan
6.7 Peru
6.5 Netherlands
6.3 Australia
6.3 Brazil
6.2 Finland
6.2 Canada
5.8 Ecuador
5.7 Bahrain
5.6 Turkey
5.4 Switzerland
5.2 Austria
5.1 Cyprus
5.1 South Africa
5.0 Bangladesh
4.8 Honduras
4.3 Germany
4.3 Belgium
4.2 Sweden
4.1 Chile
3.5 Dominican Republic
2.7 United States



Are prices sustainable?

No, current prices are not sustainable. They are currently far too low given the supply/demand imbalance and strong economic future for Australia. It is not sustainable to have such low prices in a country like Australia. House prices will keep on rising. In fact I expect our house price to income ratio will move up from it's current ranking near the bottom of that list and possibly approach the ratios seen in China, Spain, UK, Japan etc.
 
No, current prices are not sustainable. They are currently far too low given the supply/demand imbalance and strong economic future for Australia. It is not sustainable to have such low prices in a country like Australia. House prices will keep on rising. In fact I expect our house price to income ratio will move up from it's current ranking near the bottom of that list and possibly approach the ratios seen in China, Spain, UK, Japan etc.

Thanks Shadow. Interesting stats there. I have seen some different ones, but that's fine. All I'll say is that I think the average Australian finds it tough to put a roof over their heads nowadays. Maybe you disagree with this?

I think it's a sad situation for many young families. Maybe you disagree with this too?

Regardless of our differing views on the role of affordable housing in a cohesive society, I'd be really interested to hear your thoughts re the regulation of property advice, regulation etc made in my previous posts.

Should it be tightened as in the financial planning industry where a fiduciary duty is being introduced? If not, why not, given that highly leveraged property investing carries serious risk (as does any form of investing)?

Cheers

SYDB
 
Thanks Shadow. Interesting stats there. I have seen some different ones, but that's fine.

Would you mind sharing your stats? It's all very well to say that Australian house prices are the most expensive in the world and you've got stats to prove this... but where are they?

All I'll say is that I think the average Australian finds it tough to put a roof over their heads nowadays. Maybe you disagree with this?

Over half a million people bought homes last year, so there appears to be plenty of people able and willing to buy.

I think it's a sad situation for many young families. Maybe you disagree with this too?

It is sad if people can't afford shelter, but I don't believe this is the case in Australia. Shelter is available for everyone.

Regardless of our differing views on the role of affordable housing in a cohesive society, I'd be really interested to hear your thoughts re the regulation of property advice, regulation etc made in my previous posts.

Should it be tightened as in the financial planning industry where a fiduciary duty is being introduced? If not, why not, given that highly leveraged property investing carries serious risk (as does any form of investing)?

Caveat emptor. Everyone should do their own research. There will always be people giving bad advice. I don't think it is really possible to regulate advice, because it is based on opinion and prediction of the future, which nobody can predict.
 

I might agree with you about australia home price on income not beeing the highest in the world but your list is not even close too:
for example if you put aus gdp at 1.2 tril$ and you consider 22 mil people in australia that make close to 55 k$ average income, if you multiply by 6.3 that amount it comes to 340k$ for home prices which is far off reality.
UK is even far wrong as their average home price is around 160K pounds, divided by 12.0 makes just over 13k pound average income :confused:
haven't bothered check other countries
 
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