Rates heading which way?

[Deltaberry]

Depends what the catalyst for the AUD depreciation is.

It's probably equally if not more likely that an AUD depreciation would see a corresponding Australian asset deflation.

I guess the USD and Euro are a case in point? Not only is the USD and Euro falling, its assets are also falling. In other words, if you're American or European, your relative wealth has just fallen by some 75% compared to Australians. Pretty sad to be honest. And I'd hate to be in the same boat in 5 years time because I know I'll be kicking myself really hard for letting my wealth wither away like that.

Also, even if assets were to rise, the AUD would fall faster than Australian assets could rise, if there was even a case for them to rise. There'd be a good 6-12 month window to re-enter the Australian market after a collapse in AUD if you're worried about missing out on any gains in the Australian market.

If the catalyst were say a US double dip recession, you could see the Australian economy collapse.

 

[BayView]

... and I'm happy to pay $80 in store for something I can get for $70 online - but $100 difference was just a bit hard to swallow.

Also heard that our local Westfield has put their rents up again ... and reduced the number of free staff carparks by 20%. Totally sux. I feel for the retailers - but ... $100 on a 30 second purchase from the armchair was $100.

I've been bangin' on about this scenario for some time now. The internet is sounding the death knell for many retail lines (and shops - unless they can introduce internet sales to their business).

I understand the mindset of the consumer...buy as cheap as you can wherever possible and all that. $100 is a saving you cannot ignore.

But some of the things I've seen consumers do to save a few dollars is astounding, and so if you can sit at the kitchen table and hit a few keys and save thousands per year off your normal consumption articles (other than say; food and petrol), then they will do it.

My wife is not a shopper at all, and even she buys most of her personal clothing and shoes off the internet now.

 

[jaycee]

I've been bangin' on about this scenario for some time now. The internet is sounding the death knell for many retail lines (and shops - unless they can introduce internet sales to their business).

I understand the mindset of the consumer...buy as cheap as you can wherever possible and all that. $100 is a saving you cannot ignore.
But some of the things I've seen consumers do to save a few dollars is astounding, and so if you can sit at the kitchen table and hit a few keys and save thousands per year off your normal consumption articles (other than say; food and petrol), then they will do it.

My wife is not a shopper at all, and even she buys most of her personal clothing and shoes off the internet now.

Not an unfair view from the consumer...

Whats the "solution" though ?

Try & stop it doesn't seem possible, must be something else shop owners can do (to a point at least) (?)

 

[Belbo]

Not an unfair view from the consumer...

Whats the "solution" though ?

Try & stop it doesn't seem possible, must be something else shop owners can do (to a point at least) (?)

Internet technology has gifted all consumers the opportunity to buy a whole range of products far cheaper from the comfort of their our own keyboards. By what rationale would you want try to stop it, Jaycee?

The celebrated economist Joseph Schumpeter called this the 'creative destruction' that explained the very vitality of capitalism.

Would you have us all turn off our computers to protect high-street merchants, or comply with their clamouring for protective tarriffs, or would you suggest that they adapt their business models to whatever extent they can if they don't want to go the way of the dinosaurs?

 

[jaycee]

I was trying to reply to bayview, thinking that was what he was meaning was needed a solution.. Upon re reading his post however I see he offered one: The internet is sounding the death knell for many retail lines (and shops - unless they can introduce internet sales to their business).
I agree with that, or the way you put it..that they adapt their business models to whatever extent they can if they don't want to go the way of the dinosaurs

 

[Belbo]

I was trying to reply to babyview, thinking that was what he was meaning was needed a solution.. Upon re reading his post however I see he offered one: The internet is sounding the death knell for many retail lines (and shops - unless they can introduce internet sales to their business).
I agree with that, or the way you put it..that they adapt their business models to whatever extent they can if they don't want to go the way of the dinosaurs

Babyview? Cute!

 

[jaycee]

oh no I didn't !

oops, that was a typo

 

[BayView]

Not an unfair view from the consumer...

I agree.

Whats the "solution" though ?

Don't know, Jaycee.

It is something that concerns me a lot.

I am a business owner, and my (tyre and automotive) business is affected a bit, although not to the same degree as say; clothing for eg. People can buy their tyres online, but then they have to get them fitted to their rims by someone, and most tyre places are charging a premium for this.

But I am also generally concerned as I can see the direction it is all heading in.)

Try & stop it doesn't seem possible, must be something else shop owners can do (to a point at least) (?)

All I can see is less staff (as turnover will drop) and look for cheaper rent premises. The prob is that often the custom doesn't follow the business, or of it does; it can drop off unless the new premises is really close by, so less staff required again.

And as the internet side of the business increases (if the business goes down that path in order to increase turnover again), then less staff is needed for this eventuality too.

The longer term effect on employment is not good as I see it..

Add to that the current trend of outsourcing jobs to OS and it is worrying.

At least the OS job market is on the up.

 

[Deltaberry]

DB, I know you mean well, but most of us are simply too old now to ever learn how to read the relevant contract paperwork (or believe a translation). That's just how it is.

By the way, English is the official language in this jurisdiction. Though it's interesting you say that because at some point every investor steps out of their comfort zone, if only for a bit.

Perhaps you're right - most successful investors here are older so why bother. Most younger investors probably don't have enough time/capital to do all this stuff - after all deposit requirements over there are minimum 40% now. I think if Australia set a rule like that, nearly all our under 30 investors save a few like the two Aarons and Nathan would not be able to buy anything.

 

[Deltaberry]

I've been bangin' on about this scenario for some time now. The internet is sounding the death knell for many retail lines (and shops - unless they can introduce internet sales to their business).

I understand the mindset of the consumer...buy as cheap as you can wherever possible and all that. $100 is a saving you cannot ignore.

But some of the things I've seen consumers do to save a few dollars is astounding, and so if you can sit at the kitchen table and hit a few keys and save thousands per year off your normal consumption articles (other than say; food and petrol), then they will do it.

My wife is not a shopper at all, and even she buys most of her personal clothing and shoes off the internet now.

This is a new market. Slowly supermarkets might even get wiped out.

In some cities in China, there are internet cafes where people go to buy groceries, and the cafe orders them in bulk based on the orders of the day. Normally happens in small villages with say 1 million or less, where internet is rarer. There's still an issue of delay as the goods normally come the next morning and you have to go pick it up. But not something that some innovative American/Chinese/German/Japanese isn't going to circumvent at some stage.

 

[Belbo]

Most younger investors probably don't have enough time/capital to do all this stuff - after all deposit requirements over there are minimum 40% now. I think if Australia set a rule like that, nearly all our under 30 investors save a few like the two Aarons and Nathan would not be able to buy anything.

Which, alongside exchange rate risk, lack of familiarity with local law and custom, and God knows what tax complications, what you are suggesting might less question an investor's comfort zone as their sanity.

 

[Belbo]

But back the original question - Where will interest rates be by the end of 2012?

I'm coming around to the view that they will be 100 basis points lower than they are even now, entirely because of the startlingly growing likelihood of Europe descending into an all-out economic depression.

Why? Because with Spain now seriously on the ropes, and Germany unwilling to do what must be done and empower the ECB to act as a reserve bank for Europe, time has simply run out.

The global economic contraction triggered will force the RBA's hand.

I do of course very much hope to be proved completely wrong.

 

[Token Funder]

But back the original question - Where will interest rates be by the end of 2012?

I'm coming around to the view that they will be 100 basis points lower than they are even now, entirely because of the startlingly growing likelihood of Europe descending into an all-out economic depression.

Why? Because with Spain now seriously on the ropes, and Germany unwilling to do what must be done and empower the ECB to act as a reserve bank for Europe, time has simply run out.

The global economic contraction triggered will force the RBA's hand.

I do of course very much hope to be proved completely wrong.

"Which rates?"?

The OCR or what people are paying?

If Europe fails to sort itself out (or, perhaps, worse, does) and 2008 levels of distrust re-emerge, it's quite possible a 100bp drop in cash rates could lead to only half of that in the Real World.

EDIT: I should add that the sort of environment that would bring about 100bp reductions in the OCR is not an environment we want to see.

 

[Belbo]

"Which rates?"?

The OCR or what people are paying?

If Europe fails to sort itself out (or, perhaps, worse, does) and 2008 levels of distrust re-emerge, it's quite possible a 100bp drop in cash rates could lead to only half of that in the Real World.

EDIT: I should add that the sort of environment that would bring about 100bp reductions in the OCR is not an environment we want to see.

The OCR, of course. I don't disgree that our banks would not necessarily pass such cuts along in full. But I do fear the environment is one we are now very much more likely to see than not.

 

[Don K]

Now from 5.99% 3 year fixed. Very tempting...

 

[Deltaberry]

Which, alongside exchange rate risk, lack of familiarity with local law and custom, and God knows what tax complications, what you are suggesting might less question an investor's comfort zone as their sanity.

Exchange rate risk would be in your favour one would've thought. On the one hand you think interest rates will be 100bps lower when the A$ is at a historical high and US interest rates are at one of the lowest for a long time. Yet you talk about exchange rate risk...

Lack of familiarity with local law and custom is an issue for you I guess, though that's nothing you can't bridge with time and money. Who starts off knowing what they're doing?

Tax complications is not that complicated, in short you just need to pay your Australian taxes because HK taxes are low any way.

 

[Belbo]

Okay, I see your point. If the AU$ is overvalued, now's the time to buy HK$ and invest there. Then, when the AU$ falls (as it likely would with a 100BP interest rate drop), you could sell down and revert to AU$ with an exchange rate profit. Fair enough. Where do I sign up again?

 

[Aaron_C]

IG Markets, Belbo. 200:1 leverage

 

[Belbo]

IG Markets, Belbo. 200:1 leverage

Wooohooooo!

 

[Aaron Sice]

IG Markets, Belbo. 200:1 leverage

institutionals get 4000:1