RBA issues rates warning.

[boomtown]

From the last ABS cpi release.

OVERVIEW OF CPI MOVEMENTS

• The most significant contributors to the increase this quarter were automotive fuel (+5.4%), pharmaceuticals (+13.1%), house purchase (+1.7%), electricity (+6.0%), rents (+2.0%) and other financial services (+2.0%).
• The most significant offsetting decreases were for furniture (-3.6%), audio, visual and computing equipment (-5.8%), domestic holiday travel and accommodation (-1.4%) and accessories (-5.3%).

So the RBA want us to stop consuming so much :
- automotive fuel - ok lets all get the train, but they are full, in Melbourne at least.
- pharmaceuticals - ok, doc, can I halve my BP medication?
- houses - got that covered (see above graph)
- electricity - hmmmm, no heating for grandma this winter...
- rent - ummmmm, RBA I am all ears on that one.
- financial services - hmmmmm, have to stop using credit cards for staples.

The above all look like staples to me....except houses and financial services.

Could it be the RBA have an ulterior motive?

So what you are saying is that inflationary pressures are entrenched and the RBA is going to have have many more rate rises before you roll over and stop consuming? Please, sir, may I have another beating?

I fully agree with you. Its spastic the way the system works. But its the system that we are stuck with so long as the RBA pursues a 2 - 3% CPI band. Which we are way outside of. And getting worse.

 

[Aaron Sice]

Could it be the RBA have an ulterior motive?

i've said they have for years.

our rising interest rates here are helping to prop up the UK and US economies.

UK has had 4 cuts since late 07
US is in a rates slide

why are ours going up?

material and fuel prices are rising around the world so we're all in the same boat there.

we just have an income source (resources), so everyone can take a slice of ours to help out huh?

maybe the US and UK are the proles...?

 

[boomtown]

i'm being serious here - how do you make money out of rising interest rates?

we all know the IMF wins every time, so how do i get a slice of the action?

As I said in the other thread - perfectly seriously:

1. Purchase a hard asset like real property on a high LVR.
2. Fix your interest repayments on long term.
3. Wait for high interest rates to drive up rental returns - other investors on variable feeling the pain.
4. Watch your property go CF+ because your cost of funds are well below the rest of the market.

Your exposure is that rates *dont* go up so you are stuck with a higher fixed rate than the rest of the market. But then if rates drop maybe theres a boom so your CGs shoot up so who cares.

 

[Aaron Sice]

....without having to qualify for another loan - i'm cash strapped as it is....

 

[WinstonWolfe]

BC and BT, I reckon our economy isn't as dead as the US. Their central bank knows consumption will tank even with low rates.

Our central bank thinks we need to hear that we should spend less cos we are being little piggy consumers on the fat of the mining boom.


What's reallly happening according to some of the guys I read is that the central banks are trying to prevent further damage to the global banking system by heading off further liquidity stasis.

The US Fed are helping their banks by allowing them to make bigger profits via lower central rates (remember the bulk of US mortgages are fixed). No one is buying property over there anyways, so profits have to come out of current mortgages. Fatter profits will help their banks write off the sub prime debts earlier and grease up liquidity for another round of lending to the US consumer...if the country doesn't go into structural recession.

The RBA know our banks will jack up rates to preserve and boost profits, blaming the cost of foreign funds, and the Aussie press and public will buy it on the whole. Higher rba set rates in Australia will help aussie bank profits cos most of us don't have fixed rates, and retail deposits are still miniscule compared to housing loans. Remember an average house here costs 8x median wage. no great growth in retail deposits likely = better bank profits on higher rates.

So, there you go. The ulterior motive is to stop the global banking system freezing up, by restoring all bank balance sheets into the black asap.

And keep in mind, it is the central banks that want to get paid back.
Bank of England went into debt on the Rock.
US Fed bought IndyMac and underwrites Freddie and Fanny.
RBA has to bail out CBA mortgages if they tank.

So the central banks are trying to save themselves, even if at the expense of the economy for 5 years or so.

The US Fed did the same in the 80s when their banks got burnt on loan defaults to Sth America....let them carry bad debt on their books at full loan value, and write it off profits over 10 years.

 

[boomtown]

Are you 100% fixed on your existing properties? If so, sit back and have a nice nap. When you wake up you will be richer.

 

[Righteous Toss]

boomtown, i'm looking at buying my first I.P unit in Seaford Vic by the beach.
Just wondering how long I should lock the rate in for. I don't have any debt or own any other property.
Thanks!

 

[boomtown]

boomtown, i'm looking at buying my first I.P unit in Seaford Vic by the beach.
Just wondering how long I should lock the rate in for. I don't have any debt or own any other property.
Thanks!

I cant tell you what is right for your circumstances. What I can say is what I am doing for *my* circumstances. I am paying for a rate lock this week well before the June quarter CPI data comes down around 22? July. If the CPI data is up on market expectations, driving up IRs, I will keep my rate lock. If the CPI data is below market expectatios I will dump the application (lose my $800 rate lock fee) and sniper a lower rate.

Personally I like to lock for 3 years because that gives me a healthy cushion (I can get a promotion and / or jack up rents to increase income significantly in 3 years) but it doesnt leave me with a massive overhang in the event that the commodities boom collapses (which I dont think it will but hope for the best and plan for the worst).

 

[BayView]

i'm being serious here - how do you make money out of rising interest rates?

we all know the IMF wins every time, so how do i get a slice of the action?

Buy a property that comes on the market when there are no buyers, and the Vendor needs to sell quickly, and the property has good depreciation deductions and add-value potential.

Be ready to settle quickly as well - 30 to 45 days.

Then, put in a tenant, get your Q.S in for a D.S, do a ITWV, sit, and wait for the next boom.

If you want money in a real hurry, there's the stockmarket if you understand warrants, options etc.

 

[BoatBoy]

http://www.aireview.com.au/index.php?act=view&catid=8&id=8897

Rate Cut On The Cards
July 16 2008 - Australasian Investment Review – (AIR)

Well, the chances of a Reserve Bank rate rise are non-existent, while the chances of a rate cut are growing, despite another round of opportunistic rate rises from our now dominant banks and expectations of a high inflation reading when the June quarter Consumer Price Index is released next week.

The release of the July 1 board meeting minutes yesterday makes it clear that a rate rise in not in the bank's thinking and not even a forecast 1% or more rise in next Wednesday's June quarter Consumer Price Index will make the bank change its approach.

The bank’s minutes were released on a day when the stockmarket here tanked, and those in Asia weren’t far behind, especially Hong Kong and China. Europe, especially London, was also weak with 2% plus falls and Wall Street finished around 1% lower as Fed chairman Ben Barnanke wanred that conditions in the markets and the US economy had worsened in the past few weeks.

Oil slumped sharply: down more than $US6 a barrel to $US138.7d, its second ever biggest fall. the US dollar fell, rose and then fell and the Australian dollar charged on towards parity with the US as it hit 97.80 US cents in late trading in Asia, and then 97.90 in the US markets.

At the close, ASX200 index was off 105.3 points, or 2.1% at 4815.7, its lowest close in nearly 30 months; the fall equates to another more than $20 billion being wiped off the market's value and brought the losses in this year to 24%.

The broader All Ordinaries dropped 97.8 points, or 2%, to 4910.1 and the futures are again tipping a lower opening.

The Fed chairman could have been updating our Reserve Bank's minutes with his testimony to the Senate in Washington overnight. He seemed to be confirming that financial conditions have weakened noticeably since the RBA's July 1 board meeting, despite rising inflation worries.

Those inflation pressures won't cause a rate rise in the US or UK soon, nor will they force the RBA to boost rates here: in fact a rate cut is probably more of an option now.

<snip> Long article, sorry


We should have a better idea by then. But next week's CPI rise of more than 1% won't cause the bank to lift rates; far from it, it could convince them that a rate cut might now be possible later in the year.

Can only hope

Dave

 

[TheAnalyst]

From the article you linked:



From the Australian Bureau of Statistics website:

http://www.abs.gov.au/AUSSTATS/[email protected]/mf/6401.0

Look at the weighted average of eight capital cities (all groups) percentage change in March quarter. That is what people call the CPI index. It is 1.1 percent for March.

Now if last quarter it was 1.1 percent and this quarter the RBA says that it will be "over 1 percent" what makes you think that rates are on their way down. If anything CPI is on its way up.

Sorry the commentators (and the general population) are in denial. The numbers speak for themselves. *Unless* we get a shock result and the RBA is wrong and the July CPI drops below 1 percent. But I sure as hell am not betting on it.

You have spent too much time talking this - only based on one thing - inflation. Everyone knows about the inflation - RBA knows as well. You do not look at the whole picture- the sharply slowing economy, the rise of employment, worse consumer sentiment, worse building industry, wosening share market, high petrol price, worse credit..... We will see by the end
of the year what happens.

 

[boomtown]

Stagflation.

 

[Spectre]

Lots of yuk in the economy - I agree.

I had a client who said to me the other day... rates - not a big issue. When they retire and arent on a pension they'll be happy that they paid 9/10/11% on a loan whilie they could to support themselves down the line.

Suppose it is a question (for them) of controlling what they can (being their retirement) rather than what they cant (i.e. 'subprime', global warming etc).