Looks like a cash rate of 1.75% is not too far away. Bring it on!
http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf
Recession/Interest rates. This is going to end badly!
- Thread starter topcropper
- Start date
Looks like a cash rate of 1.75% is not too far away. Bring it on!
http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf
Looks like a cash rate of 1.75% is not too far away. Bring it on!
http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf
gee Shadow!!!
you don't know what you are saying.
It is right that if the AU$ is worth nothing your debt is worth nothing, but if you look at Iceland where that happened last year none gain out of it:
In Iceland was good to have your cash into your home as any other investment or saving in the country would have got you to loose nearly everything, but home owner with a mortgage couldn't afford the mortgage anymore. Also when you get you currency devaluating in half and your wages don't double in thesame timeframe you have a HUGE consumer drop in spending as import price soar, that is strongly recessionary and lot of job will be lost.
Save a penny lose a pound.Looks like a cash rate of 1.75% is not too far away. Bring it on!
I'd prefer the events and conditions that prompted these interest rate drops had not occurred.
But Boz, I'm an evil specufestor and a greedy selfish capitalist pigman. So long as I don't lose my job, then this downturn is great for me.
Not all industries will be affected by job cuts. Although my company is scaling back in EMEA and USA, they announced last week that AP is now their growth market for the foreseeable future. AP will be leading our global strategy and direction (where before we generally took direction from the USA). We have had our AP budget massively increased for 2009 (the first time our department has had a budget increase in five years - previously it was all about 'cost cutting'), and we have been given the green light for increased investment, innovation and new projects. Our total employee bonus budget has been maintained at its already high 2008 levels. We are planning to hire 20,000 (net) new employees in AP this year, mostly in Australia, China and India (no increased headcount for USA or EMEA). I have workload and projects on my plate now taking me right out to mid 2010.
There is no way I'll be complaining if interest rates drop another 3 percent. My IPs will be strongly cash flow positive and I'll have my PPOR paid off within the next two years! So bring it on!
Hi all
Boz,
Pretty sure I disagree with this. A devaluation of our currency will help reduce unemployment as Australian products become much more competitive, both locally and in export markets. It would also be inflationary not recessionary.
Just going back to the title of this thread "This is going to end badly".
I believe there is no end, just changing ongoing economic activity. None of us can possibly know when the GFC is over until well after the fact. Just as it was impossible to see the end of the boom until after it had finished.
I expect all the stimulus packages to go too far, just like the interest rate rises at the end of the boom went too far. But the effects to happen will take time (which is why many people don't think the stimuluses are working).
bye
Boz,
Pretty sure I disagree with this. A devaluation of our currency will help reduce unemployment as Australian products become much more competitive, both locally and in export markets. It would also be inflationary not recessionary.
Just going back to the title of this thread "This is going to end badly".
I believe there is no end, just changing ongoing economic activity. None of us can possibly know when the GFC is over until well after the fact. Just as it was impossible to see the end of the boom until after it had finished.
I expect all the stimulus packages to go too far, just like the interest rate rises at the end of the boom went too far. But the effects to happen will take time (which is why many people don't think the stimuluses are working).
bye
to make it clear a low AU$ it will help to reduce unemployment like you said but not in the medium-short term. Australia doesn't make any goods just commodity. Australia is not going to start producing goods if the AU$ drop, we don't have plasma tv factories that can boost production.
what do you think high inflation do to the economy when wages will stagnate with rising unemployment? Also a hell of a lot of money australia borrow is in US$ and even if the capital is hedged interest rates on the money borrowed will soar, that is not going to help australia's economy
But Boz, I'm an evil specufestor and a greedy selfish capitalist pigman. So long as I don't lose my job, then this downturn is great for me.
Not all industries will be affected by job cuts. Although my company is scaling back in EMEA and USA, they announced last week that AP is now their growth market for the foreseeable future. AP will be leading our global strategy and direction (where before we generally took direction from the USA). We have had our AP budget massively increased for 2009 (the first time our department has had a budget increase in five years - previously it was all about 'cost cutting'), and we have been given the green light for increased investment, innovation and new projects. Our total employee bonus budget has been maintained at its already high 2008 levels. We are planning to hire 20,000 (net) new employees in AP this year, mostly in Australia, China and India (no increased headcount for USA or EMEA). I have workload and projects on my plate now taking me right out to mid 2010.
There is no way I'll be complaining if interest rates drop another 3 percent. My IPs will be strongly cash flow positive and I'll have my PPOR paid off within the next two years! So bring it on!
but still you are not going to make money out of it.
if the system destabilise with too low rates and AU$ plunge big time, then, to bring the economy back in control is not that a couple of % rise in interest rates would do, it would happen like in the early 90's at best with very high interst rates and/or high inflation, but the high inflation wouldn't feed into people wages and increase their capacity of pay higher prices of homes or mortgages. for sure a lot more people then in the early 90's will have to sell homes and that is not going to do any good to your home price. it is extremly important that the system and the economy stay stable.
Why won't I make money out of it? Of course I'll make money. It's all relative - I've certainly made more money from property in the past few years than I would if I had invested in shares. And now that capital gains will be lower for the next few years, I'll be making my money from the rental yield vs interest rate differential. Sure beats money in the bank at 1-2% interest rates.
I'm not too worried about interest rates suddenly rising again. These things don't happen without good warning. I was telling you GPHC guys back in March last year that interest rates would be falling in late 2008 - nobody believed me, but the warning signs were there.
Likewise, we'll know well in advance when interest rates are going to rise again. That's when it's time to lock in for 5+ years.
Your currency gambling seems a lot more risky to me. But I suppose you know what you're doing...
Cheers,
Shadow.
And, as one of the few people left in Australian manufacturing, I have been waiting for this to happen.
Lets be clear about this. We aren't really a manufacturing nation. The biggest manufacturers here are usually subsidiaries of overseas companies.
We dont have any large manufacturing exporting companies like Toyota, IBM, Siemens, Fiat, Sony....on and on.... The biggest companies in Australia are services and commodities. In Europe you have a mix of multinational exporting manufacturers, services and commodities.
Basically, we export commodities and import manufactured goods. Sure, we manufacture some stuff (mostly for our own consumption) but on a world scale, very, very little.
We dont have any large manufacturing exporting companies like Toyota, IBM, Siemens, Fiat, Sony....on and on.... The biggest companies in Australia are services and commodities. In Europe you have a mix of multinational exporting manufacturers, services and commodities.
Basically, we export commodities and import manufactured goods. Sure, we manufacture some stuff (mostly for our own consumption) but on a world scale, very, very little.
Manufacturing accounts for 10% of australian GDP and 10% of the work force.
If the aussie dollar stays down, this will increase as a % of GDP.
Educational services for overseas students will also increase as the AU$ has also depreciated significantly against the asian currencies.
Then there is import replacement businesses, these have been hammered over the last 10yrs as the aussie dollar has continued to rise, again if the AU$ remains depressed then these industries will slowly pick up again.
But Boz, I'm an evil specufestor and a greedy selfish capitalist pigman. So long as I don't lose my job, then this downturn is great for me.
Not all industries will be affected by job cuts. Although my company is scaling back in EMEA and USA, they announced last week that AP is now their growth market for the foreseeable future. AP will be leading our global strategy and direction (where before we generally took direction from the USA). We have had our AP budget massively increased for 2009 (the first time our department has had a budget increase in five years - previously it was all about 'cost cutting'), and we have been given the green light for increased investment, innovation and new projects. Our total employee bonus budget has been maintained at its already high 2008 levels. We are planning to hire 20,000 (net) new employees in AP this year, mostly in Australia, China and India (no increased headcount for USA or EMEA). I have workload and projects on my plate now taking me right out to mid 2010.
There is no way I'll be complaining if interest rates drop another 3 percent. My IPs will be strongly cash flow positive and I'll have my PPOR paid off within the next two years! So bring it on!
I love your post, only you know what is right for your own situation. For those people that are in safe employement this environment is the opportunity of a lifetime.
The secret to investing is to enter a position before that investment becomes crowded out and the returns marginalised.
Again i suggest readers refer to threads such as the BHP thread, when will the all ords hit 6000 etc under the coffee lounge of sommersoft. If people thought that the investments they made under those posts where good value, then with the all ords at 3500 they must be incredible value. Instead we have people now predicting perpetual doom and gloom. So if the accuracy of the views expressed when the all ords was 6000 was incorrect, then what about the accuracy of D&G at 3500, or again is it 'different this time'
More car woes
Taking the auto analogy even further, many of the components espcially with the Holden are imported, given it is based on the Opel platform. Ford has a higher proportion of locally manufactured componentry (well at least it did approx 4-5 years ago).
From an auto perspective, we are more of an assembler than a manufacturer.
I am not saying that you can't make good money in this property market, I am saying that for investor that are borrowing big money to invest on property like you is much more risky at loosing everything if the australian economy destabilise because the RBA gambled with too low rates, as they've gone to the dangerous path of reducing to near zero the interest rates gap with country like EU, Japan or Singapore etc. Of course, if you have plenty of money, and you invest them in property you are very safe. Same thing is investing in gold, it is very different if yu put your money (savings) in gold or if you go to the bank and borrow 1m+$ to buy gold at very low interest rates like these days.
it is not very easy to make forecast, it is like betting we are going to have inflation or deflation in the medium term. you have to be ready to change forecast and change your investment strategy when the economy change. If you have inflation it is unavoidable to have the index at 6000 or more, same with property, if you have deflation it is unavoidable to have assets reducing iin price, that would include property, consumer goods and commodity.
Believe me, things will be different this time.
you are right, manufacturing that was surviving with a high AU$ will do very well now. The best place to put any savings is in those businesses that are well managed and will benefit from rising importing cost from other producers around the world.
About what Australiia produce and trade defcit this morning the trade number for deecember came out, here is a interesting read:
nope - because then the banks will have calculated it into their long term rates as well.
waiting is a fools game. i'd be adverse to say let's see what today and March bring and then decide about fixing, because if i were pulling in 7% yield on a property that cost 5% to hold, i'd be happy. an extra 1% ain't worth the risk of missing out a locked in rate at those levels for the average 1-2-3 property punter because if the IRs go back up, it'll be in 50-100-150 basis points.
Actually i think i should appologise, my above post was a bit 'in your face' to some of the regulars here in Somersoft and this was not my intention.
My intention is more to stress that investors must control their feelings: both gread (during the good times) and fear (during the bad). I attach the buyers emotional wave again. Dont forget everyone is in the same boat here, we are all being bombarded with negative news flow (just as in the good times we get bombarded with positive news flows which seems to self congratulate us on our investment decisions making us even more bullish).
We all know the news flow is not good, but look at the underlying asset classes and just step back. Dont take a short term view, instead think to yourselves where are we likely to be in 5yrs+, does the current market value of the asset make sense on a 5yr view point given current market knowledge.
If asset prices (especially australian shares) had remained constant during the global economic crisis i would be much more bearish, because it means that the asset class is not pricing in the additional risk. But this is not happening, instead asset prices (again especially shares) are being trashed. In some cases deservidly as many weaker companies may not get out the other side of this crisis. But others will emerge stronger than before with the competition having been eliminated by the crisis.
My intention is more to stress that investors must control their feelings: both gread (during the good times) and fear (during the bad). I attach the buyers emotional wave again. Dont forget everyone is in the same boat here, we are all being bombarded with negative news flow (just as in the good times we get bombarded with positive news flows which seems to self congratulate us on our investment decisions making us even more bullish).
We all know the news flow is not good, but look at the underlying asset classes and just step back. Dont take a short term view, instead think to yourselves where are we likely to be in 5yrs+, does the current market value of the asset make sense on a 5yr view point given current market knowledge.
If asset prices (especially australian shares) had remained constant during the global economic crisis i would be much more bearish, because it means that the asset class is not pricing in the additional risk. But this is not happening, instead asset prices (again especially shares) are being trashed. In some cases deservidly as many weaker companies may not get out the other side of this crisis. But others will emerge stronger than before with the competition having been eliminated by the crisis.
Attachments
But we will all see the first uptick in fixed rates - there are multiple threads here on SS already watching them very closely. I agree the average punter could miss out, but for those of us watching the market, it should be relatively easy to lock near the fixed rate bottom.
