The soft depression has arrived

[topcropper]

Did that!

http://www.somersoft.com/forums/showpost.php?p=510910&postcount=13

And I agree, another 10% sounds about right. Not the end of the world, just giving back a year or so's gains before stabilising. In some markets 10% is well less than 12 months gains.

Its an asset category which requires confidence for prices to be sustained. Like any asset category it goes up and goes down. For the most part it goes up for a whole host of reasons, but right now a lot of confidence is absent as is funding (the oil), so prices are under pressure. The business cycle is far from dead and you've got to wear some bad with all the good.

2 years flat or up to 10% down, sounds about right. Accept it, get on with it.

Cheers,
Michael

Funny that.!

I'm a bear here, and I've predicted cheap property to be flat, and 10% falls in expensive property and rural. Plus I still own shares and just bought a flat in Sydney.

Your a bull here, and you think similar to me.
Sometimes it's confusing who's a bull and a bear?
We need to sort things out.
I'm not as bearish as I might make out I am, and,
Your not as bullish as I thought either.

Confused..??

See ya's.

 

[MichaelW]

Funny that.!

I'm a bear here, and I've predicted cheap property to be flat, and 10% falls in expensive property and rural. Plus I still own shares and just bought a flat in Sydney.

Your a bull here, and you think similar to me.
Sometimes it's confusing who's a bull and a bear?
We need to sort things out.
I'm not as bearish as I might make out I am, and,
Your not as bullish as I thought either.

Confused..??

See ya's.

Hi TC,

Funny how labels can be misleading isn't it...

I look at 10% down and am optimistic long term, so I guess that's why I get tagged a bull. You put up the risks to property and the chance of 10% falls and everyone tags you a bear. At the end of the day we're in violent agreement, but wear different tags.

By the way, well done on the recent IP purchase and the shares. All good investments I reckon. If I had some spare cash right now I'd be buying into BHP. Can't see them staying sub-$30 for too much longer. Good yielding Sydney inner 'burb units are a good buy too.

I'm keeping my powder dry to develop Mona Vale. I'll stop talking about it and get on with it one day. Just want to be sure of my job before I kick it off. I'm in OneSteel and there's a major review under way and some big headcount reductions to come. My current role is gone (they're killing off the entire business unit and re-amalgamating the assets into other business units) so I'm just waiting to see if they can redeploy me before I go to the banks asking for big bucks. Don't you just love organisational restructures!

Cheers,
Michael.

 

[Aaron Sice]

You're not cast as a nutter because you're calling a soft depression...... you're viewed in that way by some because you've consistently been unable to tell us about the thought process behind your apparently contradictory forecasts.

I'm still confused about the relationship between cash and property ? You say cash will be worthless (a la Zimbabwe?) and property will fall by 50% (relative to cash) ?

completely agree - i'm still waiting for this spiel we were promised over christmas as to why 2009 would be near-on the apocalypse for housing prices.

but now it's 2009/2010. when will it eventuate? why?

the "GFC" is not an answer, and either is ignoring my requests - for the fifth time - to explain why.

 

[nonrecourse]

You're not cast as a nutter because you're calling a soft depression...... you're viewed in that way by some because you've consistently been unable to tell us about the thought process behind your apparently contradictory forecasts.

I'm still confused about the relationship between cash and property ? You say cash will be worthless (a la Zimbabwe?) and property will fall by 50% (relative to cash) ?

Keith holding cash in an inflationary period has always been recognized as a losing proposition. We haven't lived through a deflationary period in your and my living memory. And the world situation now is even more complex but even though I think the value of property will drop, as long as your debt ratio is at 30% or less you have some room to move because provided your balance sheet is still in the black in relation to most investors you will survive.


Token funder calls it the great deleveraging process. Being on the other side of the ledger he also knows that if what I am saying comes to pass there is going to be so many investors going to the wall that they will be happy to leave investors like us alone its all about servicability.

In my travels as a young man through south america in the mid 1970's I saw what happened to fiat currencies where 100 peso's or what ever was replaced by 1 new peso. People who owned hard assets could support their extended families when the cash became worthless.

Things will move in a full circle yes the property prices will collapse but that will destabilize the banks. Don't be surprised in the next 10 years if you see the four pillars merged into two. When that happens and our currency is collapsing those properties that have droped 50% are going to be worth much more than the plastic play money we call the Aussie $.

The key right now is surviving the property collapse. I have been laughed at about the ASX dropping to 3500, about the reserve interest rate dropping to 2% and the soft depression that has arrived and now your gambling that I'm wrong with this call about residential property going down 50% because like the Europeans in the 1700's who had never seen a black swan they deemed it improbable. But the probability of what I have forcast with what has now occurred makes my call all the more rational and your position doubtful.

I would be the first one to cheer if your right Keith I would get no satisfaction seeing you or anyone else on this board fail. But I am also a long term sophisticated investor who will take no prisoners when it comes to elucidating the folly that you can gear up to the eyeballs in the current enviornment. The only thing that is dumber is gearing into shares and margin calls.

 

[Token Funder]

Hi TC,

Funny how labels can be misleading isn't it...

I look at 10% down and am optimistic long term, .

I'd hate to be considered a moderate given some of the reactions of my warnings of a year ago, so we can keep the bulls and bears delineation clear? What's your view of long term? You see, at the moment I think the probabilities favour a drop of 20% all up in real terms and then flat (in real terms) for a couple of years depending of the depth of the international unwinding.

I also wouldn't rule out NRs scenario at all. In fact it would only take a couple of indicators moving to get me there....I just haven't seen them yet. I'm meeting with VEDA Advantage today, so I'll get to check one of them soon enough.

Compared to many on this board, I think I'm still an uber bear...I just suspect reality has smacked a few of the more dewy eyed bulls upside the head in recent times to make me look more "moderate"

 

[keithj]

Keith holding cash in an inflationary period has always been recognized as a losing proposition.

Agreed.... and holding debt is the opposite.

We haven't lived through a deflationary period in your and my living memory. And the world situation now is even more complex but even though I think the value of property will drop, as long as your debt ratio is at 30% or less you have some room to move because provided your balance sheet is still in the black in relation to most investors you will survive.
....
People who owned hard assets could support their extended families when the cash became worthless.

Things will move in a full circle yes the property prices will collapse but that will destabilize the banks
......
When that happens and our currency is collapsing those properties that have droped 50% are going to be worth much more than the plastic play money we call the Aussie $.

The key right now is surviving the property collapse.
.....

What I think you're saying is that you're expecting
property to fall by 50%
then the banks to attempt to foreclose on the masses
then the banks to fail
then hyper inflation to make cash virtually worthless (& devalue debt)
thereby making hard assets (like property) relatively far more valuable

Am I getting close ?

 

[nonrecourse]

completely agree - i'm still waiting for this spiel we were promised over christmas as to why 2009 would be near-on the apocalypse for housing prices.

but now it's 2009/2010. when will it eventuate? why?

the "GFC" is not an answer, and either is ignoring my requests - for the fifth time - to explain why.

Bluey way back when you said that hell would freeze over before the ASX fell below 4000 when I foretold an ASX at 3500 you cried uncle. I also was abused by you and the blue sky brigade about my term of a soft depression and reserve interest rates going down to 2% when mortgage rates were up near 9%. On my score car it reads NR 3, blue sky brigade 0. I think it is your crowd that needs to provide an explanation.

Problem with you lot is your playing to knock out the man and your eye has been off the ball and that is why as time goes on my score card will continue to show the results. Some of the posters on your side I don't answer as it is all abuse.

There are a number of posters that are now seeing what happens when you are geared to the back teeth. Its sad really but only the fittest are going to survive over the next ten years.

 

[nonrecourse]

Agreed.... and holding debt is the opposite.



What I think you're saying is that you're expecting
property to fall by 50%
then the banks to attempt to foreclose on the masses
then the banks to fail
then hyper inflation to make cash virtually worthless (& devalue debt)
thereby making hard assets (like property) relatively far more valuable

Am I getting close ?

Its not that simple because we have an insolvent world banking system that is going to destabilize the entire financial system...humpty dumpty sat on the wall, humpty dumpty had a great fall. All the kings horses and all the kings men couldn't put humpty together again

 

[MichaelW]

humpty dumpty sat on the wall, humpty dumpty had a great fall. All the kings horses and all the kings men couldn't put humpty together again

Eureka!

Finally, the missing piece of intellectual, informed reasoning behind your projections we've all been waiting for!!

Cheers,
Michael

 

[keithj]

Its not that simple because we have an insolvent world banking system that is going to destabilize the entire financial system...humpty dumpty sat on the wall, humpty dumpty had a great fall. All the kings horses and all the kings men couldn't put humpty together again

It sounds like a 50% fall in property values is going to be the least of our worries if your scenario comes about.

We all need to invest in our veggie growing skills & build a chicken run.... TC, Y-man & I will be fine... I'm a bit worried about you though NR

 

[nonrecourse]

Eureka!

Finally, the missing piece of intellectual, informed reasoning behind your projections we've all been waiting for!!

Cheers,
Michael

Hi Mike glad you liked that one. I posted another one about the three little bears and the big bad wolf a number of months ago. I'm challenged with the digital age so far I can't figure out how to repost it.

 

[Witzl]

We all need to invest in our veggie growing skills & build a chicken run

i need to start training my cats to catch chickens!!

 

[MichaelW]

Hi Mike glad you liked that one. I posted another one about the three little bears and the big bad wolf a number of months ago. I'm challenged with the digital age so far I can't figure out how to repost it.

Love your work, thanks for the chuckle...

I'm in a suprisingly upbeat and lighthearted mood to day. Must be all this beautiful rain around Sydney at the mo' (Sorry Melbourne... )

Cheers,
Michael

PS I already have two hens laying an egg each a day and a few fruit trees at the top of the block. Might have to investigate a veggie patch soon...

 

[essence]

Its not that simple because we have an insolvent world banking system that is going to destabilize the entire financial system...humpty dumpty sat on the wall, humpty dumpty had a great fall. All the kings horses and all the kings men couldn't put humpty together again

Yeah, and RBA and Treasury telling us big fat porkies that by the end of 2010 unemployment will hit 7%, that growth is going to be positive, etc. You know better.
And of course, last weekend auction clearance rate was not 78%, you have got your own sources of statistics.

And I am having hallucinations remebering that in 1996 unemployment rate was 8.7%, and best variable rate I managed to get back there was 7.2%. Why the hell we had property boom back then?

And I am delusional remebering that back in 2001 we had end of the world, cash rate at 4.25%, unemployment at 7.5%, rental returns at 4-5% and FHOG at $7K? Why the hell have we had second installment of property boom?

Of course, property will crash with unemployment 5.5%, cash rate 3.25% (and falling), rental returns at 5-7%(and increasing) and FHOG at $14K. Perhaps because of severe housing shortage.

All those FHB have rocks in their head. How can you be lured from expensive ever increasing rents into cheap mortgages?

May I interest you in free rope and piece of soap? Painfull to see your suffering.

 

[chilliaa]

So if the currency if going to explode due to the crash of the financial system, then lock in your loans with a very long duration fixed rate.

If the currency follows South America in the 1970's, you loan will be effectively nothing and you will have close to 100% equity in your investment.

 

[nonrecourse]

It sounds like a 50% fall in property values is going to be the least of our worries if your scenario comes about.

We all need to invest in our veggie growing skills & build a chicken run.... TC, Y-man & I will be fine... I'm a bit worried about you though NR

Don't worry about me keith the harder it gets the stronger we are. We just went through (Wednesday) hell and back with a commercial tenant at mediation and came out on top.

Last night we were at council fending of another tenant in an adjacent building that is a mirror image. They are trying to dictate who the next tenant will be through the clever use of parking restrictions. The tenant has another three years left on their last lease. They own another building adjacet our two and in the past have tried to push our hand to sell out to them.

When their lease comes up for renewal I intend to offer them a gold relationship. They give us their gold and we will let them continue to rent
Their rent went up 50% with the market review in the last renewal last year so they are a bit petulant.

Many years ago we had a major fire in that building which we were then operating our first business from. We were the tenants and technically were insolvent but we put our heads down and our bumbs up and within a year had bought out the previous owner.

Within ten years of the fire we had bought 8 properties. The harder it gets the stronger we get

This crisis that we saw coming has allowed us to re-evaluate. Within ten years we will have tripled our net worth in real terms but we are now in a position that we will grow by internally funding rather than debt.

 

[nonrecourse]

Yeah, and RBA and Treasury telling us big fat porkies that by the end of 2010 unemployment will hit 7%, that growth is going to be positive, etc. You know better.
And of course, last weekend auction clearance rate was not 78%, you have got your own sources of statistics.

And I am having hallucinations remebering that in 1996 unemployment rate was 8.7%, and best variable rate I managed to get back there was 7.2%. Why the hell we had property boom back then?

And I am delusional remebering that back in 2001 we had end of the world, cash rate at 4.25%, unemployment at 7.5%, rental returns at 4-5% and FHOG at $7K? Why the hell have we had second installment of property boom?

Of course, property will crash with unemployment 5.5%, cash rate 3.25% (and falling), rental returns at 5-7%(and increasing) and FHOG at $14K. Perhaps because of severe housing shortage.

All those FHB have rocks in their head. How can you be lured from expensive ever increasing rents into cheap mortgages?

May I interest you in free rope and piece of soap? Painfull to see your suffering.

In 1996 the median residential house price in Brighton Victoria was around $350,000. In 2007 at the top of the market it reached 1.8 million. Today it is 1.4 million and sinking. By 2009/2010 it will be $900,000.

 

[ermen]

I have been wrong a lot of times and I could be wrong now...

But to think about it - if the AUD fiat currency is essentially worthless and our currency will be continued to be debased, then it seems almost implausible that house prices will drop 50% in AUD terms (which is what I am assuming everyone is talking about).

There could plausibly be a 50% drop in average/median house prices. If that was the case - it is ok - provided that rentals hold up. If not, I'm in trouble...

 

[chilliaa]

I'd hate to be considered a moderate given some of the reactions of my warnings of a year ago, so we can keep the bulls and bears delineation clear? What's your view of long term?At least 5yrs minimum time frime You see, at the moment I think the probabilities favour a drop of 20% all up in real terms and then flat (in real terms) for a couple of years depending of the depth of the international unwinding.there is a big difference between 20% and 50% coupled with the prediction of an AU$0.38

I also wouldn't rule out NRs scenario at all. In fact it would only take a couple of indicators moving to get me there....I just haven't seen them yet. I'm meeting with VEDA Advantage today, so I'll get to check one of them soon enough.This is not a soft recession/depression scenario, its a very big depression scenario

Compared to many on this board, I think I'm still an uber bear...I just suspect reality has smacked a few of the more dewy eyed bulls upside the head in recent times to make me look more "moderate"

Of course those that had unsustainable borrowing practices are being taken to the wall in the CURRENT environment. As the liquidity crisis continues an increasing number of marginal players will be squeezed out of the market, this will definately put a cap on any near term boom, as new borrowers will be forced to adhere to tighter lending policies.

But to me this is good, the excesses of lax credit are being purged from the system. There is alot of pain during these sought of times, but at the end it leads to a more sustainable asset class.

These are also the times at which the street savvy investors can accumulate assets at prices significantly below their intrinsic value. A strong climate of fear or bullishness does not allow for the correct valuation of assets. The stronger the climet of fear or bullishness the greater the inaccuracy in the pricing of assets.

 

[chilliaa]

In 1996 the median residential house price in Brighton Victoria was around $350,000. In 2007 at the top of the market it reached 1.8 million. Today it is 1.4 million and sinking. By 2009/2010 it will be $900,000.

Stop using brighton as your benmark, you stated categorically a 50% drop accross the board in residential markets accross australia.