The soft depression that we had to have

[plusnq]

Hi Ken

I agree. He isn't stupid. And there is no critcism from either the Fed or President elect really. It's all a bit familiar just on a global scale.

http://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf

The next step of allowing inflation to be higher than the yield will probably come. Borrow trillions at 0%, allow inflation to be higher than interest cost (yield on T Bills) thus devaluing the dollar denominated repayment. Let the USD fall (print enough dollars) increasing export competitiveness and inflation domestically. Debt value falls in real terms. Gradually over ten years sell TARP assets back into the market as inflation increases their nominal value above purchase price.

Final outcome....Govt debt reduced by inflation, devaluation of USD and selling of TARP assets. Purchasing power of USD falls dramatically domestically.

They just have to get inflation to gain traction otherwise they are knackered like Japan.

Cheers

Shane

 

[Peter 14.7]

Hello All

Thanks for the link. I cannot comment on Paulson skill as it is all beyond me, but if you guys think it is good then ok

I do know, at this level of power, there are wheels within wheels. And having filled up with petrol last night at $1.01 a litre and with rates at 7% I can see some upside to the downside.

Peter 14.7

 

[markpatric]

For the past year on this site I have been warning people not to borrow too much and get their financial house in order. The general response to my posts has been that I am a doom and gloom merchant

I guess because I am 55 and have lived through 4 recessions I knew this one is different. Yes I know you still don't believe we are headed for a soft depression I really do wish I was wrong and SS doubters were right read this link and weep;

http://thescotsman.scotsman.com/latestnews/-How-the-Masters-of.4494032.jp

Yes it is amazing, I have suffered the same fate for years here.
Don`t be negative, you will never get anywhere etc etc.
All the book sellers promote being 100% positive and blinkered to negative influences this is simply not based in reality, puts big money in thier pockets though.

 

[markpatric]

Hello All

Thanks for the link. I cannot comment on Paulson skill as it is all beyond me, but if you guys think it is good then ok

I do know, at this level of power, there are wheels within wheels. And having filled up with petrol last night at $1.01 a litre and with rates at 7% I can see some upside to the downside.

Peter 14.7

Good point Peter, yes there is always an upside just as surely as there is always a downside.
Doomsdayers are simply people who are nervous and they may or may not have thier own reason to be but if one thing is proven its that there are cycles and we are simply on the downside of one, no more no less.
You plant trees and they grow, a bushfire may destroy them but you cannot stop future regrowth.

 

[Sunfish]

I'm one who does look gift horses in the mouth, Peter:

And having filled up with petrol last night at $1.01 a litre

I hate to tell you but $1 petrol is unsustainable unless there is a downturn even worse than NR's "soft depression".

It is only "conventional oil" which can be produced at such a price.

Gawar (Saudi) is the largest oil field and both the real and possible production figures are a state secret but even BP (who poo poo the idea of peak oil) in their annual "state of the industry" paper is accepting that it has peaked and production is dropping. It is widely reported that they are pumping lots of salt water into the field to maintain pressure and more and more wells are producing more water than oil.

Cantarell, Mexico's largest field and the worlds second largest (I think) is suffering big declines in excess of 20% pa. The North Sea is similar, so too the North Slope. The Lower 48 states peaked decades ago.

You may have heard of new deep water finds in the Central Americas but there is no way they will be touched until and unless price of oil at least doubles. Current price is below the cost of production of the Alberta tar sands.

At today's price, exploration is grinding to a halt because no-one expects to find big, cheap oil. Unconventional oil, which has been supplying increasing amounts each year will be uneconomic and no new money will be invested. Some projects will be mothballed. If a hurricane damages Gulf of Mexico installations they may be mothballed instead of repaired.

So without a big price rise, (conventional oil production has already peaked and is dropping 20% pa) the only way supply/demand can balance is with massive demand destruction when the growth in China is considered. This is not going to happen via thrift. (The Yanks are jumping back into their Hummers, so much for lessons learnt. ) The demand destruction needed can only happen if China and India go into recession and that will be far more painful for us than $2 petrol.

Edit: A little I found out about Ghawar (apart from the spelling) from an early '06 article

Rumours and experts outside Saudi Aramco, Saudi Arabia's state controlled oil company, believe Ghawar has already peaked or is currently peaking. It is definitely showing symptoms. Some reports have stated that the water cut level is nearing 50 percent of the total liquids being pumped out by its more than 300 wellheads.

 

[chilliaa]

Willair, These guys are smarter than us with better info. Of course they knew what was happening. They were just have too good a time at the punchbowl. A big Yank banker explained it by simply saying that while the music plays, they dance.

No-one "cares" about us, we are just sheep to be fleeced.

Got gold yet?

I wouldnt get too worked up about gold. I'm not sure how many of you traders follow Gartman, but one of my wealthier trading friends subscribes to the service (i think its about $3k a year or something), anyway this guy is supposed to be right up there from a traders point of view.
My friend periodically forwards the gartment letter to me via email. He seems to be quite weary regarding gold.

Im nurveous to attach the letter here as its copyrighted, but to paraphrase from his Thursday 27th November letter:

Spot Gold Daily this year: Lower highs and a trip into the box: how much more bullish news can gold get and yet fail and fail and fail again?
....
We are at the moment short on gold and we are uneasy as the markets have not shown us we are wrong.... but nor has it shown we are right...we take solace in the fact that we are virtually alone in being so publicly short, and that since march each lower has been lower and so has each high, so long as gold remains in the box (whatever that means) we will continue to hold our single short unit of gold.

 

[boomtown]

when he turned up to pick her up in the limo,on of my dogs broke through the front door and bit him on the backside and ripped his pants and suit and bit him on the legs several times,now i'm up for the hospital bill, a new suit,and what ever other costs to fix the young man up,nothing worries me anymore,plus the dog got a broken leg.LOL..
..WILLAIR..

Nice work Willair - global '**** pants crash

 

[nonrecourse]

Part of my predictions of how the soft depression would unfold earlier in the year revolved around the gradual diminuation of of capital provided by banks for business and personal borrowing. In the AFR 08.12.2008 on page 1 an article entitled Lending dries up as foreign banks quit. The article continues on page 61 in the features section. The Editorial on page 62 entitled Foreign banks leave debt hole

Merrill Lynch has reported that businesses in Australia in the next two years are now going to have to find another 58 billion that is currently provided by syndicated (multiple foreign bank) loans

So when you consider that the securitized lending that is sourced from overseas has now disappeared and traditionally 60% of housing funds in recent years come from overseas............... Where are all these SS formites that claim that they are going to make a killing when property nose dives going to source their funds from.

I also am on record on this site earlier in the year of saying when housing interest rate were up in the hight 8 to low 9% that the reserve would drop rates to 2% and was laughed at.

In the press that word depression is still not mentioned and anyone that does is ridiculed just like many of the formites do with anyone on this site that dare to challenge their view of the investing world where a property collapse even approaching 30% never mind 40 or 50% is pure doom and gloom.

So lets examine my calls so far. I spoke about the ASX on 15.09.2008 dropping in six weeks to 3500 (it took 7 weeks), I mentioned interest rates set by the reserve dropping to 2% and the most current forecast for April 2.75% but that will be revised by the same economists that told us that the mining boom from China would protect us. Now we are seeing the early stages of capital being repatriated back to America and Europe and these same economists saying that Australia banks are rock solid.

I'm asking all those formites that are geared at 60% or more to explain to the rest of us how you are going to make a "killing" rather than being a road kill as the credit markets continue to contract. Have you got lots of credit available on your credit cards to tide you over when the banks freeze your LOC on your properties ? Have you approached your bank in the last 12 months and asked them about your credit status and how comfortable is the bank with your gearing ratio.........

Have you got a rich uncle who won't say uncle when your properties are under water? I'd really like you to(instead of sitting on the sidelines sneering) explain to the rest of us your investing rational with some sign posts so that we can monitor your calls during 2009 and 2010 when I said we will see property in Australia in free fall.

We are about one third through finding out how insolvent most of the world's financial institutions are.

Just out of interest. We just got a call from AMP which insures a number of our commercial buildings. Seems that the insurance companies are getting a bit edgy and have taken the policies off their brokers..... funny times we live in but hey throw another shrimp on the barbq and go back to sleep.

Waiting in anticipation for you gung ho property investors to show us the way

 

[keithj]

.... a number of our commercial buildings.

I recall another of your recent predictions was for commercial property to fall by 70% by 2010. Much ASX listed property has already fallen by more than that.

Can you confirm that you've put your money where your mouth is & you have sold all your residential & commercial portfolio, with the expectation of buying it back at a 70% discount in around 18-24 months ? It would certainly improve your credibility if you did.

Or even tell us that you'd bought puts and sold 3500 calls over the ASX back in Sept, and made a killing ?


To me you're just an anonymous punter saying we should all bet on Red. You don't know why it'll be Red next time, except that Red came up next some other time. You're not even prepared to bet it all on Red yourself.

Most here don't care if the next throw comes up Red or Black, we just care that the next 40 throws are pretty evenly spread between Red and Black.

 

[nonrecourse]

Know your risk profile

I recall another of your recent predictions was for commercial property to fall by 70% by 2010. Much ASX listed property has already fallen by more than that.

Can you confirm that you've put your money where your mouth is & you have sold all your residential & commercial portfolio, with the expectation of buying it back at a 70% discount in around 18-24 months ? It would certainly improve your credibility if you did.

Or even tell us that you'd bought puts and sold 3500 calls over the ASX back in Sept, and made a killing ?


To me you're just an anonymous punter saying we should all bet on Red. You don't know why it'll be Red next time, except that Red came up next some other time. You're not even prepared to bet it all on Red yourself.

Most here don't care if the next throw comes up Red or Black, we just care that the next 40 throws are pretty evenly spread between Red and Black.

Hi Keith we did sell a property that was residential but would have been a commercial development had we gone ahead. It took us a year to find a buyer and it did not settle untill the 3rd of October

Back in July August because the other one was not selling we did try and sell our jewell in the crown but by then the serious punters had their hands in their pockets. We didn't really want to sell but at that stage we were motivated as we could see what was happening.

Our modus operendi is to buy and never sell but as the song goes you gotta know when to hold them and know when to fold them. As I have posted countless times before we are not anti property. The site founders had a great strategy of using other peoples money to grow rich. It was a great strategy especially with securitized lending that enabled people of modest means. But like most things in life things are always changing. That strategy will have its time again that is life; a cycle.

My concern on this site is the overexuberance of those who refuse to recognize the dangerous times we have now entered.

 

[keithj]

Our modus operendi is to buy and never sell but as the song goes you gotta know when to hold them and know when to fold them. As I have posted countless times before we are not anti property. The site founders had a great strategy of using other peoples money to grow rich. It was a great strategy especially with securitized lending that enabled people of modest means. But like most things in life things are always changing. That strategy will have its time again that is life; a cycle.

My concern on this site is the overexuberance of those who refuse to recognize the dangerous times we have now entered.

I guess that was a No in response to the question Can you confirm that you've put your money where your mouth is ?.

You keep telling us that we're all doomed and to expect 40% falls in resIP & 70% falls in commIP within 2 yrs, yet you aren't seriously trying to sell yourself. If you're happy with your risk mitigation then fine.... would you accept that others also may have risk mitigation strategies in place ? Fixed IRs, diversified lenders, cash buffers, reliable incomes, LOCs elsewhere ?


Sure... there are over-exuberant posters here.... I think they are in a minority. The vast majority here will keep their 70%-80% LVRs, keep paying ever lower interest bills, keep receiving rents, and plod along to pick up some good buys along the way. Some of the over-exuberant minority will survive..... they will certainly learn a lot .

Would you agree that the majority can ignore safely your D&G posts ? If not, why not (and please be specific)

 

[Shadow]

Have you approached your bank in the last 12 months and asked them about your credit status and how comfortable is the bank with your gearing ratio.........

Yes, I am currently at about 70% LVR and I am in the process of getting my existing properties revalued and then upping my LVR to 85% (the bank would let me go higher but then I'd have to pay LMI, I can go to 85% without paying LMI).

I am going to use this additional equity to buy more property. I am actually planning to more than double my current total debt!

Bank is fine with this (Westpac). They are happy for me to more than double my debt, increase my LVR to 85%, not pay LMI, and keep my 0.9% discount on the SVR.

All good.

Cheers,

Shadow.

PS: yeah yeah I know, I'll be wiped out when the soft depression happens etc...

 

[nonrecourse]

I guess that was a No in response to the question Can you confirm that you've put your money where your mouth is ?.

You keep telling us that we're all doomed and to expect 40% falls in resIP & 70% falls in commIP within 2 yrs, yet you aren't seriously trying to sell yourself. If you're happy with your risk mitigation then fine.... would you accept that others also may have risk mitigation strategies in place ? Fixed IRs, diversified lenders, cash buffers, reliable incomes, LOCs elsewhere ?


Sure... there are over-exuberant posters here.... I think they are in a minority. The vast majority here will keep their 70%-80% LVRs, keep paying ever lower interest bills, keep receiving rents, and plod along to pick up some good buys along the way. Some of the over-exuberant minority will survive..... they will certainly learn a lot .

Would you agree that the majority can ignore safely your D&G posts ? If not, why not (and please be specific)

My total borrowings represent 30% of my portfolio and I set them up through trusts so you see I'm not just a pretty name .... No I don't agree the majority are safe. You seem to think your going to continue to be able to wander down to your friendly banker and access that nonexistant equity you rabit on about

Your tone and mentality is denial to the end good on ya keith

 

[Shadow]

I'm not just a pretty name

nonexistant equity

rabit on

tone and mentality is denial to the end good on ya

You sound rattled NR. Are we getting to you? Starting to doubt yourself?

 

[Token Funder]

My total borrowings represent 30% of my portfolio and I set them up through trusts so you see I'm not just a pretty name .... No I don't agree the majority are safe. You seem to think your going to continue to be able to wander down to your friendly banker and access that nonexistant equity you rabit on about

Your tone and mentality is denial to the end good on ya keith

Ah, Shadow, after a tough day at the office your unbridled optimism always brings a smile to my face.

CBA are out raising money off-shore at rates so high it is simply stunning, Westpac are prepared to pay 6% for lumpy, long-term deposits, ANZ are effectively pullng out of Lo Doc, the mortgage insurers are running scared and everyone is gently tightening credit, boiled-frog style, but Shadow, sweet Shadow, sees rainbows and cupcakes.

 

[buzzlightyear]

Yes, I am currently at about 70% LVR and I am in the process of getting my existing properties revalued and then upping my LVR to 85% (the bank would let me go higher but then I'd have to pay LMI, I can go to 85% without paying LMI).

I am going to use this additional equity to buy more property. I am actually planning to more than double my current total debt!

Bank is fine with this (Westpac). They are happy for me to more than double my debt, increase my LVR to 85%, not pay LMI, and keep my 0.9% discount on the SVR.

All good.

Cheers,

Shadow.

PS: yeah yeah I know, I'll be wiped out when the soft depression happens etc...

Shadow, I thought WBC were not doing 85% lends for refinances without LMI?

 

[chilliaa]

Part of my predictions of how the soft depression would unfold earlier in the year revolved around the gradual diminuation of of capital provided by banks for business and personal borrowing. In the AFR 08.12.2008 on page 1 an article entitled Lending dries up as foreign banks quit. The article continues on page 61 in the features section. The Editorial on page 62 entitled Foreign banks leave debt hole

Merrill Lynch has reported that businesses in Australia in the next two years are now going to have to find another 58 billion that is currently provided by syndicated (multiple foreign bank) loans

So when you consider that the securitized lending that is sourced from overseas has now disappeared and traditionally 60% of housing funds in recent years come from overseas............... Where are all these SS formites that claim that they are going to make a killing when property nose dives going to source their funds from.

I also am on record on this site earlier in the year of saying when housing interest rate were up in the hight 8 to low 9% that the reserve would drop rates to 2% and was laughed at.

In the press that word depression is still not mentioned and anyone that does is ridiculed just like many of the formites do with anyone on this site that dare to challenge their view of the investing world where a property collapse even approaching 30% never mind 40 or 50% is pure doom and gloom.

So lets examine my calls so far. I spoke about the ASX on 15.09.2008 dropping in six weeks to 3500 (it took 7 weeks), I mentioned interest rates set by the reserve dropping to 2% and the most current forecast for April 2.75% but that will be revised by the same economists that told us that the mining boom from China would protect us. Now we are seeing the early stages of capital being repatriated back to America and Europe and these same economists saying that Australia banks are rock solid.

I'm asking all those formites that are geared at 60% or more to explain to the rest of us how you are going to make a "killing" rather than being a road kill as the credit markets continue to contract. Have you got lots of credit available on your credit cards to tide you over when the banks freeze your LOC on your properties ? Have you approached your bank in the last 12 months and asked them about your credit status and how comfortable is the bank with your gearing ratio.........

Have you got a rich uncle who won't say uncle when your properties are under water? I'd really like you to(instead of sitting on the sidelines sneering) explain to the rest of us your investing rational with some sign posts so that we can monitor your calls during 2009 and 2010 when I said we will see property in Australia in free fall.

We are about one third through finding out how insolvent most of the world's financial institutions are.

Just out of interest. We just got a call from AMP which insures a number of our commercial buildings. Seems that the insurance companies are getting a bit edgy and have taken the policies off their brokers..... funny times we live in but hey throw another shrimp on the barbq and go back to sleep.

Waiting in anticipation for you gung ho property investors to show us the way

Ok nonrecourse, just so we have a complete picture, you are also on record as saying
The ASX will drop to 2200 by next October
The aussie dollar will drop to US$0.38 within two years
During 2009-2010: Australia will see property prices drop by 50%
That australian manufactured imports will NOT drop in price because of delfation overseas offsetting the reduction in the AU$
That gold by the end of October 2008 should be north of $1500 if the share market falls during this period.

 

[chilliaa]

Ah, Shadow, after a tough day at the office your unbridled optimism always brings a smile to my face.

CBA are out raising money off-shore at rates so high it is simply stunning, Westpac are prepared to pay 6% for lumpy, long-term deposits, ANZ are effectively pullng out of Lo Doc, the mortgage insurers are running scared and everyone is gently tightening credit, boiled-frog style, but Shadow, sweet Shadow, sees rainbows and cupcakes.

Yeah westpac term deposit rate of 6% is for 60months +
4 < 5 months 5.60%
7 < 8 months 5.40%
11 < 12 months 4.50%
36 < 48 months 5.50%
60 months 6.00%

 

[Shadow]

boiled-frog style, but Shadow, sweet Shadow, sees rainbows and cupcakes.

Oh dear, is that the sort of response you're resorting to now? How sad.

And why are you quoting NR's response to Keith when replying to me?

 

[Shadow]

Shadow, I thought WBC were not doing 85% lends for refinances without LMI?

Dunno, hadn't heard about that.

Maybe it depends on the customer? They are doing it for me.

Didn't have to do anything special though - just asked!

Cheers,

Shadow.