What do you think - Interest rates may have peaked

[Aaron Sice]

I do not find a lot of people agree with me.

I have predicted the DOW would drop to 10000 and Austraian index would drop to 5000 by the end of 2008 calender year. They are all on the way.

Why can not you read through exact point points what RBA is making?

sept 2008 i reckon we will see the bum fall out of the lot.

putsputsputsputsputsputs.

 

[HiEquity]

I think that once the Olympic games China will hit the brakes and we will be affected, HARD. I think that by December the RBA will be looking at slashing the rate by at least a 0.25% and probably 0.5%
Wouldn't be surprised to see mid 5s by the end of next June.

Mid 5s is pushing the point but I can see a scenario where rates drop due to the problems in China. Their inflation is getting out of control and will have to be dealt with post Olympics. Some of the warning signs to me are their removal of petrol price caps, new prices for commodity imports and their equity markets collapsing already from their bubble. Should they suffer some further growing pains in dealing with inflation then growth in Oz will stall. Every other country has had to go through those types of growing pains so I don't see China as being all that different...

I think we are missing the point about how wedded the RBA really is to inflation targeting? Already they are letting inflation go well above their target range and stop raising just because of signs of weakness in the domestic economy. What are they actually going to do as "imported" inflation keeps heading north and the domestic economy stalls on the verge of recession - keep jacking up rates? Doubt it myself... just like in the US rates will drop to keep the economy alive with the effect on inflation being a secondary problem - IMO!

Crystal ball is still pretty fuzzy though...

 

[arungounder]

I have predicted the DOW would drop to 10000 and Austraian index would drop to 5000 by the end of 2008 calender year. They are all on the way.

I dont think we need to wait that long. If you check today's trade ended at 5094.

 

[sash]

I see the RBA will see significantly slowing of the economy by Sept. 2008.

They get worried with a rate cut in either Nov. or Dec. 2008 just in time for Xmas.

Petrol prices have done the work of the RBA....people are hurting...doubt the RBA will add salt to the wound.

Can't see prime rate hitting 5% till 2010-2011........can see below 7% by late 2009 though.

 

[u3228133]

So i assume you are all keeping your loans variable since you are predicting rates to go down to 5% or 7% within the next few years?

 

[Ajax]

Should I take a 2 year fixed interest only 85% lvr lo doc loan at 8.7% (having paid an additional 0.15% to lock this rate in) or the variable rate at 9.05%? About to sign the paperwork.

I can remember the interest rates in late 80's and early 90's at up to 18%-who says we can't see higher rates?


Ajax

 

[Real-istic]

I think rates are being used to try and control both imported inflation and the mining prices..... but all they seem to be doing is creating a 2-tier economy.

Small business and individuals are frightened and therefore commercial and consumer confidence is through the floor if you work in those sectors (we do)
Most people have stopped spending months ago... look at investment decline! People are not silly, they know that big business just passes on additional costs due to rates to end users.... either them or through price hikes internationally....... hello, more inflation... how about a rate hike to fix it??

So...what did the 80-90's and now have in common.... oh we all had to work twice as hard...call it 'labour'

As to what will happen to rates and when...anyones guess is as good as mine

 

[boomtown]

Well if you dont trust your own judgement - trust the judgement of international financial markets.

The Australian dollar is trading right now at record highs. Traders clearly think that high interest rates are going to be around for awhile yet. If you wont listen to me - maybe you should listen to them

 

[ArJay]

Mid 5s is pushing the point but I can see a scenario where rates drop due to the problems in China. Their inflation is getting out of control and will have to be dealt with post Olympics. Some of the warning signs to me are their removal of petrol price caps, new prices for commodity imports and their equity markets collapsing already from their bubble. Should they suffer some further growing pains in dealing with inflation then growth in Oz will stall. Every other country has had to go through those types of growing pains so I don't see China as being all that different...

One thing I'm really not comprehending at the moment is the continued demand for Chinese exports
Remember watching a doco a while back that mentioned Walmart having 80% of it's stock sourced from China.

I'm certainly no expert but doesn't a global slowdown/credit crunch = less consumer spending = less demand for Chinese goods = us up sh!te creek minus "made in China" paddle (so to speak)?

 

[Aussie Battler]

I'm looking at buying my first I.P in the next few weeks.
Do you think it would be smart to fix the loan? If so for how long?
Thanks

 

[akhanna18]

no i don't think that interest rates are peaked . i think another 50 bps will be rise in repo rate as the inflation is continuing to go further up . as the inflation remains in double digit the concern over the interest rate cycle will remain .

 

[Token Funder]

no i don't think that interest rates are peaked . i think another 50 bps will be rise in repo rate as the inflation is continuing to go further up . as the inflation remains in double digit the concern over the interest rate cycle will remain .

I'm prepared to bet another rate rise (at least) outside of the RBA from the major banks based on the high cash:bills spread continuing longer than most expected.

FWIW

 

[boomtown]

One thing I'm really not comprehending at the moment is the continued demand for Chinese exports
Remember watching a doco a while back that mentioned Walmart having 80% of it's stock sourced from China.

I'm certainly no expert but doesn't a global slowdown/credit crunch = less consumer spending = less demand for Chinese goods = us up sh!te creek minus "made in China" paddle (so to speak)?

There are some common misconceptions about China:

1. China is dependent on US demand for their goods.

Well no, not really. China exports to a hell of a lot of places that have limited or no economic relationship with the USA. China sells the same stuff it sells in the US to Europe. China is a major exporter of cars to Africa and the Middle East (particularly Egypt) (I bet you didnt know that China was a big car exporter...). China happily trades with places the West will not trade with - they have a roaring trade with Myanmar. It would not surprise me if there was also significant trade with North Korea (despite what you read in the press - keep in mind that Ethiopia was a net food exporter during the starvations of the 1980s...). None of these places are particularly tied to the US economic system. Furthermore Chinese domestic demand is huge. The number of new refrigerators needed to fuel the demands of China's burgeoning middle class is insane. Do you know how many ****ing bicycles there are in China? They want to replace every bicycle with a car.

2. China will slow down after the Olympics.

No. The Olympics are very important for "face" and for selling Brand China. But in economic terms they dont even make a ripple. Australia is a MUCH smaller country than China (we have a smaller population than Shanghai alone...) but post 2000 Australia did not go into a post Olympic slump.

3. Chinese demand for commodities will ease in the next few years.

No. The "rebuilding" of China after 40 years of Communist Rule is a once in a lifetime event that will drive economic growth around the globe. Look at history and the prosperity that followed in the 50s and 60s in the rebuilding of Germany after WWII. While this is not exactly the same - in the words of Mark Twain - history doesnt repeat but it sure rhymes.

 

[HiEquity]

I'm certainly no expert but doesn't a global slowdown/credit crunch = less consumer spending = less demand for Chinese goods = us up sh!te creek minus "made in China" paddle (so to speak)?

China is still making inroads into other markets so they could make up for slowing demand through further growth in market share. Although with their inflation and domestic wage pressure as well as higher iron ore / coal etc input prices you have to wonder about the sustainability of all that.

So i assume you are all keeping your loans variable since you are predicting rates to go down to 5% or 7% within the next few years?

Hope for the best and plan for the worst! Our crystal ball isn't so clear that we're prepared to bet all our wealth on it. Hence we always hedge >50% of our interest rate exposure... Loving those loans with an extra 3.5 years to run at 7.3%! Not liking the fact we just came off our 5.95% five year loan though...

I just wonder what would really happen if the RBA keeps chasing inflation with higher IRs and stalls the domestic economy in the process. If it was a choice between recession (I know we haven't got to this point yet but it has to be a real possibility if IRs keep going up) and inflation I just reckon they will choose inflation myself... They just haven't had to face this problem since inflation targeting was introduced so it will be interesting to see how it unfolds if we do get there...

 

[BoatBoy]

China is a major exporter of cars to Africa and the Middle East (particularly Egypt) (I bet you didnt know that China was a big car exporter...).

VW-China
VW tests China diesel waters - Michael Wilkes discusses Volkswagen
http://findarticles.com/p/articles/mi_m0CYH/is_8_7/ai_100959171

Nissan-China
Nissan Diesel to Tie with China Dongfeng Unit
http://english.peopledaily.com.cn/200108/08/eng20010808_76803.html

Deutz-China
German Diesel Maker: Made In China To Be Exported to the World
http://www.theautochannel.com/news/2003/04/04/158714.html

Toyota Prius-China
Green Car Congress: Sichuan FAW Toyota Starts Prius Production in China
http://www.greencarcongress.com/2005/12/sichuan_faw_toy.html

Audi-China
Welcome to Audi China > About Audi > News
http://www.audi.cn/audi/cn/en2/about_audi/news.html

New Ford Mondeo made in China
http://www.chinacartimes.com/2007/04/21/new-ford-mondeo-to-be-made-in-china/

Volvo to make vehicles in China
http://www.chinadaily.com.cn/bizchina/2006-03/21/content_548161.htm


Dave

 

[Lukey13]

I think that by December the RBA will be looking at slashing the rate by at least a 0.25% and probably 0.5%
Wouldn't be surprised to see mid 5s by the end of next June.

I wish I could agree with you on that one...

If rates did drop to mid 5s next year I'd consider picking up 10 more IPs , all of which would be highly positively geared with current rents.

My "crystal ball" tells me that rates will be lifted by the RBA at least one more time (probably two), not to mention how many times the banks will independently put them up anyway (I've already lost count so far). Furthermore, my trusty "crystal ball" tells me that rates won't come down until 2010.

But who knows... "crystal balls" are a dime-a-dozen these days!

 

[plusnq]

China is still making inroads into other markets so they could make up for slowing demand through further growth in market share. Although with their inflation and domestic wage pressure as well as higher iron ore / coal etc input prices you have to wonder about the sustainability of all that.



Hope for the best and plan for the worst! Our crystal ball isn't so clear that we're prepared to bet all our wealth on it. Hence we always hedge >50% of our interest rate exposure... Loving those loans with an extra 3.5 years to run at 7.3%! Not liking the fact we just came off our 5.95% five year loan though...

I just wonder what would really happen if the RBA keeps chasing inflation with higher IRs and stalls the domestic economy in the process. If it was a choice between recession (I know we haven't got to this point yet but it has to be a real possibility if IRs keep going up) and inflation I just reckon they will choose inflation myself... They just haven't had to face this problem since inflation targeting was introduced so it will be interesting to see how it unfolds if we do get there...

Hi

I don't think they'll choose inflation myself although I am hedged with fixed rate borrowings.

If they do choose inflation then I feel the ride will be more dramatic and with eventually higher rates. I think they will try and use the Taylor rule as best as they can and try to slow the economy without inducing an Australia wide recession.

Inflation will fall after the economy slows and then rates can come down again.

Cheers

Shane

 

[ArJay]

China is a major exporter of cars to Africa and the Middle East (particularly Egypt) (I bet you didnt know that China was a big car exporter...).

Cheers for the informed reply BT...actually just finished thumbing thru this book at the library...quite an eye opener...

http://www.amazon.com/Economic-Tsunami-Chinas-Industry-Western/dp/1877058564

What about all the comparisons with the Japanese bubble the Chinese banking system’s bad debt problem?

 

[Aaron Sice]

There are some common misconceptions about China:

1. China is dependent on US demand for their goods.

Well no, not really. China exports to a hell of a lot of places that have limited or no economic relationship with the USA. China sells the same stuff it sells in the US to Europe. China is a major exporter of cars to Africa and the Middle East (particularly Egypt) (I bet you didnt know that China was a big car exporter...). China happily trades with places the West will not trade with - they have a roaring trade with Myanmar. It would not surprise me if there was also significant trade with North Korea (despite what you read in the press - keep in mind that Ethiopia was a net food exporter during the starvations of the 1980s...). None of these places are particularly tied to the US economic system. Furthermore Chinese domestic demand is huge. The number of new refrigerators needed to fuel the demands of China's burgeoning middle class is insane. Do you know how many ****ing bicycles there are in China? They want to replace every bicycle with a car.

2. China will slow down after the Olympics.

No. The Olympics are very important for "face" and for selling Brand China. But in economic terms they dont even make a ripple. Australia is a MUCH smaller country than China (we have a smaller population than Shanghai alone...) but post 2000 Australia did not go into a post Olympic slump.

3. Chinese demand for commodities will ease in the next few years.

No. The "rebuilding" of China after 40 years of Communist Rule is a once in a lifetime event that will drive economic growth around the globe. Look at history and the prosperity that followed in the 50s and 60s in the rebuilding of Germany after WWII. While this is not exactly the same - in the words of Mark Twain - history doesnt repeat but it sure rhymes.

THANK THE MAKER!

finally someone else who sees that there's no "reason" for china to slow down after the olympics. kudos.

and china's "bubble" is nothing like Japan's. on paper, yes, in reality - way off. what about Dubai's bubble? there's something i'd be worried about.

 

[ArJay]

While this is not exactly the same - in the words of Mark Twain - history doesnt repeat but it sure rhymes.

and china's "bubble" is nothing like Japan's. on paper, yes, in reality - way off.

Lol...........