world wide financial crash will it make property cheaper

[Intrinsic_Value]

I will always post on "money" threads. You can have "shares" if you like . (Is that silly enough for you?)

Sunfish you are the one that goes periodically ape at people.
You have your ways of making money, i have mine.

You take take delight in trying to redicule my approach.

But for the record they work, so far since being on this forum since 2007, i have achieved a return on equity through this difficult times that exceeds 300%.
I have an income return now that can be structured to produce an annual income return in excess of 30% on starting capitalasof 2007.

So i see no need to change my strategy when it produces the results.

 

[hobo-jo]

Risk free is risk free, it means i get my capital back, pure and simple.
Gold does not offer this over all time periods, therefore its not risk free.
It is a store of wealth, but not a risk free store of wealth.

Surely it is not that difficult to see that cash is not the risk free haven that you make it out to be? You imply that to be risk free you need to be able to get all your capital back, but what good is getting your capital back if the capital is in a fiat currency that now has less purchasing power than before you invested it?

I would say that there is absolutely NO investment/asset/currency that is a 100% risk free store of wealth, but I ask you which has the longest history of being able to store wealth? There is evidence that Gold has kept relative value to other items (e.g. the old fine suit comparison from roman to current times for 1 ounce of Gold) over thousands of years, although it can fluctuate wildly over this time.

If you had the choice of $50,000 in Australian Dollars or $50,000 worth of Gold, but you had to physically bury it for 30 years before enjoying it, which would you choose?

 

[Intrinsic_Value]

I would say that there is absolutely NO investment/asset/currency that is a 100% risk free store of wealth

Yes quite agree with you.
I never stated there was i was just responding to your post re-gold and adding that it could be the trade of the decade but that i dont trade, i prefer to invest, this keeps my decision making more controlled (not because there is anything wrong with trading, but because of different rules/guidlines and trying to do both in my opinion increases the risks).

At which point who barges through the door, but the OLD FISH, with the comment:

You have painted yourself into a corner so that you couldn't possibly buy the only risk free asset because you can't apply your secret formula to it. Suits me

and so sets the scene for another slanging match.

 

[oracle]

If you had the choice of $50,000 in Australian Dollars or $50,000 worth of Gold, but you had to physically bury it for 30 years before enjoying it, which would you choose?

If you had the choice of $50,000 to purchase block of land in any capital city of Australia or purchase gold 30 years ago which one would you choose?

I have checked 30 Year Gold Price History at http://goldprice.org. It traded at $300 in 1980 and it is trading at around $1250 now. By my calculations it's annual compound return is 4.87%.

I have purposely, compared block of land to gold since none give me any income. Just so that we were comparing apples to apples. But given the choice I would have purchased a property with rental income. Even if it's in fiat currency which is devaluating by the day. I think the rental return of that property today would be pretty sweet

Cheers,
Oracle.

 

[Sunfish]

If you had the choice of $50,000 to purchase block of land in any capital city of Australia or purchase gold 30 years ago which one would you choose?

You are picking a "start point" which immediately presents a bias.

Last night I watched "Time Team" where they were digging among the ruins of a Welsh castle. At it's best it was as big as Windsor Castle and I could not imagine how many ounces of gold it may have been worth. It wasn't for sale of course because people don't sell their security, but today it is easy to value: A few acres of grazing land.

If I were to ask which has appreciated most in value, gold or medieval castles, I suspect the answer is obvious. MOST castles are mere archeological sites now.

 

[oracle]

You are picking a "start point" which immediately presents a bias.

No Sunfish, I merely picked the year 30 years ago from today and looked at the prices. On further research I noticed the price of Gold reached nearly $700 by 1981. Hence, more then doubled from $300 in 1980. Investors who bought gold at that price thinking it's a safe heavan with fantastics returns and hoping to retire one day on this investment pouring in all their life saving had to wait till atleast 2005 before Gold crossed the $700 dollar mark.

If history is of any guide then the current recent bull run in Gold could just be another bubble waiting to be popped. Gold has done it in the past who is to say it won't do it again. Investors buying at todays prices might be waiting to break even after 20 years, with no income, it's definitely doesn't look attrative to me.

Cheers,
Oracle.

 

[hobo-jo]

No Sunfish, I merely picked the year 30 years ago from today and looked at the prices. On further research I noticed the price of Gold reached nearly $700 by 1981. Hence, more then doubled from $300 in 1980. Investors who bought gold at that price thinking it's a safe heavan with fantastics returns and hoping to retire one day on this investment pouring in all their life saving had to wait till at least 2005 before Gold crossed the $700 dollar mark.

Oracle, I will be the first to admit Gold is volatile, much more so in price than property and I am personally not advocating any 30 year buy and hold strategy for Gold from these levels. I agree that one could have been severely burnt with Gold if buying near the peak, but there have been plenty of people burn by property also.

If history is of any guide then the current recent bull run in Gold could just be another bubble waiting to be popped. Gold has done it in the past who is to say it won't do it again. Investors buying at todays prices might be waiting to break even after 20 years, with no income, it's definitely doesn't look attractive to me.

If you want to look at history then let's do so.

Let's compare Australian property to Australian Gold from the year that Gold made the record high in the last bull market/bubble and compare it to now:

Gold price data from here. I took the monthly bid data (Perth Mint spot) in AUD and averaged over 1 year, this resulted in a figure of $577 for Gold. Median house prices from here and here.

Sydney 1980
Gold @ $577, House price median at $68,850. 119 ounces buys median property.

Melbourne 1980
Gold @ $577, House price median at $39,500. 68 ounces buys median property.

Sydney 2010
Gold @ $1430, House price median at $590,000. 412 ounces buys median property.

Melbourne 2010
Gold @ $1430, House price median at $496,767. 347 ounces buys median property.

Priced in Gold housing in Melbourne is 5x more expensive than in 1980, in Sydney it is 3.5x more expensive.

Now, without bias you tell me which is in the bubble right now! If you think Gold is in a bubble now then what does that make property....a much larger bubble...

I'll tell you what doesn't look attractive today....HOUSING!

 

[Sunfish]

Originally Posted by Sunfish
You are picking a "start point" which immediately presents a bias.

No Sunfish,

You can say "No" as often as you like but the truth is that it does indeed introduce a bias.

If I were to demonstrate the performance of gold V ALL other currencies over 2,000 years which currency would you suggest I compare it with? Truth is they have all failed ergo the out-performance of gold is infinite. The Euro will fail and the US$ will become the US Peso. You can't buy Yuan so where do you store your wealth?

I beg you and others to try and understand "currency". The constant isn't "the dollar" it is "an oz of gold".

 

[oracle]

Oracle, I will be the first to admit Gold is volatile, much more so in price than property and I am personally not advocating any 30 year buy and hold strategy for Gold from these levels. I agree that one could have been severely burnt with Gold if buying near the peak, but there have been plenty of people burn by property also.

Hobo-jo, as an investor I am striving for financial independence. Whether you like it or not cashflow/income in the currency of your country is going to enable you to do that. I also need to be able to make sure the cashflow will increase with time to keep in line with inflation. How do I generate enough cashflow which increases in line with inflation that is sufficient enough to quit my day job? There are plenty of ways like (residential/commercial property/dividents from shares). But first I need to build substantial equity which I can then use to convert into cashflow. Unfortunately, with lack of cashflow from Gold accompanied by volatile nature (as you mentioned) plus a 30year record of average compound growth (4.87%) it's not going to let me build significant equity fast enough. Hence, my comment earlier it's not an attactive investment vehicle for me.

If you want to look at history then let's do so.

Let's compare Australian property to Australian Gold from the year that Gold made the record high in the last bull market/bubble and compare it to now:

Gold price data from here. I took the monthly bid data (Perth Mint spot) in AUD and averaged over 1 year, this resulted in a figure of $577 for Gold. Median house prices from here and here.

Sydney 1980
Gold @ $577, House price median at $68,850. 119 ounces buys median property.

Melbourne 1980
Gold @ $577, House price median at $39,500. 68 ounces buys median property.

Sydney 2010
Gold @ $1430, House price median at $590,000. 412 ounces buys median property.

Melbourne 2010
Gold @ $1430, House price median at $496,767. 347 ounces buys median property.

Priced in Gold housing in Melbourne is 5x more expensive than in 1980, in Sydney it is 3.5x more expensive.

Now, without bias you tell me which is in the bubble right now! If you think Gold is in a bubble now then what does that make property....a much larger bubble...

I'll tell you what doesn't look attractive today....HOUSING!

Have you considered may be the answer to your question might be to do with Gold as a poor investment with average returns and hence it lacks property by such huge percentage after 30 years. That should be the average timeframe for anyone looking to build a retirement nest egg.

Cheers,
Oracle.

 

[Sunfish]

H
Have you considered may be the answer to your question might be to do with Gold as a poor investment with average returns and hence it lacks property by such huge percentage after 30 years. That should be the average timeframe for anyone looking to build a retirement nest egg.

Cheers,
Oracle.

There's a bit of fractured English there but I think I know what you mean.

I would suggest that the majority of trend followers, sorry, investors here have been in property less than ten years. During that time gold is a star performer.

 

[oracle]

You can say "No" as often as you like but the truth is that it does indeed introduce a bias.

If I were to demonstrate the performance of gold V ALL other currencies over 2,000 years which currency would you suggest I compare it with? Truth is they have all failed ergo the out-performance of gold is infinite. The Euro will fail and the US$ will become the US Peso. You can't buy Yuan so where do you store your wealth?

I beg you and others to try and understand "currency". The constant isn't "the dollar" it is "an oz of gold".

Well, Sunfish then don't keep cash as your assets, if you do not believe in it. I myself want to hold minimum cash just for any emergency needs. Every time I have build up enough cash I am constantly evaluating opportunities to invest. But I prefer to invest in assets which generate income. So Gold is not something I look at. But I have no issues with anyone investing in it. Infact, the past 5years have been extremely rewarding to anyone who invested in Gold. My concern is the performance of Gold between 1982 and 2004. More then 20 years without any income just waiting to break even, without even taking inflation into account. You can argue I have been biased and picked a timeframe to prove my point but it's still a fact and the timeframe is not short. No investor would like to be stuck into an asset for 20years to break even. Would Gold do this again. I don't know. But because it doesn't generate any income it doesn't fit my investment philosophy.


Cheers,
Oracle.

 

[Intrinsic_Value]

Well, Sunfish then don't keep cash as your assets, if you do not believe in it. I myself want to hold minimum cash just for any emergency needs. Every time I have build up enough cash I am constantly evaluating opportunities to invest. But I prefer to invest in assets which generate income. So Gold is not something I look at. But I have no issues with anyone investing in it. Infact, the past 5years have been extremely rewarding to anyone who invested in Gold. My concern is the performance of Gold between 1982 and 2004. More then 20 years without any income just waiting to break even, without even taking inflation into account. You can argue I have been biased and picked a timeframe to prove my point but it's still a fact and the timeframe is not short. No investor would like to be stuck into an asset for 20years to break even. Would Gold do this again. I don't know. But because it doesn't generate any income it doesn't fit my investment philosophy.

.


Cheers,
Oracle.

well put, i think people also fail to compare the compounding effect of income over time.

If looked at it from a different view:
A house 30 years ago was 'equivalent' to x ounces of gold.
Today it is 'equivalent' to y ounces of gold.

But what about the income component.
A house 30 years ago generated b ounces of gold in rent.
Today that house is generating c ounces of gold in rent, but the trouble is the ounce of gold from 30 years ago is still an ounce of gold, there has been no growth in the weight of that gold.

For the record i do agree with hobo-jo about the POTENTIAL overvaluation of australian residential property.

I think the thread:
http://www.somersoft.com/forums/showthread.php?t=63048

is very interesting, Jeremy Grantham is no steven keen, he has built his own fortune from investing. This DOESNT MEAN HE WILL BE RIGHT, but it does strongly suggest that those people who believe that they are INVESTING (ie not trading under the false belief that they are investing) in residential property have appropriate risk strategies in place.

Again for those members of this forum that honestly believe they are investing, i strongly suggest reading posts from those members such as PLAYER. There are so many conflicting views on this forum that you need to focus (or filter). Otherwise one will suffer from investment paralysis.

But getting back to gold, this does not mean that gold at present doesnt present good trading opportunities. I would not be surprised to see gold double within a few years. (but i cant be sure, i cant create a get out of jail free card, i cant create insurance to protect my capital from an investment perspective). This is the difference between investing and trading

 

[hobo-jo]

Hobo-jo, as an investor I am striving for financial independence. Whether you like it or not cashflow/income in the currency of your country is going to enable you to do that. I also need to be able to make sure the cashflow will increase with time to keep in line with inflation. How do I generate enough cashflow which increases in line with inflation that is sufficient enough to quit my day job? There are plenty of ways like (residential/commercial property/dividents from shares). But first I need to build substantial equity which I can then use to convert into cashflow. Unfortunately, with lack of cashflow from Gold accompanied by volatile nature (as you mentioned) plus a 30year record of average compound growth (4.87%) it's not going to let me build significant equity fast enough. Hence, my comment earlier it's not an attactive investment vehicle for me.

That's fair enough Oracle and I can see where you are coming from, however there have been similar periods in property prices as well with low/no growth and if you went into such a period in a negatively geared situation then you could not only be in the situation where you are earning no income from the asset, but infact having to pay to hold the asset! Looking through the housing medians I linked earlier for example Melbourne peaked in 1989 @ $132,000 and didn't pass that again for another 8 years in 1997. I would suspect that with interest rates around 16% in 1989 (link) and not really dropping under 10% until 1995, that anyone caught highly leveraged and negatively geared was in for a very hard time over this period. There have been larger flatlines in property as well, going back to the 1880-1890 bubble in Australian property, it didn't in real terms pass that high for another 60 odd years (link). I have no problem with those that invest in property, understand the risks and as IV mentioned, put the appropriate strategies in place...however I still see a lot of posts on here about squeezing every last bit of leverage they can out of their situation which seems relatively dangerous given current global circumstances....and I'm not really sure where I was going when I started this post so think I might stop here...

 

[oracle]

That's fair enough Oracle and I can see where you are coming from, however there have been similar periods in property prices as well with low/no growth and if you went into such a period in a negatively geared situation then you could not only be in the situation where you are earning no income from the asset, but infact having to pay to hold the asset! Looking through the housing medians I linked earlier for example Melbourne peaked in 1989 @ $132,000 and didn't pass that again for another 8 years in 1997. I would suspect that with interest rates around 16% in 1989 (link) and not really dropping under 10% until 1995, that anyone caught highly leveraged and negatively geared was in for a very hard time over this period. There have been larger flatlines in property as well, going back to the 1880-1890 bubble in Australian property, it didn't in real terms pass that high for another 60 odd years (link). I have no problem with those that invest in property, understand the risks and as IV mentioned, put the appropriate strategies in place...however I still see a lot of posts on here about squeezing every last bit of leverage they can out of their situation which seems relatively dangerous given current global circumstances....and I'm not really sure where I was going when I started this post so think I might stop here...

Hobo-jo you are correct. Property can turn out to be a bad investment if bought at the wrong price (very high price) at the wrong time (just after boom). As an investor you need to remember things eventually revert back to the mean, where if the price has shot up by more then average long term growth then sooner or later it will either drop or stay flat in order to revert back to the mean. Having said that, property still gives you the options of rental growth with time and value add which can potentially help reduce your losses if you find yourself stuck buying overly priced property just after a boom.

But yes, stretching yourself to the limits and borrowing like crazy is big no-no as by doing that you are risking putting yourself in a position where if things don't work out according to your plans, you may be forced to sell your assets at a loss. Once you start building a portfolio of more then 3 properties being able to hold on to your assets becomes more important then acquiring new assets IMHO.

Cheers,
Oracle.

 

[Aaron Sice]

hang on.

why are you all comparing house prices to gold prices?

the money you use to buy said house isn't tied to gold anymore, so where's the relevance...?

one asset only stores wealth, the other stores wealth and generates a dividend - so where's the relevance...?

if we went back to gold standard for the currency we use, then YES, house prices are in a bubble relative to the money used backed by said gold in exchange.

but we dont use the gold standard, and until we do, this argument is futile.

 

[hobo-jo]

hang on.
why are you all comparing house prices to gold prices?
one asset only stores wealth, the other stores wealth and generates a dividend - so where's the relevance...?

I had to go back to page 2 to find out why we were comparing Gold to property and realised I introduced Gold to the thread...wooops

P.S. You can earn a return from physical Gold
If you live in Vietnam

 

[random]

No Sunfish, I merely picked the year 30 years ago from today and looked at the prices. On further research I noticed the price of Gold reached nearly $700 by 1981. Hence, more then doubled from $300 in 1980. Investors who bought gold at that price thinking it's a safe heavan with fantastics returns and hoping to retire one day on this investment pouring in all their life saving had to wait till atleast 2005 before Gold crossed the $700 dollar mark.

If history is of any guide then the current recent bull run in Gold could just be another bubble waiting to be popped. Gold has done it in the past who is to say it won't do it again. Investors buying at todays prices might be waiting to break even after 20 years, with no income, it's definitely doesn't look attrative to me.

Cheers,
Oracle.

Yeah I remember Gold stagnant for yrs . My brother bought a detector and found some , then decided to hang onto it . 5 yrs later it was worth quite a bit less than when he found it . Wasn't a bad find , 6 oz's .
But atm they're all saying gold gold . Money Morning reckons it could go 2700 within a few yrs and so I'm finally considering it .
But I just have trouble trusting gold myself as it did nothing for yrs and yrs and will most likely do again , just need to know when . Not a big ask for Somersoft is it ?
But looking at that chart , it's present peak almost doubling the 80's spike and just as steep, in all honesty it only looks as if it has a yr or 2 left max so I'm back to not trusting it.
Actually , I can see the exact $500 period of when my brother found his piece .
We need the 100yr chart , WW , if you happen to drop in , wouldn't happen to have it kicking about by any chance ?

Cheers

 

[hobo-jo]

We need the 100yr chart , WW , if you happen to drop in , wouldn't happen to have it kicking about by any chance ?

Any chart that goes back prior to 1971 is pretty pointless in USD as it was tied to the dollar (fixed price), but these inflation adjusted charts might give you some idea:

US Government CPI
http://www.sharelynx.com/chartstemp/FreeGoldSilverCPI.php

Shadow Government CPI
http://www.sharelynx.com/chartstemp/FreeGoldSilverSSCPI.php

 

[random]

Any chart that goes back prior to 1971 is pretty pointless in USD as it was tied to the dollar (fixed price), but these inflation adjusted charts might give you some idea:

US Government CPI
http://www.sharelynx.com/chartstemp/FreeGoldSilverCPI.php

Shadow Government CPI
http://www.sharelynx.com/chartstemp/FreeGoldSilverSSCPI.php

Thanks Hobo , 300yr , crikey now your really talking. Hows the 1720 area , doesn't look like much of an investment does it eh , well unless your good enough to pick a pre spike .
Yep , still don't trust it. Add 5 yrs to 05 and we have it very close maxed and very dicey from here . Could be still 12 - 18 mths away from max imo but it could also be any time from here in .
If I don't hey , it goes 2k , if I do it dumps . Owell , no gold for me there's much safer around and if it does it does, I can't afford the risk right now myself .

Cheers

 

[Aaron Sice]

Soros is the master at seeing bubbles and investing / riding it.

He's tipped gold to move and has put money on it.