Merged: Is the worst of the Global Financial Crisis behind us?

[Mr. Hat]

I'm noticing where I work that things seem to have been improving quite a bit recently. It makes me wonder if the worst of the GFC is now past us. The share market seems to be steadily rising and some economic figures are pointing at a recovery. What do you think and how is it looking where you work?

Australia avoids recession as GDP grows in first quarter | The Australian (http://www.theaustralian.news.com.au/business/story/0,28124,25580881-36418,00.html)

Scott Murdoch | June 03, 2009
Article from: The Australian

AUSTRALIA has avoided a recession after a surprise burst in the nation's trade surplus saved the economy from negative growth.
In its National Accounts, the Australian Bureau of Statistics revealed today that the economy for the March quarter grew by 0.4 per cent.

There was expectation in financial markets ahead of the numbers that the economy would have escaped a recession after a surge in exports last quarter.

The result comes after the December-quarter contraction, when the economy shrank by 0.6 per cent, a slight downward revision from figures released earlier this year.

Australia has avoided a technical recession, which is defined as two consecutive quarters of economic contraction. The economy last suffered a recession almost two decades ago.

The majority of economists had expected today's March quarter figures to show a return to positive growth after the better than expected current account numbers published yesterday.

[heads_down]

you'd wished.


unemployment is still on its way up.

Many small businesses are still going bankrupt. Banks are still unwilling to lend money for projects.

There's still a 30 billion dollar national debt to be paid off.

Also, this GM bankruptcy thingo, no one knows if GM will actually come out very successful, everyone is just optimistic and hopeful, the truth is, there is no guarantee that GM will emerge better than what it was. It all depends on whether consumers will suddenly ditch Japanese and European cars and suddenly all start buying American made cars. In simple terms: like hell they would.

GM will only break even assuming they can sell 10 million vehicle a year after from 2010. If they do not, they are no longer a viable business.

Citibank and Bank of America still have not passed stress test. American unemployment is still shockingly scary with many homeless middle class. Entire city of Reno and Las Vegas and many parts of California is literally a basket case with no hope.

Europe is far worse, they will not be out of recession till 2011-2012

[404 Titan]

All we are witnessing here is a “Bear Market Rally”. As I said in late 2007 on this forum and was boo’d down by my critics, the world was going to see a recession like they haven’t seen since the Great Depression. The US and Europe would lead us into it and will lead us out of it. What we are witnessing is the perfect storm brewing and there won’t be anywhere you can hide from it.

Both economies though have probably bottomed out or are very close to bottoming out. They are though no where near recovering as the problems that caused the downturn in the first place haven’t been fixed but the markets including the AUD have started behaving as if a recovery is in sight. It isn’t and won’t be for some tim

[halas]

Spot on 404 titan

Though the AU$ is up due to interest rates being higher than elsewhere in the globe, and a, still, tanking US$, amongst others, and is not really reflecting any bears.

We have many years of this ahead. In the US alone, the housing market is still diving, unemployment is rising at it's highest rate since the 70's, and whole industries are folding. This is a market that is the size of Japan, Germany, China and the UK combined. And three of those economies are hugely weighted against the US market.

Australia has had a few lucky straws that have helped delay the inevitable.

You haven't seen anything yet.

halas

[Skystar320]

Armchair experts

[psycho joe]

The skyyyyyyyyyy is faaaaaaaalllling !!!


http://www.jeboavatars.com//images/avatars/46Chicken-LittleChickenLittle.jpg

[Foie gras]

Dead right!

Without sounding too pessimistic, you would be better placed if one considered the worst.
We continue to forget that, "history repeats itself".
The Us Fed have got themselves into a situation, similar to the late 20's.
We are seeing and hearing of "green shoots", however it's the big picture that we've got to be wary of.

Proceed with caution and prepare for the unexpected.
Always have an alternate.
This at least keeps you in a positive frame of mind.

[404 Titan]

Skystar320

You wouldn’t be saying that if you knew my background. I haven’t always been a pilot you know.

psycho joe

Yeh what ever. You go and stick your head in the sand like all the other sheep.

[skol]

Things are going to get worse, so if you've got some spare cash or looking to buy property you're in good shape because there's still s**tloads of debt out there that's going to drive lots of punters to the wall. I shifted 50% of my superannuation into cash 2 years ago after reading about the subprime drama that was unfolding.
I've been astounded at the easy credit and the way suckers speculated on property for the last few years.
Now it's payback time.

[heads_down]

despite the good news,

"KEVIN Rudd today warned Australians the economy was not out of the woods yet.."

reads the headlines.

[DUXNUTZ]

Well folks.

As usual the USA and Europe lead the rest of the world, Australia included.

This last month initial claims for unemployment have dropped from previous levels and the housing market is seeing signs of recovery, all be it small. The lady and myself recently put in an offer on a house and have been amazed at how quickly some places were selling. First time home buyers have been stimulating the market, spuured on by record low interest rates and govt grants.

From what people have been telling me, aviation is the first to feel the effects of a recession and the last to pull out of it. I work in the on-demand freight industry and from christmas onwards the amount of companies contracting for last minute express freight charters was basically nil. In the last few weeks we have seen a resurgance in interest which is surprising and hopefully a sign of better times ahead.

This weeks GM bankruptcy (auto parts from mexico is alot of our business) doesn't help but overall i see signs to be positive.

There are next to no aviation jobs going over here though....

[Mr. Hat]

DUX thats the sort of perspective I was after. The "whats happening where you work" perspective. Or people you know....

[psycho joe]

psycho joe

Yeh what ever. You go and stick your head in the sand like all the other sheep.

I feel you may be barking up the wrong end of the stick with your mixed metaphors. :ok:

[404 Titan]

DUXNUTZ

Yeh as I said I think the US economy is probably bottoming out i.e. the rate of deteriorating is slowing or stabilising. It isn’t recovering though. The recovery will be a long drawn out affair. The way the S&P 500, the Dow and oil have been rising since March though you would think the economy was in a full swing recovery. When investors realise it isn’t, the market will fall and it could very easily test new lows. You've only got to look what happen during the Great Depression to see that history is repeating itself.

[boocs]

HS Dent | Economic Research, Trends, Forecast, Asset Protection (http://www.hsdent.com/)

[skol]

Is this the same Harry S. Dent Jr. that wrote 'The Roaring 2000's'?

[Foie gras]

Er... Dent.

The only Dent I know is Arthur.
Barely escapes Earth's destruction as it is demolished to make way for a hyperspace bypass.

Enjoy that pint!

[boocs]

Yes that is the one and the same HS Dent.
b.

[Icarus2001]

Well from where I am sitting, in a relatively secure flying job...the "non recession" that we are experiencing means...

:) My minimum mortgage repayments have dropped by hundreds of dollars a month meaning that by keeping my repayment the same I am getting further ahead on paying off my mortgage.

:) Petrol prices have dropped back to reasonable levels saving me quite a lot of money each week.

:) Inflation has slowed by about 2.5% meaning things are not getting more expensive as quickly, which saves me money.

:) My company workload has slowed down a little meaning I get more days on reserve without being called.

:) Restaurants, bars and retail outlets are offering discounts to attract business, thereby saving me money.

:bored: My superannuation fund has gone backwards but since I don't retire for another 30 years I think I can make it up.

So overall, from a purely personal, selfish point of view, I am better off now than at the height of the boom when interest rates, petrol; and inflation were eating into my income.

Now I realise that many people are losing their jobs and those that are close to retirement will be hurting with their superannuation fund losing capital, for this I am sorry and you have my sympathy.

The media are loving all this doom and gloom and plenty of people are buying into it. Yes the US and parts of Europe are stuffed BUT we are riding the resource boom and unless China and Japan stop buying we will survive. Some suggest that the US and Europe are not buying Chinese product and so they will tank as well, not really, their domestic demand is huge. The media headlines talk about 30-50% drops in value since last year in x y and z but last year was artificially high so the drop looks much much worse than it actually is.

Ultimately all these expert economic analysts who are predicting the end of the world actually KNOW sweet FA. How many saw this coming?

[Ovation]

NO.

If you feel things are getting better, you might have been believing the spin that Rudd and Swan have been spreading. Their naive and hasty ill-conceived economic policy will ensure that the economy will bounce along the bottom for some time to come, and if you have children they'll be paying off the Kruddcard debt until they are middle aged.
:ugh:

[ditch handle]

Quote- "if you have children they'll be paying off the Kruddcard debt until they are middle aged."

____________


At least they'll be able to pay it off as they won't be working for little more than the proverbial bowl of rice, eh john ? :ugh:

[whatever6719]

Aint that the truth Ditch!! :ok:

[heads_down]

yes ditch your descendants may work for more than a bowl of rice with some sashimi added but, if all you make is heavily taxed you'd find you have nothing left to do much anything else.



and ain't that the truth.:=

[404 Titan]

Icarus2001
Yes the US and parts of Europe are stuffed BUT we are riding the resource boom and unless China and Japan stop buying we will survive. Some suggest that the US and Europe are not buying Chinese product and so they will tank as well, not really, their domestic demand is huge.
Ah that little gem was dispelled last year when a large number of economists thought China and India would come out unscathed by an economic downturn in the USA. The reality with China as it is my neck of the woods is that of the 1.3 billion population, 1.1 billion live in poverty. Only 200 million have any kind of wealth and of those 200 million, 30 million have lost their jobs in the coastal regions alone since August last year. China and India’s economies are export driven economies. Their success over the last 20 years has been driven by it. It will be at least two generations before these countries own internal demand will be large enough to drive their economies forward. Japan won't be of any help either as they are in just as big mess as the USA

So then I hear some ask why did Australia report today a positive GDP of 0.4% and avoid a technical recession? The simple answer is the $900 cash hand out and exports rising. Why would exports rise in a downturn? Well the simple answer is that China has been stoke piling our resources because they are cheap. Next quarter will be interesting because there isn’t anymore cash handouts and China will probably reduce their imports of Australia’s commodities significantly as their stockpiles fill up.

ditch handle
At least they'll be able to pay it off as they won't be working for little more than the proverbial bowl of rice, eh john ?
What makes you so confidant that your children’s income will go any further in 10-20 years compared now. Real wages in this country have been declining at an alarming rate since the early seventies irrespective of who was in power. Just because we have a different government now in power compared to what we had a year and a half ago mean that real wage levels will increase. They will decrease and probably at a much faster rate than before because of the amount of money governments are currently printing and record low interest rates. This will in about 2-3 years drive inflation through the roof and hence drive up interest rates, probably to levels close to what we saw in the late Eighties.

[Pappa Smurf]

Icarus 2001.

I agree with you 100%
People who have a stable job are better off for the time being and they are still spending as nothing has happened.
But here in QLD ,electricity,car rego,s ,fuel,rates etc etc are all going up to pay off massive debts,which i suppose the average person can handle but its still going to take a fare bit more out the weekly budget.

Record car sales for the last 3 years.Unless you buy a car every 3 years of course demand will drop.

Mining--some have closed down because the price has dropped.Others are no worse off than they were 5 years ago-----the boom hype is over.

Iron ore was around $30 a tonne 5 years ago.In the boom years that went to nearly $200 and now i see Rio has signed with all but China for $90 a tonne.
The world had to come back to reality sooner or later.

The first home owners grant is a savour for the real estate and building sector but once finished we will see a dive.Then once rates start going up there will be a lot more people in the sh-t.

My super has snuck back to be only minus 20% now but in a 3 year period it went up over 30% so i cant complain and interest on cash has dropped 100%.

So retirees ,unemployed(and rising),low paid struggling workers etc cant afford to spend or go on holidays,hence all businesses say get a 20% drop,then they have to lay more workers off ,so no one is safe for a long time ahead.

Australia is a year or two behind the rest of the world so we havent really seen it yet.
Share markets are rising------are they getting back to a reality price after a panic sell of-----who knows,im making a bit of beer money,but im waiting for a big crash again.

[hongkongfooey]

People a lot smarter than me ( yes, there are some ) have said that unemployment lags 6-9 months behind everything else, so IF there were signs of recovery, unemployment is not an immediate sign either way. It makes sense as businesses are not just going to start making money all of a sudden, at the first sign of recovery. ( Like those poor impoverished people we work for 404 :hmm: )

I am always wary of experts, like the ones that said the Oz dollar would reach parity and beyond, I know it was close but it did'nt, they also said the initial dip in the dollar was just a " correction " , yeh it corrected alright.
Also a lot of these experts ( eg Buffet ) can gain significantly from depressed markets, think Rene Rivkin on a much larger scale.

My 2 cents worth and unlike 404, I was always a pilot :}

[Jabawocky]

Two very appropriate comments I have seen....

You've only got to look what happen during the Great Depression to see that history is repeating itself.

And .........

im making a bit of beer money,but im waiting for a big crash again.

Another comment made by an infamous ppruner over a coldie is that we are in the middle of a Tsunami, all wandering around the beach looking at the unseen and exposed sea floor...................and then :eek:.

Prepare for the worst, hope for the best!

[Ovation]

Icarus2001 wrote:

So overall, from a purely personal, selfish point of view, I am better off now than at the height of the boom when interest rates, petrol; and inflation were eating into my income.

Now I realise that many people are losing their jobs and those that are close to retirement will be hurting with their superannuation fund losing capital, for this I am sorry and you have my sympathy.

Except that Rudd and Swan have blown the surplus AND will borrow some 220B. That debt is spread across Australian present and future taxpayers and interest is payable.

So, Icarus2001, I have some questions for you (answers below)

(1) Where is the interest on the borrowings coming from?

(2) Where will the principal of 220BN be repaid from?

(3) If the retirees you feel sorry for end up tapping into the pension because their super funds are worthless, where will the pension payments come from?

(4) When (not if) unemployment skyrockets, where is the benefit coming from?
.
.
.
.
.
.
.
.
.
.
.
.
(1) TAXATION, (2) TAXATION (3) TAXATION (4) TAXATION

So while you may be a true believer for now, reality will set in one day (soon).

[priapism]

The cost of Rudd's stimulus package is to be paid back by having to work another 2 years before retiring. A big price to pay for 900 bucks.

[Wiley]

Kev and Wayne are between a rock and a hard place - as the men running the country, (even if they didn't have a substantial personal/political investment in 'talking up' the economy at every opportunity), they can't, in their position, come up with a statement saying this is a false recovery for fear their comment would make it a self-fulfilling prophesy.

My financial advisor (the same one who lost me a bucket load of money in the last twelve months, but let's not dwell on that - despite all the signs, I was the one who elected not to go into 100% cash when I could have said to do so), told me back in January that she and her colleagues were expecting a recovery of sorts by mid year, but they were planning upon it proving to be unsustainable. I hope she's wrong, but fear she will be proven to be right in her predictions. I think we're in for at least another one to two years of very hard times.

For everybody's sake, including my own, I hope I'm wrong.

[The Bullwinkle]

I can't believe how many of you blindly trust that the state of the economy is as portrayed in the media!

Don't believe everything that you are told on Televison or in the paper!

Check this enlightening movie and then you might start to get a handle on just how much we are being manipulated without even realising it!

Zeitgeist - The Movie (http://www.zeitgeistmovie.com)

Question everything!

[shortshorts]

Bullwinkle,
Great that was enlightening, so the robots are going to take over and none of us will be flying?? Fantastic. Well at least everything will last.

[Foie gras]

There's a lot of wisdom going on here.

You must prepare for the worst.
10 ways to do so:- (The ticker guy in the USA, gives this advice)

http://market-ticker.org/archives/1091-Ten-Things-You-Must-Do.html

OR

Keep your head buried in the sand.

Another history lesson:-
When Germany invaded Russia, Stalin was in such deep shock, people couldn't even get him to answer the phone for 3 months. There will be a shock period. Use it to get people organised and functioning.
People are resourceful and have incredible survivability. Try and fight that, you will lose. Work with it, you too will survive.

May the Force be with you!

[Mr. Hat]

Consumer confidence booms on positive economic growth data | Business | News.com.au (http://www.news.com.au/business/story/0,27753,25614838-462,00.html)

[Mstr Caution]

Employment figures are out tommorrow.....hard to maintain ones consumer confidence with rising unemployment.

[404 Titan]

DJIA during the Great Depression and until direct US involvement in WW2

• DJIA reached a high of 381.17 on the 3-9-29
• The DJIA declines to 333.27 by the 18-10-29 or looses 12.56%.
• Crash starts 21-10-29 and falls to 198.69 by the 13-11-29 or looses 47.87% from its high on the 3-9-29.
• Market starts to revive. From the 13-11-29 to the 17-4-30 the DJIA rises to 294.07 or 48.00% from its 13-11-29 low.
• From the 17-4-30 the market starts its long and by far more dramatic fall. By the 8-7-32 the DJIA has fallen to just 41.22 or looses 85.98% from its 17-4-30 high or 89.19% from its all time high on the 3-9-29.
• Between 11-7-32 to 5-3-37 the DJIA rises from 41.22 to 194.14 or 370.98%.
• Second market crash starts on 8-3-37 and lasts until 31-3-38. In this time the market declines to 98.95 or looses 49.03% from its 5-3-37 high.
• From 31-3-38 to 7-12-41 the market is stagnant until Japan bombs Pearl Harbor.


DJIA during the Great Recession 2007 - ????

• New high of 14164 on 9-10-07.
• Market starts to decline on 10-10-07.
• By the 12-9-08 the DJIA has declined to 11421.99 or lost 19.36%.
• The crash starts from the 15-9-08.
• Market finally bottoms on 9-3-09 at 6547.05 or 53.78% below high reached on 9-10-07.
• Market starts to revive on the 10-3-09. By the 9-6-09 the DJIA was at 8778.32 or had climbed 34.08% from its low on the 9-3-09.


So where are we now? On a strictly technical basis the current rally probably has no more than about two to three months to run. If history is to repeat itself and so far it has, we will probably see a long and protracted decline in the DJIA which could see it reach unthinkable levels by the end of 2011. Let’s just hope though that history doesn’t continue to repeat itself, for all our sakes.

[wild goose]

Dont forget the swine flu and rising oil prices....:uhoh:

[Ultralights]

not to mention rising interest rates irrespective of the reserve changes. increasing water/electricity/rates bills.. :bored::{

[Arnold E]

Commonwealth bank independently raises interest rates, how good is that? Fantatastic, making me plenty of money!:ok::ok::ok:

[boocs]

There's worse to come for the economy | Business | News.com.au (http://www.news.com.au/business/story/0,27753,25666899-462,00.html)

b.

[psycho joe]

There are two absolutes when it comes to human memory in aviation.


Every economic downturn is the worst ever experienced. At least as bad, if not worse than the great depression and spells the end for aviation.


Every Airline expansion / recruitment cycle is the greatest ever experienced and will last forever.


My prediction is that by the middle of 2010;


The sun will still rise in the East and set in the West.


Europeans will still be considered arrogant.


Americans will still consume and will have declared war on some other hapless country.


The Chinese will still need raw materials and will manufacture cheap and nasty ****e that westerners will want to buy.


Beer will still taste better cold.


Australia will be the only developed country in the world with interest rates up at 13%.


and


Someone on PPRUNE will post the question ("Will all this airline recruitment last forever"):ok:


joe crazyhorse :E

[training wheels]

I know this is not a financial, nor scientific analysis, but last weekend when I went to a largish shopping centre in the western suburbs of Melbourne, it seemed like every man and his dog was out shopping. So much so, I drove around for 5 minutes until I could get a car park!

Is this a sign that things are gradually getting back to normal again with the economy?

How are the load factors on RPT at the moment? Or are planes flying half empty?

[Gingerbread]

According to the Airports Council, there is a slow recovery ahead for global aviation industry.

"The global aviation industry is not expected to recover quickly from the economic downturn, says the Airports Council International (ACI), representing 597 members operating over 1,679 airports in 177 countries and territories.

While worldwide traffic growth in Jun-2009 showed some “positive signs of improvement and a possible indicator that the beginnings of a more durable turn-around are in the making”, it warned that “persistent negative factors, including on-going economic uncertainty, tight financial markets, concerns about a global health threat, and geopolitical disruption in some nations, are likely to restrain the prospects of a rapid rebound”.

ACI concluded, “it is unlikely that we will recover the flat growth rate before the fourth quarter of the year”

Chief Economist, Bart Van Ark, added, “the contraction [in 2Q2009] - though less severe than most forecasts - offers no sign of a V-shaped recovery. Consumer spending came out worse than expected and is likely to remain weak into the third quarter because of ongoing clogging in income and credit channels.

Mr Van Ark stated that the “very rapid decline in inventories”, which decimated global air freight volumes in late 2008 and early 2009, “raises hopes for a recovery in industrial production, but also increases chances of a pushback later in the year, as domestic and global markets remain weak”.

Mr Van Ark concluded, “with capital spending still falling and unemployment rising, neither investors nor workers are likely to see strong rewards anytime soon”.

[Keg]

How are the load factors on RPT at the moment? Or are planes flying half empty?

I haven't had less than 230 passengers on board for the last two weeks. Of course that doesn't mean we're making money on them! The loads though have been very, very good on the majority of sectors.

[Zoomy]

I have not had less than 1 pax on board, but they keep coming in droves to learn to fly. :ok:

[Chimbu chuckles]

Is unemployment, generally speaking, improving or getting worse?

What other international fundamentals have shown significant improvement?

I cant think of one - and no the stock markets are not fundamentals.

Don't mistake sentiment driven by stock market fear and greed, fear of missing a rally, and faux company profits based on creative accounting and govt bailouts as a sustainable recovery.

The Chinese economy is heavily dependent on massive govt stimulus - that cannot last a whole lot longer. The US economy is broken - next shoe to drop will be cubic losses in commercial real estate - shopping malls, factories etc. Why is that an issue? Think the retirement portfolios of 10s of millions of Americans. The Japanese economy is similarly reeling - how much longer before Australia follows around the S bend? Don't know but it can't be much longer....6 months maybe?

Then watch the govts stimulus run out of steam - watch the first home buyers grants bite all concerned on the arse big time.

Personally the loads I have been flying internationally have been excellent - came out of the ME the other night right on MZFW - 206 pax. I think this is due to 2 things,

1/. Most people have not lost their jobs yet and think the worst is over - so think they wont.

2/. Discounting by airlines.

I don't think that situation will necessarily hold up indefinitely. The world wide de-leveraging has a way to go yet.

[Falling Leaf]

Chimbu, totally agree with your analysis.

Keep an eye on the oil price too. Every time the economy tries to recover from here on in it is going to run into the brick wall of decreasing supply. Demand is still low at the moment thanks to the GFC, yet oil is back over $70 bbl.

There will be no V or U shaped recovery, just a ratcheting down WWWWW.:uhoh:

[lowerlobe]

Australia will be the only developed country in the world with interest rates up at 13%.
Another happy Liberal party supporter yet again.....
If you have more leaders like MT you will never get back in...
Keep an eye on the oil price too.
Another doomsday reporter.....I asked you a question before falling leaf...Do you really think aviation is the only industry that relies on Oil?

The price of oil has gone up and down before...you might remember the 70's and the oil crisis then...and did aviation collapse then.....

I remember a thread not that long ago telling us that we would all have died from Swine flu by now.....

I guess there will always be someone walking around telling us the end is near.:yuk:

[Mr. Hat]

It can't be denied however that the market has consistently risen in the last 5-6 months. There has been afew drops but then its just gone straight back up again so..

Is the worst of the Global Financial Crisis behind us?

[breakfastburrito]

ECONOMIST Nouriel Roubini, who famously identified the causes of the global financial crisis, says Australia will ride out the storm better than most, but predicts a global recovery will not start until next year and even after it does, there is a high chance it will be shortlived.

The closely followed New York University economics professor also said the Reserve Bank was unlikely to start hiking interest rates this year.
Professor Roubini, labelled Dr Doom when in 2005 and 2006 he predicted that mortgage defaults would trigger a massive US housing bust and deep recession, said while there was light at the end of the tunnel, the global recession would not run its course until the year was over.

He said consensus was too bullish and a market correction was likely, and added there was the prospect of a double-dip global recession.
Delivering the opening speech to the annual Diggers and Dealers mining conference in Kalgoorlie yesterday, Professor Roubini also doused some of the recent optimism that has been returning to the mining sector.

He said there was little scope for further gains in gold prices and that China had overstocked on commodities during the boom, which could weigh on prices in the second half.
"My reading of the data is that the accumulation of inventory of commodities by China has probably run at a rate that is larger than the underlying demand for these commodities is going to be, even in the scenario where there's a meaningful return of growth in China," he told The Australian.
"There may be greater softness in demand in the second half of this year and into some time in 2010 ... it's a meaningful risk."

Still, he said demand from China and India was real and he saw both "green shoots" and "yellow weeds" in recent global data. Australia is in recession, but lower levels of public debt, resilient housing markets and strong exports mean it is in better shape than the US, Europe and Japan.
"The recovery in Australia is going to be gradual, so maintaining and monitoring the fiscal stimulus for a bit longer is going to be desirable," he said.
"Australia could be one of first countries to increase policy rates after a phase of cutting. In my view it's more likely than not that tightening will start to occur next year rather than this year. The recovery is barely starting, inflationary pressures are still very contained because of rising unemployment and slackness of demand (so) a cautious approach is more likely to be taken."

Globally, policymakers will have to tread lightly to avoid a double-dip recession, he said.
If they tried to address high deficits too early, economies could be plunged back into recession, he said.

On the other hand, increases in deficits for further stimulus packages could be too much for economies to bear.

Professor Roubini said that if the global economy grew next year, further gains in commodities prices were expected.

However, at a conference in the nation's goldmining capital, used to having gold bulls paraded before it, the yellow metal was singled out as one commodity not likely to go up until at least the end of next year.

The Turkish-born academic said the two catalysts for recent gold price gains that had sent prices near $US1000 an ounce -- first inflation during the boom and then fears cash was not safe and the world was heading into a depression -- were not likely to be repeated.

"This year and next, the big story will be deflation," he said.

The good news for goldminers was that he did not see prices falling too much from their historically high prices of about $US950 an ounce.

Another highly anticipated speaker at the mining conference yesterday, Ivanhoe Mines' billionaire boss Robert Friedland, did not show up due to an important meeting elsewhere.

Speculation immediately turned to Ivanhoe and Rio Tinto's Oyu Tolgoi deposit in Mongolia, where the pair are trying to strike a deal with the government that will enable the mine to start. Source:The Australian (http://www.theaustralian.news.com.au/business/story/0,28124,25877483-643,00.html)

[Gnadenburg]

but last weekend when I went to a largish shopping centre in the western suburbs of Melbourne, it seemed like every man and his dog was out shopping.

Highpoint? I was there a few months on a Friday night and nobody was buying anything. I couldn't believe it.

At the time, I was on a shopping trip for more Australian property, but decided to hold off at the evidence of such retail gloom. The market I was looking at ( above seven figures ) has since regained composure and confidence.

I don't listen to pilot doomsdayers. 1) They are pilots 2) They are generally poor pilots averse to have ever taken a financial risk. I suppose that's why they're poor.

Australia will do fine. I would be better off if it didn't.

[Chimbu chuckles]

Falling Leaf Peak Oil is a myth like Global Warming, over population, resource scarcity and any number of other Greeny/Neo Malthusian theories - the world has plenty of oil to last until we come up with something cheaper/better...maybe in another 500 years or so.

But the reality of the last 25 years is over and a new reality yet to become manifest - an endless cycle of credit driven asset price growth is simply not possible...particularly when the wages have not been keeping up with real inflation since the early 70s. That is why the average house in Australia is now 'worth' 7-8 x average wages when 3-4 x is more historically realistic and in line with the rest of the western world - and that was before the crash - Australia has the least affordable real estate in the western world. The housing bubble in Australia has yet to fully deflate - a fella I know has a house he thought was worth 3 mill, he was offered and knocked back 2.5 mill and now cant get offers near 2 mill.

The hope that US/EU/UK and Aust citizens will go back to the credit driven spending habits of the last 20 odd years is unrealistic - if they don't we can't have the sort of growth we have experienced in the bubble economies of the last decades.

Personally I think it will be a long U shaped recovery - but I don't think it has bottomed yet. Graphs I have seen shows the US stock market tracking with uncanny and frightening accuracy the same way it did in 1929/30. What happened back then was a sudden 40% drop followed by a 50% recovery and then an 80% drop followed by a depression that lasted until WW2. The US stockmarket didn't recover to its 1929 highs until about 1954.

I have seen nothing to suggest this rally is anything other than a suckers rally...despite the green shoots rhetoric.

History doesn't necessarily repeat but it does echo.

[Chronic Snoozer]

Considerably more financial levers have been pulled when compared to the Great Depression though, therefore the outcome of GFC may be considerably better than GD.

[Falling Leaf]

Falling Leaf Peak Oil is a myth like Global Warming ... - the world has plenty of oil to last until we come up with something cheaper/better...maybe in another 500 years or so.

Chimbu, 500 years! Thank god for that, what a relief.

I guess we can completely ignore this IEA Chief Economist bloke then, obviously full of s&*t:

Warning: Oil supplies are running out fast

Catastrophic shortfalls threaten economic recovery, says world's top energy economist

By Steve Connor, Science Editor (The UK Independent)
Monday, 3 August 2009

The world is heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production, a leading energy economist has warned.
Higher oil prices brought on by a rapid increase in demand and a stagnation, or even decline, in supply could blow any recovery off course, said Dr Fatih Birol, the chief economist at the respected International Energy Agency (IEA) in Paris, which is charged with the task of assessing future energy supplies by OECD countries.

In an interview with The Independent, Dr Birol said that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.

But the first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago. On top of this, there is a problem of chronic under-investment by oil-producing countries, a feature that is set to result in an "oil crunch" within the next five years which will jeopardise any hope of a recovery from the present global economic recession, he said.

In a stark warning to Britain and the other Western powers, Dr Birol said that the market power of the very few oil-producing countries that hold substantial reserves of oil – mostly in the Middle East – would increase rapidly as the oil crisis begins to grip after 2010.

There is now a real risk of a crunch in the oil supply after next year when demand picks up because not enough is being done to build up new supplies of oil to compensate for the rapid decline in existing fields.

The IEA estimates that the decline in oil production in existing fields is now running at 6.7 per cent a year compared to the 3.7 per cent decline it had estimated in 2007, which it now acknowledges to be wrong.

"If we see a tightness of the markets, people in the street will see it in terms of higher prices, much higher than we see now. It will have an impact on the economy, definitely, especially if we see this tightness in the markets in the next few years," Dr Birol said.

"It will be especially important because the global economy will still be very fragile, very vulnerable. Many people think there will be a recovery in a few years' time but it will be a slow recovery and a fragile recovery and we will have the risk that the recovery will be strangled with higher oil prices," he told The Independent.

In its first-ever assessment of the world's major oil fields, the IEA concluded that the global energy system was at a crossroads and that consumption of oil was "patently unsustainable", with expected demand far outstripping supply.

Oil production has already peaked in non-Opec countries and the era of cheap oil has come to an end, it warned.

In most fields, oil production has now peaked, which means that other sources of supply have to be found to meet existing demand.
Even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030, Dr Birol said.

"It's a big challenge in terms of the geology, in terms of the investment and in terms of the geopolitics. So this is a big risk and it's mainly because of the rates of the declining oil fields," he said.

"Many governments now are more and more aware that at least the day of cheap and easy oil is over... [however] I'm not very optimistic about governments being aware of the difficulties we may face in the oil supply," he said.

By the way, the IEA were considered until last year to be amongst the biggest Peak Oil skeptics out there.

[Falling Leaf]

Another doomsday reporter.....I asked you a question before falling leaf...Do you really think aviation is the only industry that relies on Oil?

Lowerlobe. I'll answer your question; of course not. Aviation will be affected as much as other transport industries, and food production.

But here are a few questions for you:
1. Unlike other modes of transport, how readily can aircraft be powered by alternatives? And I'm not talking ethanol which uses as much oil to produce as that it replaces when you consider fertiliser, farm machinery, refining.
2. Can you run an aircraft on electricity? Hydrogen? Coal?
3. How much of the present demand for air travel is only because it is cheap?
4. What is the priority for air travel, if fuel becomes limited? ;)

[Chimbu chuckles]

Falling leaf the average of

BP Statistical Revue (Yr end 2007) 1,238.892 Billion Barrels

Oil and Gas Journal (January 2009) 1,342.207 Billion Barrels

World Oil(Yr end 2007) 1,184.208 Billion Barrels

For Proven reserves of oil ONLY

is 1,255.102 Billion Barrels of OIL

John Jones in the School of Engineering, at the University of Aberdeen, UK, suggests that the figures cited by Istvan Lakatos and Julianna Lakatos-Szabo for which they give no references grossly underestimates how much oil we have used already. Jones says that we have used at least 135 billion barrels of oil since 1870, the period during which J.D. Rockefeller established The Standard Oil Company and began drilling in earnest.

1255.102/135 = 9.29

9.29 x 139 yrs = 1291 yrs.

And that is just oil - not oil shale (truly vast reserves - as in trillions of barrels of oil), natural gas, coal etc.

Here is the January 2009 figure for Natural Gas

6,436.029 Trillion cubic feet

And the above assumes we find no more - and we have always found more for the last 150 yrs - and about every 15 years for those 150 years - so basically 10 times so far - some MORON has started a Peak Oil scare campaign - they have been wrong so far 10 times.

And no I don't expect we'll use the same amount/139 yr period going forward but equally do you honestly think we will still be using oil as we do now in 100 or 200 yrs given the technology advances of the last 100 yrs?

You think mans ability to do things better has peaked?

Just say it has and we discover no more oil/oil shale/gas/etc - well my friend I am 47 and my daughter is 20 - I will be dead in 40 odd years max and she in about 65 max - and to be perfectly frank I REALLY don't give a flying fck about what happens 20 generations thereafter - if they haven't worked it out by then they deserve whatever follows!!

I'll let you in on another well kept secret - well actually the UN publishes this stuff all the time but the predominately left wing media choses to pretty much ignore it. World wide fertility rates are falling and have been falling for decades - several decades - as in more than 2 - so the world population is increasing at a decreasing rate.

If that trends continues there will be less people on the planet in 2100 than there are now.

Googling 'Peak+Oil' and believing the first thing that pops up is just a tad naive.

[james ozzie]

"Falling Leaf Peak Oil is a myth like Global Warming, over population, resource scarcity and any number of other Greeny/Neo Malthusian theories."

Oh yes, I just heard. There is a very clever man called Mr Fielding who has found a GRAPH which PROVES global warming is all bunkum.

Yippee! now we can all carry on stuffing up the planet. I must admit I was a tad worried for a while then, along with the millions of scientifically trained people who form the mainstream of international scientific opinion. After all, what do THEY know? Dumb sheep who just follow the crowd. Harrumph!

[lowerlobe]

The end is near....repent....it's not too late....become a vegetarian...cattle create too much green house gases....

How many times have we heard doomsday prophets vent their visions of the future and still nothing ever happens....

Falling leaf....You did not answer my question about the oil crisis in the 70's...

Did aviation or indeed the world slip into oblivion at that time....Hang on I'll walk out side and see if the sun has come up this morning....be patient and I'll be back in a minute...

Nooooooooo sorry,it's a beautiful morning,the sun is out and the birds are singing and unfortunately I have to go and do some work....

Life goes on as it always has done ......

Unless some loony in North Korea presses a button it .....and there's not much we can do about that.

I doubt that falling Leaf and others are correct.My point to Falling Leaf though is that perhaps if the cost of fuel does increase we will have to adapt as mankind has done millions of times before...

Perhaps if the cost of fuel does become a significant issue we will have to have smaller aircraft and it will be like the old days of aviation when only the well heeled can afford to fly...maybe today's aircraft like the A380 are not the way of the future but does it mean we will all have to live a subsistence life again...I doubt it.

If you want to listen to these prophets of doom, you may as well cash it in today.

As I said yesterday,the same people were harping on about the swine flu only a few weeks ago but now that that danger is slipping away they are panicking about oil......what will it be next.....meteorites?

[Capt Kremin]

Interest rates in Australia are forecast to double in the next 12-18 months. That and the end of the bogus first home buyers scheme will stop the housing bubble in its tracks. Industry will also be affected.

On the up side, those quoting the rise of the oil price are missing the fact that the US dollar is falling against most major currencies and especially the AUD. Its all relative folks.

[kotoyebe]

Yippee! now we can all carry on stuffing up the planet

James,

I know it's hard on Prune not to be sarcastic and condescending, but why don't you have a go at debunking or disproving Chimbu's figures. I for one, as airline employee, would like to know the truth. My future income depends on it!

If you can't see that the anthro climate change push has taken on an evangelical following, then go back and look at your comments. "Millions of scientifically trained people who form the mainstream of international scientific opionion". Really? When did science become consensus based? Millions? Are these the same "millions" that predicted an Ice Age in the 70's due to greenhouse gases?

James, tell us honestly. Have you stopped driving/flying/using electricity? You suggest that our world, or at least our children's world is about to become like Mad Max, so the world depends on YOU going back to the stone age.

[lowerlobe]

Interest rates in Australia are forecast to double in the next 12-18 months
Does that claim come from the Liberal party by any chance?

What is the bet that Malcolm is going to be dumped after the ute gate fiasco and Joe will take over....meanwhile the economy is going quite well as opposed to what some have predicted.....

[The_Pharoah]

I guess one 'sure fire' indicator of the state of the Aust economy is Qantaslink restarting their pilot cadet scheme. Think about it...what would this signify?

[Vorsicht]

If interest rates double in the next 12-18 months, there will be a catastrophe in the first home owner area. Just about everyone who has taken out a loan in the last 12 months will not be able to meet their mortgage payments. Given that the RBA has taken the action they have (lowering rates) to stimulate the building industry, i doubt they will raise rates to that extent because it will undo a lot of the good work that has been done with stimulus packages etc.

Having said that, if inflation looks like getting out of control then anything is possible.:eek:

V

[Capt Kremin]

With Interest rates being at a 49 year low of 3.00%, and Australian house prices being the highest in the developed world, it doesn't take a genius to figure out what is going to happen soon. Are 6.00% interest rates out of the question? We had them last year!

Many first home buyers will not be prepared for a doubling of their interest bill, but the Govt will have no choice but to raise rates.

LL in answer to your question, the Liberal party probably did say that, but they are in good company.

The ABC: Days of low interest rates near an end - ABC News (Australian Broadcasting Corporation) (http://www.abc.net.au/news/stories/2009/08/04/2646130.htm)

Bloomberg: Australia Central Bank Shift Makes Rate Rise Likely ?Next Step? - Bloomberg.com (http://www.bloomberg.com/apps/news?pid=20601081&sid=anlsJDuvnt.s)

and others....

Don't say you weren't warned.

[roamingwolf]

Australian house prices being the highest in the developed world
capt.....Ever looked at prices in London or anywhere in the UK for that matter?

What about other parts of Europe...Monaco....Rome...Paris....

How about the US...NewYork for starters?

Australian prices highest in the developed world...I doubt it.Not even in Double Bay or Toorak.

[Chimbu chuckles]

James Ozzie - Yes Senator Fielding was shown a graph, actually probably several, that showed the data from 30 years of satellite atmospheric temperature recordings for all of the world, all day every day. Accurate to .1 of a degree C - that shows the world did indeed warm a little up to the late 90s but has been cooling since - for 10 years - while atmospheric CO2 concentrations continued to rise.

Consensus of millions of scientists? You REALLY need to read the IPCC Science Report, as opposed to the Summary For Policy Makers...one says we are not sure and one says we're all doomed. I have read both - You?

And then there are the literally 1000s of scientists with PHDs in relevant fields who say its a fraud.

We could look at the drought we have recently had - every level of govt from Local to Federal as well as the BOM saying it was the worst on record - but look at the BOM rainfall records for all of Australia going back 120 years and you see it actually wasn't - just another drought - made to seem worse because of population increase in the 25 years since the last dams were built.

Why would they lie?

Notice how they, socialist state govts, have approved desal plants in QLD, NSW, Vic, SA and WA (built before the libs got back in)? Desal plants cost 3x what a dam costs and produce 1/3rd the fresh water. They require MASSIVE amounts of electricity to drive them - that electricity must come from coal fired power plants because the socialists/greens won't build nuclear power plants and (VERY expensive) wind farms don't produce usable electricity for enough of the time that they require almost 100% backup base load power from coal/gas fired power stations.

Why would they do this?

Well state (labor) pollies need somewhere to retire to after they get booted out of power and labor unions need somewhere to invest there members pension funds - what better than to invest in labor govt mandated monopolies.

You and I of course pay a LOT more for electricity and water. In fact it is privatisation of both by stealth.

And then we get to carbon trading - the next MASSIVE bubble to follow on from all the others.

And we have Mr Rudd - someone so captured by his ideology that he writes great long missives on what has caused the GFC and gets it spectacularly wrong. The GFC was caused by 30 odd years of less than great US Govt policy that facilitated, in fact almost demanded, gross mismanagement in the banking sector.

Then we have the current suckers rally going on - why suckers rally?

The US Govt lent the big banks (Goldman Sachs etc) 100s of billion at interest rates approaching zero - they were supposed to lend this money on in order to 'free up the credit markets and grease the wheels of the economy'. The banks DID NOT do that - instead they invested the money through their Trading arms and the huge banking profits reported this last week (that surprised everyone - well not everyone - the banks were not surprised) are a result of that. So this stock market rally/bubble has been caused by the same thing/people that got us in trouble in the first place - vast amounts of cheap money looking for something to do.

What do you suppose happens when the banks decide they have made as much money as they can and pull all those 100s of billions out of the market - to pay back the TARP etc to the US Govt - oh and their bonuses of course?

Remember what happened last year with oil - for all the same reasons?

That is exactly like a Booky lending free money to a broke gambler.

Housing stimulus?

Studies show that the first home buyers scheme has increased the average house bought under that scheme by first home buyers by about 50k. That is what happens when you start throwing 'free' money around. First home buyers would have been 30k better off without the first home buyers grants. And that ignores the fact that prior to the GFC an average house in Australia was 7-8 x average wages - compared to the US/Canada/EU/UK etc where it was around 3-4 x and plenty of other 'western countries' where it was less than that. In the US house prices (30 state averages) have dropped 30-40% in the last year from that 3-4 x average wages. It appears the average house in Australia has gone up several % just in the last financial quarter - sustainable?

In Japan in the early 90s when there bubble finally burst house prices decreased 80% and have never recovered to date. That financial collapse was followed by a 'building decade' remarkably similar to what Rudd is doing right now - it didn't work - for the same reasons it won't work in Australia.

Green/left wing Ideologically driven programs like pink batts, wind farms and desal plants won't put Australians in a better position to pay down national debt when things get better - something along the lines of another Snowy River scheme - dams and water infrastructure that balances the water resource between the wet north and dry southern states, as an example, would.

So instead of getting cheaper water/power etc we are set to face massive increases of electricity/water bills at the same time as unemployment continues to rise, interest rates go up and taxes increase.

How else do you think they are going to pay back the govt debt - you did realise the Govt handouts were not free didn't you? They have to be payed back - by you!

That is how the system works - your taxes get wasted supporting big govt - Corporate taxes in the boom times provide the surpluses and when they disappear in downturns (or after they have been chased offshore by Carbon taxes) Govts BORROW money - and you get to pay it back with increased taxes.

So to answer the thread question do I think the worst of the GFC is behind us?

No - not while the same feckless morons are running things.

[Capt Kremin]

......wot CC sed.....

to the GFC an average house in Australia was 7-8 x average wages - compared to the US/Canada/EU/UK etc where it was around 3-4 x and plenty of other 'western countries' where it was less than that. In the US house prices (30 state averages) have dropped 30-40% in the last year from that 3-4 x average wages. It appears the average house in Australia has gone up several % just in the last financial quarter - sustainable?

[Section28- BE]

Chimbu- exceptionally well said (and written).

In the State of Queensland they will be extracting an extra $1,000 per annum for every man, women and child as extra tax revenue to service the borrowings only- no redemption on the Debt.

Not to mention flogging off any asset that yields a quid- the Coal rail haulage network and ports I find amazing, given that they were integral parts of diversifying the Consolidated Revenue stream- that once delivered/set Qld apart from other States as far as fiscal strength and stability. A result that will deliver more and more dependence on Canberra/GST.

It also beggars belief that being a Great Tourism destination "apparently", they sold the remaining Gvt Share in BACL (BNE Airport) and the other Intl Gateway being Cairns (along with Mackay) to build hospitals (which morphed into refurbs), no longer able to fund basic public services.

Thought the following would add to the thread- Alan Kohler article today ex Business Spectator via ninemsn site:

Rgds
S28- BE

Alan Kohler: How house prices are saving Australia


5/08/2009
http://money.ninemsn.com.au/img/articles/Kohler.jpg
By Alan Kohler, Business Spectator (http://www.businessspectator.com.au/bs.nsf/filterSpectatorsc?openview&restricttocategory=Alan%20Kohler&src=nmsn)

Reading central bank statements is a bit like cracking the enigma code – you need a guidebook at the ready so you can look up the phrases and see what they mean in plain English.

A lot of people have taken yesterday's statement by the Reserve Bank as an announcement that there will be no more rate cuts and that the next move will be up. That’s not quite correct, although it might be what happens.

Governor Glenn Stevens wrote: "the present … setting of monetary policy is appropriate…" Translation: "We can now do whatever the hell we like."

For six months the Governor has either been announcing a cut or saying that "the outlook for inflation allows more scope for easing of monetary policy if needed". In central bank speak that’s an "easing bias", now we have a "neutral bias". In other words, they’re sitting tight.

So why are Australia’s interest rates now stuck higher than anyone else's in the world, apart from China, India, Brazil and a few basket cases like Iceland?
It's not because of China, or the stimulus, which everyone else got - it’s because the value of our houses didn't fall, or at least recovered the small amount that was lost last year. The bursting of a world housing bubble was the main reason for the global financial crisis, and in most countries house prices are still falling.

In Australia, amazingly, they're going up. Yesterday the ABS reported an astonishing 4.2 per cent rise in the June quarter (see Business Spectator’s report (http://www.businessspectator.com.au/bs.nsf/Article/House-prices-rise-42-in-June-quarter-pd20090804-UL3YA?OpenDocument&src=nmsn) here). We happily joined in the house price bubble between 2003 and 2007, and we're still bubbling away.

Related stories:
Welcome back Mr Keynes (http://www.businessspectator.com.au/bs.nsf/Article/Welcome-back-Mr-Keynes-pd20090804-UKSXL?OpenDocument&src=nmsn)
V6-shaped recovery (http://www.businessspectator.com.au/bs.nsf/Article/V6-shaped-recovery-pd20090803-UJSTJ?OpenDocument&src=nmsn)
A warning from Mr Stevens (http://www.businessspectator.com.au/bs.nsf/Article/A-warning-from-the-RBA-Governor-pd20090729-UDSNB?OpenDocument&src=nmsn)
An interview with Saul Eslake, outgoing chief economist of ANZ (http://www.businessspectator.com.au/bs.nsf/Article/Eslakes-ANZ-swan-song-pd20090729-UE7CY?OpenDocument&src=nmsn)

Australians have been whacked by the same drop in share prices, depressed by the same grim headlines as everyone else in the world, and then cheered up by the same stimulus antidepressants and petrol price reductions. The big difference is house prices.

The result has been stronger consumer confidence and retail sales and lower unemployment.

So it's a circular saw: our houses have kept their value, but the price of hanging onto that wealth is higher mortgages rates and kids who never leave home because they can't afford to buy a house.

The importance of housing was underlined this morning by the fact that stocks on Wall Street were held up because a home construction index went up.
Last night I sat next to Professor Nouriel Roubini at a CFA Society dinner in Melbourne, at which he explained why he’s still pessimistic.

Roubini is often called Dr Doom (he prefers Dr Realistic, he says) because he became famous for predicting the crisis. In his speech he said that in 2006 he predicted a 50 per cent drop in housing construction in the United States and a 20 per cent fall in house prices, and everyone called him a lunatic.

He was wrong: housing starts fell by more than 80 per cent and prices by 27 per cent (and still falling).

Now he says the US recession will end in the fourth quarter of 2009, but there is a risk of a "double dip" and even if that doesn’t happen, growth will be weak – about 1 per cent.

He was asked what he thought about the prospects for Australia. He said growth here would be 2 per cent, not 1 per cent like the US, but not the V-shaped recovery the Government is officially forecasting.

Roubini explained that he's relatively optimistic about Australia because of the rise in commodity prices, the fact government finances were in good shape, the better performance of the financial system, and above all the strength of house prices – which he attributed to the fact that Australians can’t just walk away from their mortgages as Americans can (in the US they are "non-recourse loans" and home-owners are just popping the keys in the mail to bank and heading for the local trailer park).

Nouriel Roubini is now so famous his life is a misery: he spends eight months of the year travelling the world, living out of a suitcase and not sleeping much. He was in good form last night despite getting three hours sleep after a visit to a foreign land called Kalgoorlie the day before.

His basic message last night was that deleveraging the world’s debt has barely begun and that now we have "a runaway fiscal train wreck" as well. Governments everywhere are "dammed if they do, dammed if they don’t" (that is, exit their stimulus policies and fix their budgets).

If they do, there’ll be a new, deeper recession. If they don’t, there’ll be inflation. Meanwhile, the sharemarket is being lifted by a "wall of liquidity".

But he’s actually quite optimistic about the medium term. He’s Dr Realistic, remember.

[Flying Binghi]

Doom and gloom, doom and gloom...:suspect:


Here's a bit of trivia that will cheer some...:)

Due to the financial crisis apparently Gore TV couldn't pull off the IPO ...after several years of red ink and sacking employees they pulled the pin. Oh well, better luck next time...Seems Gore got a nice pay increase though...:hmm:

Wonder if it will affect the programming tie-up with Sky...less global warming stories perhaps ?......:cool:


Current Media, the San Francisco cable television company co-founded by former Vice President Al Gore, canceled plans for an initial public offering on Friday, citing the bad economy...

Gore's Current Media scraps IPO plan (http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/10/BU3I170ROB.DTL)

[Gnadenburg]

It appears the average house in Australia has gone up several % just in the last financial quarter - sustainable?

Quite possibly.

And if things get dire as the houseless doomsdayers here predict. The RBA/Government will protect the Australian housing market. And they will cut interest rates further- making recent pricing sustainable.

Housing shortage, high building costs, rental vacancies 1%, positive immigration, better lending practices blah-blah.

Plus the little things- like 1 million Australian expats overseas ( recent reports suggesting their average wage could be as high as 250K AUD per year ). Some are returning and many are sustaining the market. 30% of first home buyers on house and land packages are living at home. They aren't renters they are taking up new housing from the limited pool.

I reckon it has a bit to go. And is not a bad place to invest. I'm buying another place this week. A nice waterfront apartment in Sydney to add to the portfolio.

Are the doomsdayers dumping their Oz property?

[grip-pipe]

Not on your Nelly! Just looked at the chicken guts to get a good economic reading just like the so called forecasters who never saw it coming and now see it going. Chook looks stuffed to me!

[hongkongfooey]

With Interest rates being at a 49 year low of 3.00%

Can I please have the name of your bank, mines charging me just over 5% :eek:

Australian house prices being the highest in the developed world

As I look across the water at a " modest " 2 storey 5x3 for a " poultry " 5 mil AUD from my 2.0 mil AUD flat ( and I mean flat ), I ponder that statement :} Ok, I admit, maybe HK is not developed :rolleyes:
( not being a w@nker, the prices mentioned are modest by HK standards )

[Capt Kremin]

3.0% is the current Official Cash Rate. Your mortgage rate is between you and your bank.

[Gnadenburg]

I'm being charged 4.1%- those pricks! :}

[teresa green]

At a Aviation Conference that was reported in the Australian today, dear ex leader, yes folks he is still there, stuck like sh$t to a blanket, one G. Dixon stated that world aviation is down by 13% but Asia Pacific is down by 19% which is a concern for you all, however like the most of you it is still impossible to find a parking space due to the small aircraft carrier size 4WD's that infest most shopping centres, their owners still happily filling them with new goods, and their kids decked out, in the latest must have high tech runners, you have to wonder what recession. I have yet to see a beggar on the Gold coast, the shopping centres flat chat, the streets clogged with the latest cars, ditto the club carparks, boats that make the Queen Elizabeth obselete sailing in and out of Southport, and try to get a parking space at the airport, infact try to get on a JQ aircraft out of OOL, not easy. Either the recession has bypassed southeast QLD, or it exists only in pockets not always visable to the naked eye. This current govt. scares the pants of me, they are like my wife at a sale (its ok she doesn't read prune) totally out of control, and you have to worry about your kids and grandkids who will be paying for this for years to come, yer it sounds good all this spending on unwanted gyms, green jobs???? whatever they are, but this is all being paid for by borrowed money, and sooner or later.............. as we all found out when we got our first credit card. As a retiree it has been sh%t, and certainly not something I was prepared for, but hey we are not starving, but at least most of you will be able to make up your super in years to come, if your tax to pay off govt debt allows it!

[Jabawocky]

Not sure when..... but a finacial Tsunami awaits.....so far my business and our folks are yet to see it, and we are allbusy as for the next 9 months.......but geeez I am watching for it!:ooh:

[lowerlobe]

but a finacial Tsunami awaits.
Jabawocky.....Exactly what indicators lead you to making such a sweeping statement....

Tea leaves....your clairvoyant.....your astrologer....:hmm:

or is a finacial Tsunami different to a financial Tsunami....:E

[Pappa Smurf]

Teresa,
Of course ,people are spending money.Those with a bit of cash have been able to get things at good prices.Even the poor have to shop to live also.
There is only a small percentage that suffer through a reccession and these are the ones that lose their jobs,or the high flyers that didnt have the money in the first place.
Sorry ,forgot about the people who have retired.

Now we wait for the first home owners payout to end,and interest rates to rise and all hell will break loose.

[ferris]

I just look around at what I can see, a-la Mr P lynch (of Fidelity fame). IMHO, there are an enormous number of people who have no "rainy day" plan. No money in the bank (certainly not 8 months of salary worth, as recommended by Susie Ortman), no term deposit/share portfolio/convertible cash. They are the "cash-flow' people. They are, and will be, fine- as long as the cash flow is unimpaired.
If they lose their jobs, they are screwed. If the economy slows more than what we currently see, they are screwed. Some of them are employees, some are small business people. But to a man, they are loaded with debt. Debt secured, and serviced, by cash flow. Not assets.
I hope it works out, but I think the gap between total disaster and a 'blip', is very, very, very small indeed.

[404 Titan]

Have people forgotten what happen on the 2nd April 2009. The importance of this change in the US accounting standards is breathtaking in its scope for hiding the truth.

WASHINGTON (Reuters) - The U.S. Financial Accounting Standards Board on Thursday 2nd April agreed to give banks more flexibility in applying mark-to-market accounting to their toxic assets.

The action by FASB, an independent accounting standards-setter, came after Congressional pressure to help banks that have been forced to record billions of dollars in lower values for distressed assets because of frozen markets. (Boohoo. No one stopped them recording the enormous mark-to-market profits when the times were good. Politicians in their arrogant wisdom have pressured the Financial Accounting Standards Board to relax prudent accounting standards to support the bottom line of insolvent banks. Brilliant.)

Investor groups opposed the change, saying it would let big banks conceal the real value of their toxic assets. (And surprise surprise, the US banks are now back in the black. Hidden away though from shareholders and the general public is the fact all these banks are sitting on huge mark-to-market losses which at some point must be realised.)

When, (not if) these losses are realised, we will see a repeat to late last year and early this year, i.e. a lack of confidence in the banking and financial sector and credit drying up. As market economies rely on credit to grow, economic growth will stall and the recession will probably deepen. The US followed by Europe lead us into this mess. They are the only ones that will lead us out of it.

Regarding CC post pointing to the obvious similarities to the Great Depression, here is a comparison. The comparisons are startling. My guess is that we are reaching the middle stages of a “W” shaped recovery except the last arm of the “W” will be very flat, as it was during the 1930’s.

DJIA during the Great Depression and until direct US involvement in WW2

• DJIA reached a high of 381.17 on the 3-9-29
• The DJIA declines to 333.27 by the 18-10-29 or looses 12.56%.
• Crash starts 21-10-29 and falls to 198.69 by the 13-11-29 or looses 47.87% from its high on the 3-9-29.
• Market starts to revive. From the 13-11-29 to the 17-4-30 the DJIA rises to 294.07 or 48.00% from its 13-11-29 low.
• From the 17-4-30 the market starts its long and by far more dramatic fall. By the 8-7-32 the DJIA has fallen to just 41.22 or looses 85.98% from its 17-4-30 high or 89.19% from its all time high on the 3-9-29.
• Between 11-7-32 to 5-3-37 the DJIA rises from 41.22 to 194.14 or 370.98%
• Second market crash starts on 8-3-37 and lasts until 31-3-38. In this time the market declines to 98.95 or looses 49.03% from its 5-3-37 high.
• From 31-3-38 to 7-12-41 the market is stagnant until Japan bombs Pearl Harbor.

DJIA during the Great Recession 2007 - ????

• New high of 14164 on 9-10-07.
• Market starts to decline on 10-10-07.
• By the 12-9-08 the DJIA has declined to 11421.99 or lost 19.36%.
• The crash starts from the 15-9-08.
• Market finally bottoms on 9-3-09 at 6547.05 or 53.78% below high reached on 9-10-07.
• Market starts to revive on the 10-3-09. By the 5-8-09 the DJIA was at 9280.97 or had climbed 41.76% from its low on the 9-3-09.

[hongkongfooey]

.I'm being charged 4.1%- those pricks!

2.25 up here :ok:

404, I have always respected ur opinion but comparing This to the great depression ? I can see 2 major differences, China is on the verge of becoming a bigger economy ( if not already ) than the US, and the world is not at war.
I guess time will tell
ps even that pessamistic old bugger Greenspan thinks the worst is over

[404 Titan]

G’day Fooey,

While I don’t think we will see a Great Depression, what I was trying to highlight is that the stock market and the real economies of the world will yoyo for at least 10 years. The fact that the US government has strongarmed the FASB into relaxing standards in the middle of the greatest downturn since the Great Depression will only make in my opinion the yo-yoing worse.

Regarding China, yes it is on the verge, but it is still an export driven economy. Roughly 2/3rds of what it produces is exported to the US and Europe. It will be at least two generations before the Chinese economy will have enough internal demand to be self sustaining. Until then it will be subject to the ups and downs of their most important trading partners. Regarding the size of the Chinese economy, it is still only about 1/10th the size of the US. At its current growth rate it will be about fifty years before it overtakes the US.

[Bo777]

404
what I was trying to highlight is that the stock market and the real economies of the world will yoyo for at least 10 years.
Me thinks its time to go back to EC 101 :ugh::ugh::ugh:

[Chimbu chuckles]

And how big will the US economy be in 50 years?

Me thinks the US will remain the predominate individual economy of the 21st Century...despite the best efforts of its 'leaders':ugh:

I am also at a loss to understand how some people think Australia is going to remain largely quarantined from all this international financial turmoil - last I looked we were still part of a globalised economy...a nation who's GDP relies on outbound commodities and inbound tourism to a large extent.

How can it be any other way?

[Gnadenburg]

2.25 up here

Fooey. Apples with apples eh...

You won't get 2.25% for AUD mortgage debt. I use off-shore private banking with the CBA and get that 4.1%. I haven't noted much better in my travels.

[The Green Goblin]

China is on the verge of becoming a bigger economy ( if not already ) than the US,

The US has a GDP of a bit over 14 Trillion, China lags about 10 trillion behind at a tad over 4 trillion.

It will be a long way off yet. China is communist and we all know that it simply does not work. I wouldn't be surprised if China go the way of the USSR and collapse.

A Chinese democracy? took Axl Rose 15 years to burn a record about it, will take them 10 times that to become a free market that can compete with the west.

Even Japan is still a bigger economy than China!

[Mr. Hat]

Overall jobs steady.

Upbeat jobs data lifts risks of RBA interest rate rise | The Australian (http://www.theaustralian.news.com.au/business/story/0,28124,25891504-20142,00.html)

[Gnadenburg]

I am also at a loss to understand how some people think Australia is going to remain largely quarantined from all this international financial turmoil - last I looked we were still part of a globalised economy...a nation who's GDP relies on outbound commodities and inbound tourism to a large extent.


It is not immune and nor has it been. I have taken issue with the housing doomsdayers for the last year or so on pprune, carrying on about a sub-prime equivalent in the Australian housing sector.

To promote growth or stimulus, the most effective means( as pushed by the IMF ) is for the RBA to drop interest rates. It would bring the dollar down some and give business good investment opportunity; as well as providing huge extra cashflow or savings for mortgaged Australian housholds.

The main reason they can't do it is because the housing fundamentals are SO strong. The stimulus of cutting the cash rate to well under 3% would create the mother of all Australian housing bubbles.

But on the other hand. A vast amount of Australian security and wealth is tied up in property. A doomsday fall in prices would be politically unacceptable. And interest rates ( amongst other political measures ) would be dropped.

I have had large amounts of Australian property debt in multi-currency loans being charged not much more than 1%. The financial power is colossal- per million dollars of debt the holding costs under a grand a month! You can yield between 30 and 50K on residential property on a million dollars; double for commercial.

It is an apples to oranges example as multi-currency loans have inherent risk. But it a demonstration of the firepower AUstralia still has available to essentially protect the property market ie: drop interest rates to unprecedented lows.

[404 Titan]

Bo777

Me thinks its time to go back to EC 101

You want to elaborate on that comment? I wasn’t always a pilot you know. :E

The Green Goblin

GDP isn’t the whole story. Have a look at the gross assets of the two countries. The difference is even more startling.

Gnadenburg

The only thing that has so far cushioned the Australian property market is the lack of inventory or supply, low interest rates and the first home owners grant. This though could flip on its head if unemployment were to get considerably worse and/or interest rates were to rise sharply. Historically low interest rates could also produce a dramatic rise in speculative building which could lead to an oversupply in the market. Don’t think for one minute it couldn’t happen.

[The Green Goblin]

The Green Goblin

GDP isn’t the whole story. Have a look at the gross assets of the two countries. The difference is even more startling.

I can't seem to find any figures, would be interesting to see them if you can post them.

The average Chinese citizen earns $865 per year vs 33k for the states.

With a population of 300 million vs a billion China have a long way to go to catch the US!

[Chimbu chuckles]

But on the other hand. A vast amount of Australian security and wealth is tied up in property. A doomsday fall in prices would be politically unacceptable. And interest rates ( amongst other political measures ) would be dropped.

When did interest rates become controlled by the Govt?

[mingalababya]

The average Chinese citizen earns $865 per year vs 33k for the states.

That figure of $865 per year probably includes itinerant non-skilled workers in calculating that average. Those in professional jobs earn on average 5000 RMB per month .. that's about $735 per month. Still a lot less than the average US monthly wage, but then again, cost of living in China is no way as high as that in the US.

[The Green Goblin]

Quote:
The average Chinese citizen earns $865 per year vs 33k for the states.
That figure of $865 per year probably includes itinerant non-skilled workers in calculating that average. Those in professional jobs earn on average 5000 RMB per month .. that's about $735 per month. Still a lot less than the average US monthly wage, but then again, cost of living in China is no way as high as that in the US.

Just as the US figure includes the same demographic.

I know were I'd rather live :ok:

[james ozzie]

We attach too much emphasis to the values of houses. If you only own one house (the one you live in) then its value is of little importance to your retirement wealth. Yes, it may be "worth" $100,000 or $200,000 more than you paid for it (warm fuzzy feeling) but it is producing no income. Any other house you move to is also worth more/less so the gain is on paper only. People like to put their house on their personal balance sheet as it makes them feel wealthy. Aha, we say, but when the time comes to downsize, we can release the capital to earn additonal income in retirement. But the reality is that the 30 year old family home needing modernisation barely gets enough money to buy into a smart 2 bedroomed unit. So I say, who actually cares if the property market is up or down, unless you are a first time entrant?

Obviously, this does not apply to the investment properties you might own.

[404 Titan]

james ozzie

What do you think was fuelling world growth, particularly in the US and EU up until last year? It was people realising that huge paper profit in their homes by taking out Home Equity Lines of Credit (HELOC) and spending it. The trend was very similar in Aus with many families unlocking the wealth that had accumulated and grown in their homes with Home Equity Loans. Now we are in a position where people particularly in the US can’t do this anymore because of the collapse of the property market there and the reluctance of banks to lend against these properties.

[4PW's]

Paul Mason writes in Meltdown that it was the securitization of debt that caused this mess. By debt, he means all debt, not just debt from the housing bubble or HELOC. It's a worthwhile read, along with Chimbu Chuckles' contributions, and 404 Titan's, of course. Accolades aside, the deleveraging has only just begun and will affect every single one of us. No-one will be able to dodge the bullets. There is nowhere to hide. To think otherwise is quaint, but akin to dodging raindrops.

[james ozzie]

So 404 , I assume you are not disagreeing with me, just lecturing me? Your primary residence is there to keep the rain off your head, it is not an ATM. While it cannot appear as an asset on your income earning capital, its mortgage is most definitely a liability. Those who forget this simple truth get to suffer later on, which is exactly what has been happening. In my own case, I do not know what my house is worth but I do know exactly what I owe on it.

[Wellhung Unit]

http://www.whocrashedtheeconomy.com/realhouseprices1880to2008.gif



Nuff said

[Gnadenburg]

Nuff said? Yeah right.

The author is a well known housing doomsdayer who had been totally out of phase in his predictions over the last few years on the local market.

Another apples to oranges scenario. The American economy. An industrialized nation, globalization etc etc. Australia. A totally different economy, population growth and future demographics entirely different.

[Gnadenburg]

When did interest rates become controlled by the Govt?

When did I say they were?

The government and the RBA ( begrudgingly ) will help protect Australian property prices from an American style cataclysm.

The capacity to cut % rates further is provides a colossal financial ability to prevent an Australian housing/economic meltdown. And the RBA would do that if need be- and there doesn't appear to be such a need.

[Chimbu chuckles]

The author is a well known housing doomsdayer who had been totally out of phase in his predictions over the last few years on the local market.

I am sure you're aware of the old saying about 'the market can remain irrational longer then you can remain solvent'.

You'd also be aware of the tiny handful of 'doomsayers' who, with uncanny accuracy, predicted the current woes (and those of Japan in the early 90s) and who were described, then and now, by the mainstream as 'lunatics'?

Can you point to another economic cycle where extremes, like that house price graph, didn't correct sooner or later? And if later with far more economic fallout - as in 'bigger the boom bigger the bust'?

The government and the RBA ( begrudgingly ) will help protect Australian property prices from an American style cataclysm.

While I am absolutely certain the Federal Govt would want to do that - for short term political reasons - are you really certain the RBA will want to do so - for long term/big picture economic reasons?

Would a 40% correction actually be that bad for the economy in an overall sense. Or would house prices permanently delinked from wages and out of the reach of future generations be worse?

I am going to suggest that the RBA, if they are/remain politically independent, will do whatever needs doing to protect/foster the greater economy and if real estate speculators suffer then they will view that as the lesser of several evils.

One way or another balance will be restored. It seems to me the only other way balance can be restored would be a wages blowout with attendant inflation - something that the Govt and RBA would be united against.

Faced with these options and taking a longer term view what would the RBA be more likely to find acceptable - a wages/inflation spiral that damages Australia's economy as a whole or a relatively small % of the population being taught a lesson on housing - as in 'it can't go up forever'?

Can you honestly look at that data - in itself - and tell us a correction is not in the near future?

As has been stated before the securitisation of debt and a belief house prices never go down is what caused the GFC. I think the RBA will react accordingly.

Take a long look at that graph and see that in EVERY housing boom, except the one in the 80s, there was a roughly 40% retracement to the immediate pre boom level. In the late 60s there was a significant wages blowout - the last time peoples real wages were better than inflation, they have been going backwards in real terms/purchasing power ever since - it was followed by the 70s boom (surprise, surprise) and then the 70s oil shock. Look what happened to house prices straight afterwards...look like a 40% correction to you?

The 1890s boom, the roaring 20s, post ww2 boom, 1970s boom - all had a massive correction - and with all that is going on in the world at present it won't happen this time?

You'd have to be mad to believe that.

Edit: Or look at it another way - draw a line through that graph that represents a 100 year annual average increase in house prices between 1880s and 1980s - then draw another between 1980s and now.:uhoh:

[Gnadenburg]

Don't know why some of the responses were deleted.

For the last year of have been reading the pprune property doomsdayers with interest. At the height of the predictions of a collapse, I was renegotiating a commercial lease as well as some residential re-leases. I was putting rents up in the order of 20+%. As a holder of international, commercial and residential property I was concerned my paper wealth would deteriorate and I wouldn't feel so good- foregoing European vacations, 1st Growth wine and other joys..

So I asked many of the above protagonists how could there be an upcoming property collapse if my rents are going up? Deafening silence- just more cut n' pasted stuff from the likes of Harry S Dent or Professor Stapelton.

So time has gone by and what have I noticed?

Well firstly, I sat with the brother in law in one of his BNE shopping centers having a macchiato. He has 90 something individual CBD commercial properties and suburban shopping centers. Not one rent default- yet here on pprune I can quote the above protagonists predicting an identical collapse to the Australian commercial property market as that in the US. Brother in law said he would be cautious- no acquistions- but the fact he hadn't sent any of his goons to change the locks on distressed business premises had him search for residential bargains. He bought a Noosa pad for 2.4 million down from 3.2 million as a weekender.

Which is where the real Australian property adjustment was last year- above a million. I wanted to take advantage of the downturn and buy another place- incidentally putting my money where my mouth is; you never note the property doomsdayers putting there houses up for sale. So I had a CBD terrace valued and it was down 20%. At the top end it is just cream on the cake for all but the show-off's. The 20% didn't affect my finance at all- I did note the Australian banks were very careful though. As a side point I had re-leased this top end property twice at the height of the GFC- there is a hell of a shortage of property because I upped the rent once and maintained it the second time around.

Under a million and my portfolio is sizzling- rents and prices. Strange huh. FHO scheme they say. I reckon again its a shortage of good propery, positve migration and the love affair with housing and trendy living. I'd guess this will actually hold ( the good stuff ) as tentative investors enter the market where FHO left off.

Anyway. Money where my mouth is. I'm buying a place in Sydney next week. I foolishly held off. It will be a relief when its tucked away as I go through the same insecurity ever time I buy- will the sky fall in just as the above protagonists suggest ? I expect it to perform modestly over the next few years. Well situated, even if the general market declines, it should do well.

What are the positives for Australian property in my opinion? No prior qualifications to shoot you all down with. I'm just a pilot who was fortunate enough to have a good wage from the early part of my career, never had to buy an endorsement or work for a LCC.

- Shortage of supply with nothing suggesting a change to this.

- Low % rates. Remember, prices were peaking at a cash rate near 8%!

- If % rates do rise the world economy, of which Australia is enviably placed to take advantage of, must be doing well. So things like inflation and more skilled migration protect the housing market.

- The firepower the RBA has to prevent a US style downturn by reducing mortgage costs to further. This will give affluent property markets a solid base.

- 1 million expats live abroad with a suggested average annual income of 250,000USD a year. This won't change and will be a perpetual round- about of unusually high wealth creation not reflected in average wage but certainly reflecting in middle to high end property.

- Financial lending practices in Australia are very good. I watched my nephew in law struggle to get finance for FHO grant. The banks cautious.

- Rental yields have improved considerably. Not great, but coupled with negative gearing, property will always be a popular investment vehicle.

- Unemployment is stabilizing.

[Gnadenburg]

Chimbu

There has been an adjustment in different areas of the market. You can't easily measure it that's why we use crap concepts such as median house prices.

You should sell your house in Australia! Do you have one?

[Wellhung Unit]

Another apples to oranges scenario. The American economy. An industrialized nation, globalization etc etc. Australia. A totally different economy, population growth and future demographics entirely different.

Ahh..So that explains why our Share market didn't follow there's over the last couple of years and Crash / Correct

[Gnadenburg]

You can correlate the two if you like Big Dick...

Why hasn't the market "crashed" yet? Though I reckon it did last year....

[Chimbu chuckles]

Yes Gnads I have been a very enthusiastic real estate investor in the past - and anyone who bought a house years ago would be mad to sell. Good real estate has doubled in the last 6 years or so and if it dramatically corrects now will still be worth more than people who bought 6 years ago paid and, if they haven't been sucking out equity to buy silly things, owe. Probably one of the better reasons why the RBA won't be terribly concerned by a largish correction.

But I DO NOT see real estate being a good investment (short to medium term) going forward. I think there is a better than good chance that a BIG correction is coming and it will be a shock to many who have bought in the last years. It will then be an extended period of time before real estate is again deemed a great investment - as in once it corrects I think it will bump along for a while before the next bubble starts. That will give real wages a fighting chance of catching up and allow Gen x,y and z a chance to do what their parents have done.

What is something worth if no one can afford to buy it?

1 million expats live abroad with a suggested average annual income of 250,000USD a year. This won't change

It already has - 'abroad' is where all the **** has been flying - so far.

[Gnadenburg]

We will see. The doomsdayers have been over zealous. Although I still reckon the above a million dollars market has corrected.

On the last point re expatriates. Guess what? Those displaced by the GFC are returning "home"by accounts. Taking more property off the market and exasperating the shortage. They don't tend to return home empty handed either- they will sit it out with cash until the next upswing.

[Foie gras]

Guys, you've got to see what this guy says.

http://globaleconomicanalysis.********.c....

Like my liver, we're stuffed.

[Foie gras]

The final part of a short talk by an Australian economist - one of the very, very few who predicted the crisis. He doesn't see any green shoots, that's for sure.


YouTube - Getting to Grips with the Economy 2009: Session 3, part 7 of 12 (http://www.youtube.com/watch?v=1QEyPGA7mD8&feature=channel_page)

[Chimbu chuckles]

FG thanks for that excellent link - I recommend everyone watch all 12 parts.

The first speaker, Prof John Guiggan, was interesting and made many good points and certainly recognised the issues but I suspect leaned towards the consensus view that Australia has dodged the bullet somehow.

The second speaker, Prof John Keen, was the only person who put up the actual data to draw parallels between the world situation and that in Australia, both currently and historically. In my view he made his case very well and clearly is not wedded to the consensus view - and the fact that he was 1 of only 12 economists world wide that predicted the GFC gives him enormous credibility. His understanding of the correct role of credit is hard to disagree with.

Dr Guy Debelle was a complete waste of oxygen. If he is typical of RBA management (and he must be or he wouldn't be senior management) then Australia is in deep **** - not only does he not have the answers but he has no idea what the right questions are. The man struck me as a Gen Xer completely captured by the economic theory he was taught at uni and with no sense of history - or reality. Note he didn't attempt to argue the data - he merely sought to discredit Prof Keen. Note also his body language in the final Q&A section and indeed his final answer.

It is increasingly obvious that the vast majority of economists have been taught only two economic theories, that of Milton Friedman or a bastardised version of Keynes. You would be hard pressed arguing that those two individuals theories, as espoused in the universities of the west, are not flawed to a lesser or greater extent.

The most important thing history teaches us, and I have always been a great fan of history, its that the consensus view is nearly always wrong.

For that reason alone I tend to eschew the consensus view and go with the data.

I fail to understand how someone can look at the data and say "I'm cautiously optimistic" unless they have an agenda. Perhaps the other thing we should learn from history is that 'experts' rarely have a goal that is aligned with our own - they almost invariably have an agenda and its rarely the same as yours - numbers have no agenda - they just are.

[bushy]

A long time ago, Sir MArk Oliphant, a scientist and governor of South Australia said "economists, as a disciplined scientific body of people, simply do not exist."

[4PW's]

Paul Mason: Meltdown, The End of The Age of Greed.

Read it and be informed.

Said to be one of the best books explaining the current situ on the market.

[Foie gras]

CC,
I wish I could express myself as eloquently as you.
Can we vote for you as president (of the union)?

[im sparticus]

Can the idiot in post 102 who is describing property prices like they are on some sort of unsustainable parabolic curve please switch his charts to log scale, or at least try to understand the effect compounding has on a linear scale.

On a different note, i think wages are set to crash i spoke to my grandpa and he is telling me back when he started working his weekly wage was less than my hourly wage, wtf. We are in the midst of an unsustainable wages bubble and sooner or later its gonna burst look out.

developing........

[Gnadenburg]

One of the often quoted, economic doomsayers- Harry S Dent. Who is loved by professional pilots for his simple data usage I believe. Has just reported that two countries will stand out for economic growth due positive demographics- Australia & India.

A net overseas migration statistic of 250,000 is a pretty positive figure. Not forgetting there are a million Aussies working abroad most unburdened by the strangling ATO....

The clowns here who reported the big Aussie housing crash 12 months ago in sensational and exaggerated language were very wrong. And the new stats on immigration and housing shortages would suggest their big crash has just been put off another few years. :rolleyes:

The one million plus Sydney market is now tightening. I know. I'm in the market...The bargains were six months ago.

[Chimbu chuckles]

Im sparticus - I am that idiot in post 102 - I think you need to flesh out further why you think I am an idiot:ok:

[Chimbu chuckles]

Who are the main beneficiaries of the First Home Scheme?

Its not the first home buyers its the sellers. Data indicates that by the time the first home buyer leverages up that Govt grant they are paying 35-50k more for the house.

The house seller in the sub 500k market are pocketing 35-50k extra in cash.

They in turn leverage that extra 35-50k and that is calculated to have effected house prices in the 750k-1.5mill range by 150-200+k.

After all its a rare person who sells his/her house and goes down market.

Its not hard to understand the effect the Govt first home stimulus is having - its equally easy to understand the effect removing that stimulus will have in a few months.

I recently read an article suggesting that the Rudd Govt has relaxed foreign ownership regulations and, as a result, as much as 25% of the market above $1mill is Chinese money. If memory serves the article was talking about the Melbourne market but you'd be a fool to believe Sydney, Perth and Brisbane/Gold Coast was not following that trend.

Given the very small number of homes, as a % of the total, that are on the market at any one time its very hard to accurately value a house. Anyone who has bought and sold a few knows this if they were paying attention to the valuation process - hit and miss understates the process - in the past it has been more like "What do they need it to be worth to borrow X amount?."

Too a seemingly small increase in the % of homes for sale, say from 8% to 11%, can have a HUGE impact on prices. That is after all a 37% increase in available dwellings.

So what happens when the Govt stimulus ends?

What happens if/when China suddenly finds its bubble bursting like the Japanese did in 1990 - remember when Japan was buying up the east coast of Australia in the late 80s?

Why will the Chinese bubble burst?

Well despite what you read in the media the US economy is not getting better merely getting worse at a reducing rate - so far - there is still a very good chance this will be a W shaped economic cycle like that of the 1930s. To date the financial indicators are still tracking horrifyingly close to the way they tracked in 1929/30 and on to 1941.

Unlike post WW2 recessions this one has been bought on (in the US) by enormous private debt relative to incomes. As in the US and Europe, Australian house prices have been increasing at a much faster rate than wages for decades - people have been borrowing more believing the house they are buying will increase in value in a relatively short time. People put down 5-10% deposit (often in the last years NO deposit and borrowed for the legals/stamp duty etc - 105% loans) buy a house for 300k and a few years later sold realising a substantial capital gain - 30-50%. All of a sudden they have 100-150k as a deposit on their next home and they leverage that up and borrow 450-550k. In 3 years they have gone from 270k in debt to 500k in debt while there wages might have increased a little (but in real terms have actually gone backwards - nobody here really believes the CPI do they?)

This is the issue we face as the world enters the first economic de leveraging cycle since WW2.

Its happening elsewhere already and there is no reason to believe YET that Australia is not meandering in the same direction.

When the govt housing stimulus is removed it will remove that upwards shove housing has been getting the last while - and not just the lower end of the market - maybe at the same time as Chinese buyers are replaced with Chinese sellers.

Too understand that the vast majority of 'Boomers' are not nearly as wealthy as the media/Govt would have you believe if their houses are removed from the equation. Most expect to sell the family home now that the kids are off living their own lives and downsize into a nice apartment near the beach and top up the retirement fund with the (substantial) balance.

If Australians stop borrowing/spending money the way the Yanks have and start saving/reducing debt - and lets face it the 'consumer driven economy' we have all heard about endlessly these last years cannot be sustainable - then unemployment will rise dramatically. The de leveraging will get more manic as people sell the only thing that will get them out from under that 500k debt burden - their house - hopefully it will still be worth more than they owe.

Remember what I said about the small % of houses for sale at any one time?

Still its an ill wind that blows no good - Boomers retiring/downsizing NOW are about the only demographic REALLY benefiting from the First Home Buyers stimulus.

[Wellhung Unit]

Very VERY well said......

[teresa green]

Excellent Chimbu, (but what else would I expect from a PNG lad) but have to dispute the amount made by sellers to first home buyers. Had a investment townhouse on the Gold Coast, in late 2008 it was valued at $495,000, by the time I finally offloaded it the best I could get was $450.000 (march 09) (I paid 295,000 in 2001) I found the first home buyers choosy and were very savvy to what was worth what, and were no pushovers and good luck to them. My point is I don't think I am alone, and of course you have to take in when and where your property is, but there was not too many who made a fast buck out of first home buyers, and many did not go on to purchase more expensive properties as a result of their sale. Personally I think the country is cruising at the moment, but like that dreaded credit card, eventually, sooner or later we are all going to have to pay for it, your kids, my kids, for years to come it will creep up slowly but surely and as my dear old dad used to say "no matter what, for everything you do there is a price to pay" and ain't that the truth.:=

[Chimbu chuckles]

Real Estate Agents are the classic example that most people will experience of an 'expert' whose interests are not aligned with their own. You think to yourself "I am paying these people a LOT of money to get the best possible price for my house" and you are.

The problem is that the difference between what they will get in their back pocket (the Agent's commission is a small part of the % the Agency charges you) if your house sells quickly at a price that falls slightly short of the expectation they gave you initially, and what they will get by marketing the house better and longer, is not enough incentive for them to do so. A study was carried out in the US ages ago that showed when Real Estate Agents sold houses they owned the property was on the market for an average of an extra month and sold for 10% more.

When it is their property they pocket the extra 10% - when it is your property they pocket maybe another $1000.

Their agenda is different to yours because the incentives are different.

kCM7zNuQkm8&feature=related

[Gnadenburg]

Very VERY well said......

I don't want to interfere with the pilot herd mentality in regard to investing. But can I hold Chimbu to account?

A year ago he stated that Australian residential property WILL and MUST drop 40%. Commercial property similar. He was not the only one.

This is classic Cassandra Syndrome. And when confident predictions of doom don't eventuate it is put off with inevitable and logical excuses- such as Chinese buyers deserting the market.

Can I scratch below the surface on this one?

Chinese buyers? Singapore Chinese? Hong Kong Chinese? Malayan Chinese? Mainland Chinese? The Chinese have been active buyers of Australian property for decades. The mainland Chinese are the predicable new players.

Wherever there is emerging developing nation wealth, interestingly, they seem to become buyers of Australian property. Why? It is a beautiful and relatively stable market that is a fine place to park wealth. The Russians were top-end Gold Coast buyers recently.

Foreign investment in Australian property was restrictive and yes has been opened up some- as long as the property is new a foreigner can buy it. Makes sense as it supports the building industry, state coffers and susbsidizes rental housing and alleviates the chronic Australian housing shortage.

So, more and more, our property market is becoming multi-faceted.

So, the new players, the mainland Chinese, have economic hiccups. Will they desert the Australian housing market driving prices down 40% as per Cassandra's predictions? Doubt it. These uber- wealthy individuals will syphon more money out of the country. At the moment, they are enjoying strong property appreciation due the AUD- currency hedging away from the USD etc.

Do your own homework. Be wary of flamboyant writings of the Cassandras. It could cost you a lot of money as the multi-faceted, Australian property market chugs along.

My prediction- good Australian property will appreciate modestly as investors move back into the market and demand continues. Local investors, foreign investors and expatriate investors.

If you have any unique Australian property- lifestyle, seaside or inner city etc hang on. In a prospering but dirty Asia, demand is inevitable.

Gnadenburg

Residential and Commercial property investor in Australia.

[Foie gras]

One-third of nation at risk of loan default

Adele Ferguson | September 07, 2009
Article from: The Australian
ONE-THIRD of the country -- including battlers' suburbs and some of the wealthiest urban areas -- has entered the danger zone for financial distress, despite signs that economic conditions are improving.

Dunn & Bradstreet found that 33 per cent of postcodes had fallen into the "high-risk" category of financial distress, with Victorian suburbs facing the highest risk of defaulting on debts. This is up 30per cent on the same time last year.

The research, released exclusively to The Australian, lists the Melbourne outer suburb of Frankston North as the postcode with the highest risk of default, followed by two of Sydney's most exclusive eastern suburbs, Bellevue Hill, the home of Ros Packer, and Woollahra, the address of former premier Neville Wran.

Of the 50 most financially stressed suburbs, 29 are in the first-home owners belt, which includes the outer Melbourne suburbs of Chirnside Park, Cranbourne and Carrum Downs and Sydney's western suburbs Mount Druitt and Auburn. These areas have seen a sharp rise in credit obligations since the increase in the first-home owners grant.

Last week's GDP figures showed the economy had gained pace, driven by increased spending on equipment and by households, which helped to make up for falls in private investment.

There are concerns about the next phase in the economic downturn as interest rates start to rise towards the end of the year and the Rudd government's stimulus package starts to wear off.

Dunn & Bradstreet chief executive Christine Christian said the rising risk of loan defaults underlined the potential for the global financial crisis to become a personal credit crisis in many Australian homes. "If you scratch the surface, there are still problems in the economy," Ms Christian said. "As a country, we have amassed a lot of debt. Each person has $160 of credit for every $100 earned. If unemployment rises or interest rates increase, we will see a significant fallout."

Aussie Home Loans chairman John Symond was not surprised some of the nation's top suburbs ranked as the highest risk.

"People overstretch themselves in these suburbs. The wannabes pay the double rent and pay much higher prices going shopping at Woolworths in Double Bay than Blacktown. Many are living on credit," hesaid.

"Between the last recession and now, we have over-borrowed as a nation. Consumer debt has increased 400 per cent and 500per cent for NSW. That is where the risk is."

The Geographic Risk Indicator assesses the likelihood of default on a credit obligation based on demographic data. Those suburbs categorised as a high risk are 340per cent more likely than average to include households that have experienced previous negative credit defaults. The GRI reveals that 33 per cent of suburbs are rated a high risk, with Victoria having the most significant percentage of such postcodes, 46 per cent. This is followed by Western Australia with 35 per cent and NSW with 30per cent.

D&B defaults analysis reveals the path to financial difficulty often begins with defaults on small, non-bank credit obligations before escalating to more significant defaults.

The research finds that individuals who have defaulted on a phone, electricity or gas bill are nearly four times as likely to follow this up with a default on a financial services obligation. Consumers with outstanding defaults are nearly six times as likely to default again, with those who have repaid outstanding debt three times as likely to re-offend.

If consumers default on payments, this can have an adverse impact on small- and medium-sized businesses, which employ half the country's workers. If this sector starts to shake, it will have huge implications for consumer confidence and economic growth.

[Chimbu chuckles]

Hmmm don't remember saying the housing collapse would happen on a certain date merely that the situation as it has been to date was unsustainable - sooner or later prices must revert to the long term trend and the longer that is delayed by Pollies propping things up with stimulus the greater will be the thud as prices re set.

I find it fascinating that not only did 1000s of 'experts', from Pollies to analysts to Wall St "Kings of the Universe' to CNBC Talking heads to US Fed Chairman Greenspan and Bernanke (and our RBA) to 10's of thousands of Academic Economists and on and on, say the GFC was impossible but they actively sought to denigrate the 10 or 20 Economists who predicted it with great accuracy.

What blows me away is all the people who were WRONG are still running the ****fight - including those who actively CAUSED it - Bernanke, Paulson et al.

Its all very reminiscent of the AGW carryon and for all the same reasons - unreasonable faith in computer models that don't/can't model all the variables in a complex, non linear system - The Atmosphere or Human Behaviour.

The wheels fell of the Japanese economy in 1990 due excessive debt and it has yet to recover from an 80-90% DROP IN PROPERTY PRICES

Real estate

As the general wealth of Japan continued to increase so we saw a significant move in the stock market which hit an all-time high on 29 December 1989 of 38,957.44 and real estate values moved higher and higher. At the peak of the property market in 1989 the Ginza district of Tokyo saw prime properties going for $1 million per square metre!

The explosion in property prices was a disaster waiting to happen and by 2004 many of the prime properties in the Tokyo region were valued at less than 1% of their peak. Residential homes fared a little better but even those were only valued at around 10% of their all-time peak. The bubble had burst but much worse was to come as the Japanese economy collapsed.

The Japanese economy

As the Japanese stock market and real estate market crashed in the 1990s this took away much needed investment funds for Japanese businesses which affected their competitive edge over overseas competitors. As this differential between Japanese companies and overseas competitors continued to narrow there was a significant reduction in export business which then exposed the relatively low consumption of Japanese goods and services in the country.

This collapse in business levels lead to the Japanese central bank reducing interest rates to 0% although they could not stop the onslaught of deflation which would affect the Japanese economy for well over 10 years. Even towards the end of the 1990s the Japanese banking system was still in disarray with many loans written off and a number of banks still chasing business at ridiculous margins. As the Japanese authorities stepped in to avoid the total collapse of the financial sector we saw the creation of companies known as "zombie businesses" which are effectively dead but being kept alive by the government.

The Japanese stock market bottomed out in October 2008 at just under the 7,000 level although there has been a partial recovery to 7,500 at which the index now stands. This fall in the stock market and real estate sector reflects the explosion rather than bursting of the real estate, economic and stock market bubble of Japan.

Its pretty clear the US has not learned any lessons from Japan.

Doesn't matter 'which' Chinese Gnads they will all be effected to a greater or lesser extent by the bursting of the US bubble economy and collapse of US consumer spending which is already happening. I can't think of a single good reason why Australia consumers, who carry a greater debt burden than their US peers, won't follow along in due course.

Lowered interest rates and govt stimulus will be overwhelmed IF consumers start saving instead of borrowing and spending. Consumers can't borrow and spend forever - when they stop unemployment goes up. Calculated the old way its already around 16% not the 5.5% the Pollies claim.

In the last decade median house prices have increased 250% against the century scale average of maybe 15% while Private debt has increased 500+% and median wages might have increased 20% but have actually decreased in purchasing power - please someone explain how that is sustainable?

[4PW's]

Business Spectator - News - The second wave of the GFC - Q&A by Isabelle Oderberg (http://www.businessspectator.com.au/bs.nsf/Article/John-R-Talbott-pd20090908-VNVLZ?OpenDocument&src=spb)

[4PW's]

Sept 14-18.

[Wellhung Unit]

No Doubt it will be the "Property bubble burst , we had to have"........

[Tankengine]

More likely is the price drop on old GA aircraft,
esp old Beech!:E

[Kangaroo Court]

We seem to have grown accustomed to good times and forgotten what the houses we grew up in were like, haven't we?

I say we are only finding out as a society what we all really knew all along...we could never afford it in the first place. Our expectations are a little unrealistic. No wonder people are going broke!

[breakfastburrito]

The Lumpen Bureaucratariat

By DANIEL HENNINGER (http://online.wsj.com/search/search_center.html?KEYWORDS=DANIEL+HENNINGER&ARTICLESEARCHQUERY_PARSER=bylineAND)

When the political world arrives at the point where even the Japanese rise up to toss a party from office after almost 54 straight years in power, it's time to see something's happening here, Mr. Jones.

The ever-entertaining Karl Marx described a society's least politically engaged people as the lumpen proletariat. Well, it's beginning to look as if the globe's lumpen proletariat has decided they've had about enough of the lumpen bureaucratariat. It could be a revolution is beginning, though not the one predicted by the boys always at the barricades.

To Mr. Marx, the lumpen proletariat (often slurred into a single word, lumpenproletariat) was the most marginalized, hopeless, faceless swath of the underclass. Were he alive at this moment, it is not beyond imagining that Karl would have joined the charge against what has become a lumpen bureaucratariat—the permanent, often faceless overclass of gerrymandered politicians, bureaucrats for life and the public unions and special interests that swim alongside like pilot fish. In Marx's view, the lumpen proletariat included pickpockets, pimps and prostitutes. Sounds about right.

The weekend vote out of somnolent Japan suggests that electorates are casting a global no-confidence vote in their leaderships. The same weekend the Japanese unloaded the Liberal Democratic Party, German voters withdrew Chancellor Angela Merkel's ruling majorities in the state legislatures of Thuringia and Saarland.
In the U.S. political handicappers are predicting heavy Democratic losses in the House next November. This just four years after ending GOP control of Congress in the 2006 off-year elections and two years after sweeping into office Barack Obama and his Democratic partners.

Some search for an ideological trend toward the left or right in these votes, but the only evident trend is to strike out at whichever faceless mass is currently in power. Even as Americans turned over their country to liberal Democrats, opinion polls showed that the British people were turning toward the Conservatives for relief from listless Labour.
What accounts for the global electorate's growing disgust with the political overclass? Try this: No matter what the ideological cast of these governments, they all hold in common one policy: the inexorable upward march of national indebtedness. It is a bad habit that has arrived at the cliff's edge.

Japan's gross debt is currently estimated at some 180% of its gross domestic product, the highest among the world's theoretically serious economies. Look elsewhere and one sees the same fiscal obesity.

As measured by the OECD, the growth in gross debt as a percentage of GDP since the dawn of the new century is stunning. The data isn't exactly comparable across individual countries, but the trend line is unmistakable.
In the U.S., debt as a percentage of GDP rose to 87% in 2009 from 55% in 2000. In the U.K., to 75% from 45%; Germany, to 78% from 60%; France, 86% from 66%.

There are exceptions to this trend, such as Canada, New Zealand and notably Australia, whose debt has fallen to 16% of GDP from 25%. But for all the countries in the OECD's basket, the claim of indebtedness on GDP grew to 92% from 69% between 2000 and 2009.

In short, the lumpen electorate works, and the lumpen bureaucratariat spends. They get away with it because they have perfected the illusion that no identifiable human hand causes these commitments. The payroll tax just happens. Entitlements are "off-budget," presumably in the hands of God. This is government without the responsibility of governance.

Unable to identify exactly who or what has put them in hock to the horizon, national electorates are attempting accountability by voting parties out of power. The pollster Rasmussen recently found that 57% of American voters would throw out Congress en masse if they could. Self-gerrymandered districts ensure that they can't.

Problem is, the lumpen bureaucratariat won't or can't stop. Amid the phenomenal spending on the financial mess here, they tried to pass a cap-and-trade bill whose centerpiece was an auction of carbon credits to flow trillions of dollars toward the bureaucracies. Obama's people seem weirdly oblivious to the scale of their outlays, programs and dreams.

The decision by the voters of Japan to turn out the LDP after 54 years in power argues that in real democracies, political self-entrenchment and enrichment can arrive at limits. In 2000, more astonishingly, Mexicans defeated the PRI after 71 years in office, then re-elected the new party's candidate in 2006. Now it looks like similar forces are bubbling out of town halls across the United States. If American elections since 2006 (or 1994) tell us anything it is that their target is the party of the Beltway.

This is hardly a fair fight. The political overclass everywhere holds the power to print money and grab it back with taxes. Still, the election returns suggest something's stirring. Maybe we should call it the revolt of the masses.


Source:WSJ (http://online.wsj.com/article/SB40001424052970204731804574388562244518116.html)

This articles argument seems to support the "Chimbu hypothesis".

[Gnadenburg]

It is hard to debate the cut n' pasting Cassandras...

Chimbu has, again hysterically, used Japan as an example of a property bubble to draw comparisons to Australia. And a bubble it was. Remember the Imperial Palace in Tokyo was supposed to be worth the same as the entire State of California!

Yes the Melbourne property market is hotting up again but is the MCG worth the same as the Sate of California?

Foie gras. The cash rate is half of what it was 2 years ago. I'd suggest ( and there was press at the time ) that mortgage stress was far more serious an issue back then.

That's just typical, sensationalist journalism.


In three months time you will be reading about further modest housing price rises. Good property in Sydney at the moment is hotting up.

[Foie gras]

G-Burg, Heard of "Cockpit Resource Management"?
We've got a potential problem.
GATHER info
SHARE ideas
(Inputs such as yours are valuable, but give them some credibility.)
ANALYSE.....etc...

Next step DEVELOPMENT.

We're all professionals, a PLAN in case this all goes pear shaped, should be everyone's goal.

[4PW's]

For many, that's the desired approach, FG. Yet for a few marginalised individuals, contrary opinions, feelings or analysis that attempt to discuss, add to or even detract from the accepted argument or state of affairs is often met with incandescent rage.

Heated responses then follow, as has happened here and elsewhere on PPRuNE. It's the way of the world, unfortunately.

But, fortunately, more and more people are able to access information in this 'information age' which enables more creative thought, less polarisation and, hopefully, better results.

Stay away from stocks, buy Treasuries, sell all commodities and get rid of any and all debt. It's all about protection right now, not your percentage gain.

Just an opinion, and probably sure to raise G'boy's temperature :}

[Gnadenburg]

G-Burg, Heard of "Cockpit Resource Management"?

Crew Resource Management?

If you are getting your financial advice from the cockpit you are probably going to be in trouble.

GATHER info

Excellent. What have you got apart from cut n' pasted opinions from the media?

Inputs such as yours are valuable, but give them some credibility

I laid my cards on the table earlier. I asked questions of the doomsayers right back beyond a year ago about the imminent housing collapse. Things like why are my commercial and residential rents going up and % rates going down. Basically, yields improving out of sight by historical standards and holding costs decreasing out of sight by historical standards.

A misunderstood cycle in our multi-faceted property market.

We're all professionals, a PLAN in case this all goes pear shaped, should be everyone's goal.

There has been a lot of money to be made of recent due panic and everyone being overly defensive. Someone who held off buying a property listening to the doomsayers would be down a lot of money.

[Gnadenburg]

Just an opinion, and probably sure to raise G'boy's temperature

Ha ha....

Doesn't worry me. I'm just holding people to account for what was said last year.

Self-Quote 1 year ago -

Good Australian real estate should hold out OK. Propped up by a supply shortage and foreign bargain hunters.

Australia should do OK. Helped by a lowered currency.

[ferris]

If Australia's fortunes are tied to the currency, shouldn't you be getting nervous?
If the persistant property bubble (IMF) will only be pricked by rising unemployment (my belief, as stated here), I'd recommend less optimism. Look at todays numbers. "Overly defensive" is the way I'm going. I'd rather miss a modest increase in asset price than suffer a large correction- and that's the situation I'm looking at right now. There's simply more downside than upside (right now).

[404 Titan]

Gnadenburg

Lets see, AUS$ up 41% since late last year, that means expats like me and foreigners are much less likely to invest in Aus property, first home owners grant about to end, AUS$ interest rates likely to start rising by the end of the year, and true unemployment (not the BS one that is always quoted that ignores those that have given up) and underemployment getting worse and you think property is a good investment. Mmmm. Me thinks you have a vested interest because you're probably leveraged up to your eye balls.

[Chimbu chuckles]

Not the least bit hysterical Gnads. Nor do I think we have reached the extremes of the Japanese market in the 1980s yet. But if Australia shrugs off the GFC and leverages up again we might.

I see the bureau of statistics suggests that another 27500 people lost their jobs in August (economists thought it would be 15000) plus another 30800 moved from full time to part time - and yet the unemployment rate remained at 5.8%:hmm:

As the rate of unemployment calculated the old way (before Govts started massaging the numbers) is closer to 17% that would indicate if we get to 8+%, as Govt projections suggest we will next year, that will be more like 25% real unemployment.

In % terms those numbers are not so different to the US which has been losing 250-300000 jobs per month - down from 650000+ per month early this year.

US consumer credit debt (not including Mortgages) fell 21.4 Billion in July alone - an annualised rate over 10% - down 100 Billion since March 09 and accelerating. And that during the silly 'Cash for Clunkers' lifeline thrown to US car manufacturers where people got paid $4500 for the older cars they owned outright and exchanged them for new cars and 15k in debt.

You gotta wonder how many cars they will sell next year and how many auto workers will join the unemployment line:rolleyes:

This is the first time consumer debt levels have fallen since 1990 and the fastest rate of fall since 1975 during that recession.

Given that the US consumers have been the financial drivers of Asian manufacturing for decades....:ooh:

I wonder how much Australian consumers are paying down debt rather than spending? I don't know but maybe not so different to the US or maybe a lot less. I suspect the former - people are smarter than the pollies think.

Japan is still sliding down hill.

China is stockpiling resources - presumably they will eventually figure they have enough of our resources and slow down purchasing. Maybe they are getting set up to cross the straights and take Taiwan back?:ooh:

Apart from 'strongly' :rolleyes: worded condemnation I doubt Obama/The west would do terribly much about it if they do.

The AUD is getting stronger which means everything we sell, resources and tourism, is getting more expensive at the same time our major trading partners are least able to afford what we have to sell.

Just offshore where I live in Asia are 100s of container ships anchored - 1000+nm from the nearest major trading ports of Singapore and Hong Kong - apparently its the cheapest place in Asia to park these assets while no one wants to put 'stuff' in them and transport it from A -> B.

Yeah, buy more real estate:ouch:

[Gnadenburg]

If Australia's fortunes are tied to the currency, shouldn't you be getting nervous?

If the persistant property bubble (IMF) will only be pricked by rising unemployment (my belief, as stated here), I'd recommend less optimism. Look at todays numbers. "Overly defensive" is the way I'm going. I'd rather miss a modest increase in asset price than suffer a large correction- and that's the situation I'm looking at right now. There's simply more downside than upside (right now).

I think Australia's fortunes maybe hampered by a strong currency. That said, the RBA won't increase interest rates rapidly to fuel what is the fourth most traded currency on the planet!

You mention the IMF. Whose advice to Australia was not to provide government stimulus but to drop % rates further. I tend to agree. But they won't be addressing a property bubble in Oz with lower interest rates.

Once again. The IMF is contradicting itself.

[Gnadenburg]

Gnadenburg

Lets see, AUS$ up 41% since late last year, that means expats like me and foreigners are much less likely to invest in Aus property, first home owners grant about to end, AUS$ interest rates likely to start rising by the end of the year, and true unemployment (not the BS one that is always quoted that ignores those that have given up) and underemployment getting worse and you think property is a good investment. Mmmm. Me thinks you have a vested interest because you're probably leveraged up to your eye balls.

Well if you had of taken my advice, bought good Australian property last year and funded it with the USD, you could have currency switched and made a fortune.

For an ex-currency trader, living in Hong Kong, it should have been plain to see. But required street smarts and balls.

I'm sorry to disappoint and not willy waving, but my D/E ratio too healthy. But more importantly, cash flow has skyrocketed due halving of interest rates and rental hikes. Which is why I couldn't understand the prophecies of doom here.

[Gnadenburg]

Chimbu

You crack me up. OK. You have backed down from the Japanese come Australian 90% real estate collapse.

And here comes the geo-political stuff. China, stockpiles now-cheap Oz commodities, to facilitate a cross strait invasion of Taiwan. The Yanks do nothing-even though they are militarily structured too.

But anyways. Think the Chinese could pull it off at the moment? Not sure. I reckon their command and control is still lacking and both nations are a bunch of greedy pricks who know their wealth synergies could drive Asia this century.

[Chimbu chuckles]

I am so happy you find me entertaining:ok:

I have not backed away from anything - when did I say I expected a 90% drop in Australian real estate? I did say I expected a 40% fall peak to trough.

I used Japan as an example of what can happen when a debt fuelled speculative bubble bursts. The US is another example where the bottom has not been reached and likely won't be for some time. I was listening tonight to a speaker in the US (one of those ahead of the curve types who cause market moves on Wall Street when they speak) who suggested, for a whole slew of good fundamental reasons, that US real estate might bottom out closer to a 50+% drop than the current 30+% drop.

You seem to believe Australia is immune - good luck to you:ok:

I agree with you that the interest rates are not going up anytime soon - down is more likely than up in the next while. The RBA has too much bad news on the unemployment/AUD fronts to seriously consider raising interest rates.

Just out of curiosity did you watch that vid linked to by Foie gras a few pages back - particularly Steve Keen in parts 6 and 7?

[404 Titan]

Gnadenburg

Well if you had of taken my advice, bought good Australian property last year and funded it with the USD, you could have currency switched and made a fortune.

For an ex-currency trader, living in Hong Kong, it should have been plain to see. But required street smarts and balls.
Just for your info I do have a very nice property on Sydney’s Northern Beaches which I bought very close to the bottom of the market and I did move a great chunk of my loan to HK late last year when the AUD was near its lowest to the HKD and USD. So yes I have done nicely because of this, but it wasn’t from any advice I got here or street smarts or balls as you put it. It was because of my background and the fact I am constantly researching the markets that allowed me to get the timing roughly right. Do I think my property has or will continue to decline any further? Yes but I haven’t bought it to speculate a capital gain. It is a very long term investment and probably where I will retire when I have finished my stint here in Hong Kong.
But more importantly, cash flow has skyrocketed due halving of interest rates and rental hikes.
Interest rates may be low now but the question you should be asking yourself is how high do you think they will go when they do rise? What makes you think for one moment governments around the world will be able to turn off their stimulus packages before inflation becomes a problem, and it will, or if the stimulus packages will work at all? Stagflation is a very definite possibility and a very ugly economic environment to operate in. Almost all the growth seen so far has been because of government stimulus. If the consumers don’t start spending soon without government handouts, particularly in the US and EU, we are all in for a very rough ride.

[Chimbu chuckles]

The question should also be where would interest rates be if the feckless morons in Govt (both sides of the house) still calculated inflation the way it was calculated in the 70s/80s - i.e including housing/food and transport?

Those of us over a certain age remember interest rates around 18% - because inflation was high. Imagine what inflation would be now if they still included those things - it would be huge.

They took those things out of the calculation and told everyone inflation (Consumer Price Index) was 3%. All payrises since have been based on that BS CPI - if you were lucky, mostly employers have managed to average less than CPI increases - but those things they removed, housing, transport and food, have continued to inflate at an increasing rate. Had they not changed the calculation inflation in the last 20+ years would have (and has) been higher than at any time before that. Any wonder people don't feel better off?

Utterly contemptible lying c&*#s - ALL of them Labor or Liberal.

Likely this reason alone is the underlying cause of the GFC - unchecked inflation on the one hand and decimated real wages on the other.

Where is the outrage? :mad:

[im sparticus]

lol real inflation now around 18% possibily more and the cash rate 3% me thinks its time to borrow lots and lots of money and put it hard assets.........property anyone??

nice one chuck

[Chimbu chuckles]

Well that is what people have been doing for decades - its not sustainable - as we're seeing now.

Buying an asset that produces a negative return is not 'investing' its speculating on a capital gain - absent the capital gain (which is unsustainable in the long term) its a disaster waiting to happen.

When the price of an consumer item, and thats all a house is, increases at a rate greater than wages sooner or later, and given the power of compounding interest its gonna be sooner, no one can afford it anymore and the price crashes back down to where its affordable again. This process has merely been pushed back by easy credit to the point where the price re set will be more spectacular and more economically damaging short to medium term.

You can thank your elected governments of the last 30 years for the policy settings that led to this madness.

[im sparticus]

you have not been able to do this ever let alone for decades otherwise the rba would have given all their money away and be broke at the very least the cash rate has to be equal to real inflation usually its a little above.

[Chimbu chuckles]

Cash rate has been equal to/above real inflation?

I just don't believe that I am sorry.

[404 Titan]

Chimbu chuckles
The question should also be where would interest rates be if the feckless morons in Govt (both sides of the house) still calculated inflation the way it was calculated in the 70s/80s - i.e including housing/food and transport?
I think you will find it does include those items. What it doesn’t include though is the changes in taxation. The figure that is publicised by the RBA is “All Groups” though there is a separate figure that excludes housing and financial and insurance services.

Consumer Price Index, Australia, Jun 2009 (http://www.abs.gov.au/ausstats/[email protected]/mf/6401.0)

[Chimbu chuckles]

% change Jun Qtr 2008 to Jun Qtr 2009

Weighted average of eight capital cities

Alcohol and tobacco 4.7
Clothing and footwear 1.3
Housing 5.2
Household contents and services 2.4
Health 5.2
Transportation -5.9
Communication 1.2
Recreation 0.7
Education 5.1
Financial and insurance services -6.6
All groups 1.5
All groups excluding Housing and Financial and insurance services 1.4



Perhaps you clever people can explain to us dumb ones how the above figures add up to 1.4% inflation.

[im sparticus]

perhaps you could first explain how someone could lend at 3%pa while the principal is devaluing 18%pa and still remain solvent??

[404 Titan]

Chimbu chuckles

Very simply there are 90 grouping of like items that are measured. The prices are measured roughly once a month but if the item has a volatile price they may measure it more often. These grouping then have a weighting based on their importance. Every five years these weightings are varied based on changes in household spending patterns.

A GUIDE TO THE CONSUMER PRICE INDEX: 15th Series (http://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/A0C0F582E0909660CA2570A60000A4C1/$File/64400_2005.pdf)

[Chimbu chuckles]

1/. Groupthink
2/. Believing their own BS.

They have hardly distinguished themselves in the last few years as 'smart', cunning maybe but not very smart. 105% loans, Liar loans, CDOs, CDSs as an example.

Remaining solvent remains to be seen.

Fiat currency is debased every time the Govt prints another $ with nothing but sentiment to back it up. Every time a bank extends credit that is money created from nothing - mostly out of thin air - they leverage up deposits and lend many times more than they hold on deposit. Every $ created means every $ already created is worth a little less. All the major currencies now have < 5% of the original buying power.

An ounce of gold is currently 'worth' nearly $1000 when it was worth <$20 in the early 70s but buys now pretty much what it did then.

The above CPI list doesn't sum up to 20% inflation. For starters only 45% of residential property are mortgaged. But there is NO WAY KNOWN it adds up to 1.4% either.

[Mr. Hat]

I'm interested to see what effect the reduction in the first home buyers grant will have at the end of the month and coupled with that an interest rate rise or two. That scenario I think will make the picture a little clearer. I think the situation at the moment is a bit artificial with the influence of these two factors at play.

[im sparticus]

$20oz gold in the 70's? I guess you finally understand why property prices are where they are today glad we finally got to the bottom of it.

[Chimbu chuckles]

Got my start year and prices confused - 1833 was USD20/ounce, 1970 was USD35/ounce.

London Fix Historical - result (http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx)

I guess you finally understand why property prices are where they are today glad we finally got to the bottom of it.

Ya think they'll stay there? I don't.

Edit: Don't know why that link isn't giving the data I sought to show and I don't have time to sort it - non the less a 57% inflation in gold between 1833 and 1970 as opposed to the inflation - USD35 to USD980 per ounce - seen in the last 39 yrs tells the story on recent govt policy.

[im sparticus]

i dont know those sorts of increases in the price of gold are unsustainable and seem an awful lot like the speculative bubble house prices are in and we all know property is about to crash, lol.

which is it chuck you cant have it both ways either there is rampant inflation and hard assets are fairly going up, or their speculative bubble is about to burst??

[obie2]

Time for Chimbu, Gnad, and one or two others to trot off to a live in love fest, don't you think?
And leave us all in peace! :ok:

[Cravenmorehead]

I agree with obie2 and Mr Hat. Go the Lions. It's September and finals fever for goodness sake. Talk about thread drift.

[Barkly1992]

What is this thread doing in Dunnundra - RPT - should be in Jet Blast and then bombed into oblivion.

No one seems to be listening to each other anyway.

Experiences seem to be too personal rather than macro-economic.

But that is just my view mind you.

:ugh:

[Mr. Hat]

Here is the original thread starter that I posted:

Is the worst of the Global Financial Crisis behind us?

I'm noticing where I work that things seem to have been improving quite a bit recently. It makes me wonder if the worst of the GFC is now past us. The share market seems to be steadily rising and some economic figures are pointing at a recovery. What do you think and how is it looking where you work?

Gnand and chimb just have differring opinions thats all. Nothing to do with Jet Blast

[Chimbu chuckles]

Seems to me all the economists singing from the same sheet is what got us in this mess - Pprune used to be about robust discussion - I really enjoy the cut and thrust with Gnads et al - I learn stuff all the time because they push back hard.

If some don't like it tough - someone holding a gun at your head to click on the thread?

[4PW's]

Bin the thread.

[Chimbu chuckles]

Im sparticus.

I can't have it both ways?

I am pretty sure I can:ok:

First some personal examples.

My father bought the last family home I lived in in 1970 for just less than 2 times his wage as a QF 707 FO. That same house last time it changed hands (he retired and had a 'Tree Change') was 15 times a QF 747 FO wage.

The first house I purchased in 1992 was very much a average little house on the Redcliffe Peninsula but as a Talair Bandit/Twotter pilot I was earning more than the Australian average wage and it cost me 2 years of my wage. I would guess it was worth 3 times an Australian single average wage at the time. Last I looked it was 7 times average wages and that was after it had done nothing price wise for a decade. All that price rise is since 2002.

The last house I purchased in 2002 was certainly not average in any way shape or form (4 bedrooms/3 bathrooms/waterfront/double brick/double garage/12m salt water pool at Carrara/Gold Coast) and it cost me 2 years expat corporate jet captain wages. I am not earning more 8 years later back in airlines but last I looked a year or so back it was closer to 8 times my wage now. There were other properties bought and sold between those in partnership with another person and the numbers were all pretty much the same.

Whatever real inflation has been in the last 30 yrs, and I guess about double what the Govt says, real wages have not kept up and yet we see that explosion in house values mostly crammed into the last 10+ years. When you compare the above personal experiences to the graphs seen in links on this thread you can't help but think 'bubble'. I was thinking 'bubble' in 2004. For every bubble there is a needle.

As an example of wages not keeping up with real inflation when I first left school in 1979 I was renting a modern 2 bedroom apartment on the beach at Balmoral (Sydney) overlooking the water - 50m from the beach for about 25% of my single wage - although I had flat mates most of the time. I also ran a car/learned to fly and ate/drank as well as any 19 or 20 year old single guy does:E

Now my daughter, just about a year out of college and with a good job, and her partner pay something like 35% of their combined wage for a 40 yr old wooden house at Stafford in Brisbane. I bought her a car and tip in a few 100/month to help out. I have mates with sons just starting out as young pilots/apprentice builders and all sorts of things earning less $ (raw number) than I did driving taxis in Sydney in 1980 and less than 1/2 what my daughter is earning!!

If they hope to buy a 'median' house sometime in the future, and trends don't change, it would cost them 4 times their combined wage or 7-8 times a single wage (she will be a mother by the time they buy a house). Yes they can buy a ****box fixer upper for less but the point is you didn't used to need to, it was a choice you made if you were that way inclined.

55% of residential property has no mortgage attached so that 2 trillion Australian personal debt burden is nearly all crammed into the other 45%. Many of the mortgages more aligned with the lending practices we have seen in the US/UK than we'd like to think - 110% loans etc. Lots of equity pulled out to buy 'stuff'. The major difference between the US and Australia is we don't have non recourse loans. That just means all the risk is with the borrower rather than, in the US, with the lender. Which makes what the mortgage originators were doing in the US even more bizarre.

What part of the above is sustainable?

I actually don't think the above multiples still apply across the board While we have seen some growth pushed by stimulus lately for well over a year now we have been also seeing distressed properties sell between 30-50% less than they were thought to be worth. That seems to be across the board as I know people with personal experiences across the board. I have related one earlier in this thread and I know of other examples. I think we have all seen examples in the media too. If unemployment hits the projected highs next year, and if the US double dips they could be conservative numbers, and a significant part of that 45% of residential properties default then it could easily, and some suggest will, lead to a great deal of wealth destruction.

I don't think we'll see the sort of wealth destruction the US will see and Japan saw because, as Gnads points out, not many new houses were built in the Boom just past, or to date depending on your point of view. In the US they built 100s of thousands of new homes and LOTS, entire streets, stand empty.

That developers could not do so profitably and as a result didn't is telling.

One very wealthy long term developer I met last year (taking delivery of his new helicopter at Redcliffe) thought there was going to be blood on the ground outside of major cities (and a couple of mates who have done such a development are struggling to sell them) and was not doing a lot of building. A high end residential development including the last approved canal blocks in SEQ stopped dead in its tracks in the last year right next door to YRED - after sitting doing nothing for years (just vacant land and half built canals) there was all of a sudden a burst of activity and then it just stopped and hasn't moved since - last I saw it a few months ago anyway - I was interested in a block of land in there - now I am happy to wait.

You'd have to suspect that developers know something most people don't - maybe they think prices are at unsustainable multiples and fear bringing a project to the market in 2010/11/12?

I am beginning to think that real estate in the not too distant future will again be viewed as our parents viewed it. As a place to live in/pay off and retire in rather than as an 'speculative investment'. Real Estate doesn't seem a very good investment of late - even with negative gearing - the immediate returns are not there compared to 5 years ago. Absent capital gain they are stupid returns - if you rely on capital gains you're not investing you're speculating - there is a difference. When the returns drop smart money deserts an asset class and goes looking for alternatives. Perhaps the run up of the stock market these last months is (partly) an example of that - I don't know and it remains to be seen. I do know that I would be completely uninterested in buying that Carrara canal home now for over a million bucks to get a return not so hugely different to what it attracted when it was worth 400k. When I bought it it got 450/week rent - it certainly doesn't get 1200/wk now. If anyone believes it will appreciate in the next 7 yrs as it appreciated allegedly in the last 7 is deluded. If someone bought a house like that now and say borrowed 800 - 900k, more than twice what I borrowed, to get maybe 50% more rent would that be 'investing' wisely? I don't think so - if it then depreciated 30% they would be looking pretty marginal - no equity and a ****ty return. The Real Estate agent I bought that place through once said to me that SEQ can and has had savage corrections followed by YEARS of no capital gain. Like the first place I bought that did nothing for a decade after. Food for thought.

For sure history shows that every bubble bursts - I thought it should have burst a few years ago but just because it didn't/hasn't/may not for a little while yet is not good news. Had it popped in 2004 it would have been a relative non event compared to it popping in 2010/11.

But some people don't believe there is a bubble at all - one thing I can absolutely guarantee is house prices can't go in one direction while real wages go in the other for ever. At the VERY least that has been happening for a VERY long time. When a fairly normal house costs 4-8 times the annual wage of an individual in the top 5% of wage earners (an airline captain) I just think something is not quite adding up.

Edited to change 25 times to 15 times due finger trouble.

[frigatebird]

I'll have to print that ! I know bugger-all about real estate. Have been too busy trying to stay employed around and in the Pacific. My family has lived in the house I paid cash for when I repatriated my National Provident from my first gig overseas now over 20 years, while I have only seen its insides about 5 or 6 total. As I sent money home regularly, and had to rent as well, there wasn't much left over to speculate with, and something followed from a distance can be fraught with just too much risk. It wasn't my passion anyway, so I guess I will just have to die poor because I couldn't Multi-task enough. But what gets me is the number of people who think there is no tomorrow, that they can do anything they like and there will be no consequence. Different generation I guess, they will inherit their consequences too, and even if they try to shift the blame, I for one will be glad it bites into their expectations.

[Transition Layer]

Chimbu/Gnadenburg/404 etc,

I have thoroughly enjoyed reading this thread, and while everyone knows you shouldn't take financial advice from pilots, it's clear some of you have a vast amount of knowledge on the matter.

However, Chimbu, you said :

Buying an asset that produces a negative return is not 'investing' its speculating on a capital gain - absent the capital gain (which is unsustainable in the long term) its a disaster waiting to happen.

Isn't speculation what capitalism is all about? When someone decides to start a business, they are speculating on what sort of demand there is and what sort of return they can achieve. If you relate it to Aviation, airlines speculate on routes/passenger numbers and therefore aircraft types and frequencies.

If no-one in the economy speculated, companies would not grow, jobs would not be created and there would be no growth.

Maybe I'm taking a simplistic view of things, but isn't speculation what makes the world go round?

[Foie gras]

Here we are cruising along, sun's shining, blue sky, everything is roses.
Whether we like it or not we are in "coffin corner" country.

Let's lower the nose and go in for a hard landing yet a controlled one.
No, CEO Bernanke and board members Geithner etc are intent on keeping "Capitalistic Airways" afloat and squeezing every last cent of profit out of the operation. Hangover from previous CEO's "Greedspan's" indoctrination.

One of two things can now happen.
Highly unlikely, but possible...
We continue "quantative easing" ie printing money, or if you like, burning more kero.
Overdoing it, (to the extreme), will tip us over the curve and into a Hyper deflationary dive.
Alternatively, we sit on our hands and hope that everything continues on its merry way.
Chances are, (and highly likely) we hit a pocket of turbulence and unintentionally enter a deflationary dive.
God help us.

What are your recovery methods like?
That's my tuppence worth.... Prepare.

[bushy]

I spoke to a man yesterday who told me the stock exchange was "a huge gambling house" that had little to do with reality.
He's right, and real estate can be similar.
He talked of a freind who had bought a house and land in Coolgardie for $500 in recent times. He checked the records and found that in the early 1900's the land (with no house) had been sold for 26,000 pounds, a huge ammount in those days.
Real estate in Alice Springs has gone crazy. Three years ago units had been appreciating by about 7% a year. Since then prices have almost doubled.

A computer expert I deal with has a saying,

Chaos reigns within
Repeat, repent, and reboot.
Order shall return.

I think that is appropriate here.

[Cravenmorehead]

All good stuff from some quite educated fellows. A good read if this thread turns your crank as it appears too do for many is Ozonomics by Andrew Charlton, printed by Random House, and Paul Kelly's book which I can hardly put down called March of Patriots.
Frankly to call the share Market a gambling house is ludicrous and crap, and by the way Australia is not printing excess money as one PPRuner said. If this were so the Australian dollar would be like the Pound and US dollar ie shrinking. Not at near record levels as it is now. The function of a low oil price, high Aussie dollar, mineral wealth and a hungry China and India not to mention the rest of Asia = what do you reckon. You don't have to be a rocket surgeon to figure it out.
The property market who cares? It always finds it's level. You always need somewhere to live.
The GFC in Australia was: an over reaction: in hindsight it seems we have applied to much stimulus, which will be backed off in time.
I think Kev and his advisers, the RBA and their board, and all the boffins have it sorted.
My prediction 12 months of low growth, then a bit of a slow boom for 5 years. All Ordinaries at 5000 by 2009's end, the Crows/Dragons for the flags, and buy Myer shares.
But then again I bought some of Babcock and Brown's satellite companies:{

[404 Titan]

Cravenmorehead

China and India are export driven economies. They don’t have anywhere near enough internal demand to drive their economies forward without the US and the EU buying their exports. It will take at least two generations, probably more for these economies to be self supporting. This whole idea that China will save the world is flawed, just as the argument that before the GFC China and Asia had decoupled from the US economy. Until we see the US and EU economies grow substantially and organically, rather than by government stimulus which by the way will run out by early next year, I’m afraid what we are currently seeing is a mirage. The chances of a “W” shaped recovery therefore in my opinion remains high.

PS: I personally thought the statement that the stock market is a “Gambling House” was a colourful but accurate description of it. Trading stocks or in my case trading currencies is speculating. Gambling, speculating, pretty much the same thing except maybe the level of risk. Look it up in the dictionary.

[Chimbu chuckles]

First of all a correction due finger trouble in my last post - I meant to type 15 and typed 25 instead - didn't notice it until just now.

That is my understanding, speculation is more gambling than anything else - you buy a house that gives a negative return and gamble you have bought well enough that the property will appreciate - and for the last 10-20 years that has certainly been true depending on the market - Sydney has always seemed a law unto itself as a property market - other places not so.

When you buy with the intention of holding long term a good quality blue chip stock at a reasonable price that pays a good dividend that to me is investing.

Buying a house, living in it for 3 years and flipping it is speculation. Buying on interest only terms, especially buying LOTS of houses as many have done these last years, is speculating not investing. If the houses appreciate the theory is after x years you sell a few and pay off the rest and retire on the interest. Works a treat too if you get in at the beginning of a up trend - can be a bit sad if you're late to the party and buy near the top. That is the gamble you take. I know young FAs working at Oz LCCs that 'own' 20 houses - well no dear the bank owns 20 houses and you're renting them with an option to buy later.

The fact remains all the get rich quick real estate schemes rely on short term trends along the lines of 'houses double every 7 years' - if they were long term trends houses would be unaffordable after 14 years and off the planet after 21 - such is the power of compound interest.

Don't get me wrong - lots of people make lots of money - I have done well at it in the past - but it is merely playing pass the parcel with houses and the person holding it when the music stops is in a world of hurt. The whole deal is made more 'interesting' when real wages are not keeping up and people are taking on more debt to fuel the speculation.

As to the US recovery fuelling growth? I was watching CNBC the other night and the latest months unemployment figures were released - 550 000 more people filed for unemployment benefits but because the figure was 26000 lower than market expectations the news was received well and the market reaction was positive!

What planet do these morons live on?

Geithner was asked in an interview whether unemployment would fall next year and was ABSOLUTELY certain in his one word answer

"YES".

When asked whether taxes rates would increase to pay back the trillions they are borrowing he used 87 words none of which was 'YES' but he might as well have saved his vocal chords and just answer yes because that was what the 87 words added up to.

I didn't see whether then asked him about interest rates because it was late and I went to bed.

Lets look at the last time the US Govt was spending like there is no tomorrow. The 1960s. Between the Vietnam war, Mercury/Gemini/Apollo programs and LBJ's social security spending by 1970 they had spent CUBIC money. In 1972 ish Nixon took the US off the Gold standard so he could crank up the printing presses and pay for it all. Inflation went into orbit:E and Fed Chairman Paul Volker put interest rates up to 20%.:uhoh:

Similar happened in Aus but we didn't have an space program - we were at war though throughout the 60s and early 70s.

Now in the US we have had a series of wars fought concurrently until recently, low interest rates and lax lending standards that have driven the US into recession at least and possibly depression and they have opened the money spigot to the tune of trillions - lots more than the 60s - and bailed out companies that were deemed 'to big to fail' - which really means 'to big to exist' in my book but there ya go. Obama is trying to socialise health care - money is being sprayed around GM/Ford and Crysler (the last two should not have been bailed out a decade ago but were) - truly cubic money - to the point that the US$'s reserve status is under threat - and they have an ongoing need to borrow trillions more at interest rates that are less than real inflation. Gold is up, USD down at lowest levels in a long time. Real estate values still falling and a faux rally on Wall Street that bares no relationship to fundamentals - to the point that 'the street' actively talks up a 'jobless recovery':hmm::rolleyes::ugh:

What happens next?

Well if the USD continues to fall, or the world threatens to REALLY lose faith in it as the reserve currency, or people demand a better return to lend money to the US then interest rates MUST go up to protect the USD.

The 70s were not nearly as bad as now and they resulted in 20% interest rates.

What would 10% rate hike do to what is left of the US residential real estate market - and credit card debt - and food prices/energy prices (being imported at a lower currency value) - and commercial real estate - and retail sales - and?

And then the US Govt puts up taxation rates to pay down the debt - higher taxation = lower employment.

Sorta backed into a corner aint they.

That is why I think they will double dip and why they will trudge on down the road already travelled by Japan and why I don't see Asia generally, and China, particularly saving our sorry arses to the extent people suggest.

And then we get to Australia's much more measured deficit spending:hmm: You really think Tax and Interest rates won't go up in 2010 and stay up for a very long time?

Do I think the worst of the GFC is behind us?

Nope:sad:

[ferris]

I've stated that I am in the "chuck camp", but the economy in Australia does seem to be holding up. Does anyone else have examples of increased mortgagee auctions, and the like? Everyone I talk to has a totally different story.

Also, what do currency watchers think? The normal soothsayers (economists, commentators etc.) seem to have had no idea over the last 12 months. I set up a hedge fund because I work overseas and thought the USD had to tank, given the amount of money they were/are printing. Yet even the RBA seemed to think that .84 was the top. Does have me worried (and detracting from my desire to continue earning USD!).

[404 Titan]

ferris

The USD will continue to weaken as long as the equity markets rally and there is continued belief of a US led recovery. When, and it is my educated opinion, we see the double dip of the “W” recovery then I can see the AUD$ going south again because of the unwinding of leveraged carry trade positions. I have stopped buying AUD$ as of last month and am planning on holding HKD/USD for the foreseeable future.

[Che cows with guns]

Titan 404 what world are you living in of course we are being driven by China and in the future India. Why are China trying to buy Australian mining companies I ask you? Cravenmorehead is spot on.
The Aussie economy is doing OK. We are seeing good growth, the farm sector is set to rebound. The sugar price is at a record, not sure about wheat and other grains. Gold miners are all expanding. Iron ore and coal still need badly by China. China still records high growth figures.
Tourism will come back once the Swine flu thing abates which it has.
This will all see aviation pick up. I agree house prices are due to come down that will cause pain just as the deflating of the market did last year, bad luck if you bought at the top.
Goverment stimulus is designed to cushion the building sector once the first home owners grant evaporates.
Anyway my 3 bits worth.
Interesting discussion though.
Che
fighting for bovine freedom

[404 Titan]

Che cows with guns
Titan 404 what world are you living in of course we are being driven by China and in the future India.
Bullsh*t. We are being driven by the US/EU’s demand for cheap goods and services from China and India. China and India don’t have the natural resources and energy they need to supply this demand and therefore they buy a lot of it from Australia. That is also the reason why they are trying to buy our miners. So they can control the resources at a price that suites them and not the market.

The US GDP is still about 7 times the Chinese. EU is about the same as the US. US population 260 million. Average income US$50000.00. Chinese population 1.3 billion. Average income US$500.00. One billion of their population live in poverty. You do the maths. As I said the Chinese are an export economy. The Indians are predominantly a service economy for foreign companies and governments. They do not have the internal demand to drive their economies anywhere near the levels that is required to grow. Without exports and without government stimulus these economies would contract. Fact.

The US, together with the EU and Japan are the drivers of the world economy. The rest are just going along for the ride.

Regarding swine flu, tourism, the sugar industry, gold miners etc I could pick that apart as well but I don’t have the time right now.

[ferris]

The Chinese buying everything they can get their hands on? There's a reason, methinks. They are very, very smart. They are spending their worthless USDs, which they have truckloads of (even more than the US itself), and exchanging them for hard commodities/suppliers that they are going to need into the future to supply their growth. Look at what they are buying/have bought. Some absolutely audacious stuff (entire oil/gas production of some African countries for the next 50 years!!!). Tried to buy Rio etc. Ahhh, so many US dollar, so little oil/food/gas/coal etc.

As for Australia- that's why I ask. Overseas, things are grim in most places. Aviation has noticably shrunk. Even in the ME, things are much quieter. I've been looking keenly for signs that it is filtering thru to oz, with really mixed messages.

[stealthone]

Chimbu are you listening the Alex Jones talk show and maybe Gerald Celente? Ha ha. You are spot on but Ferris has nailed it. China is on a shopping spree because they are converting the worthless paper into commodities. Who is receiving the ‘toilet paper’? Australia. Yanks will never pay their debt, it’s over folks, and they crossed what we know as a PNR. Is there anyone else on the shopping spree? Yes, the Russian govt. They do not bargain, just keep dumping their dollars. The Mediterranean coastline is theirs, and companies worldwide. Most of the European govt’s are broke and practically lining up to obtain some cash from Putin in exchange for assets or near broke companies. Furthermore some of the loans have to be paid back in roubles. Yanks have driven themselves into insolvency trying to expand the sphere of influence, and just like Napoleon and Hitler they ran out of steam on Moscows door step.
Guys, try to find some info on the geostrategic development. The Russian govt faked the downfall of the USSR and the Yanks took the bite. The eastern European countries are like bottomless pits. They are chewing billions of dollars every year and those so called democracies are corrupted as ever. All those meaningless wars and NATO expansion had to be financed somehow? How? The printing presses were running around the clock. Of course, the Yanks did not foresee KGB’s coup d’état ie the appearance of Putin.
What is going to happen to some of our super money in case of US dollar collapse? The Wall Street had sucked in the money from Europe, Australia, and South East Asia. I think that we are in the deep s….t. Those with some cash reserves and no debt (full property ownership) would do just fine.

[Chimbu chuckles]

Geez I don't thinks its THAT bad:uhoh:

That is conspiracy nonsense - the simple answer is usually the right one - huge dollops of stupid caused the GFC nothing else.

I do agree with Ferris - Australia would be NUTS to sell a damn thing to the Chinese besides our dirt - mining companies are not for sale!! - The Chinese are very strategic thinkers with VERY deep pockets and no constraints on their executive govt.

I listened to the entire Geithner interview this evening on CNBC - I have gotta say listening to him and watching him I developed a great deal of respect for the man - I think I'd really enjoy a beer with him - he is clearly DEEPLY COMMITTED and DETERMINED and BELIEVES in every fibre of his being in the US and in the truth of what he was saying.

Doesn't mean he is right about everything but I would say he is a fundamentally honest an honourable man. I really liked his answer when posed an essentially 'poacher turned gamekeeper' question along the lines of "Why should we have faith in the people trying to fix this when they were in charge before?". With complete candour he turned to the interviewer and said something along the lines of "The operative word there is were."

I have my doubts that everything that NEEDS doing is politically possible but I find myself leaning towards what Warren Buffet said early this year - It has never paid to right off the US and it doesn't pay now.

Look what happened in Japan post 1990 - The world didn't end for the Japanese economy or people The world isn't ending for the US either, or Australia.

But I'd say the next decade will be VERY different to any previous decade that I have experienced. I think a little less globalisation will be good - a little more home based manufacturing and a lot less offshoring of jobs might also flow from all this. I tend to think globalisation is like booze - a little is great, too much and you fall over a hit your head.

[Cravenmorehead]

Titan 404. You are quite correct that China is an export driven economy. What you are forgetting is that it is also a Communist Country and State driven. When outside demand drops they ramp up their own stimulus (it was massive). Growth around of around 8% down from 12% is still pretty impressive. I saw fortunate enough to work there for 14 months, pre GFC, and witness some of the infrastructure work taking place . Mate it is unreal.
So in answer to Hat's original question; yes the GFC is winding back, we will start to see improvment and it will be driven by China's growth. India? Well I think they will be a big player but the conventional government and dis- organised nature of the place I feel will be an anchor to it's growth.
Bloody Crows. What a game tho'.

[Foie gras]

Ferris and Steely... Spot on.
This is.... serious!

But come on, let's loosen up.
Have a laugh...

YouTube - Tim Hawkins - The Government Can (http://www.youtube.com/watch?v=LO2eh6f5Go0&feature=related)

In my previous post, I meant to say Hyper "INFLATIONARY" Spiral in lieu of
"Deflationary" dive.

[Chimbu chuckles]

The problem we have is Pollies that can't laugh at themselves anymore - Imagine Rickles on a Dean Martin Celebrity Roast today doing this to Nancy Pelosi/Obama/Reid/Rudd?

5ALHiadIsKo

For the younger readers on Pprune take a look through the rest of the Dean Martin Celebrity Roasts on youtube and see how life was before political correctness clamped its vicelike claws around our throats - they blow my daughter away - they're funny without obscene language and NO ONE takes offence.

Thread drift I know but a laugh is what we need right now.:ok:

[4PW's]

The USD is about to enter a multi-year bull move.

Don't be caught short.

[ferris]

"...the origins of the contributions may be opposite to what may be apparent."

I'd be interested in even ONE good reason, 4PW's, for this imminent USD bull-run.

[frigatebird]

Chimbu, that breaks me up. Had to watch it again straight away, and will look up the others. Don't ever stand yourself for anything, or I may have to vote you in as a Governor or President..
Used to drive with a sticker on the rear window that said
"Suzy Balogh For P.M. - We need a Straight Shooter in the Lodge".
Particularly like this ditty from a book series -
Here lies a toppled God
His fall was not a small one
We did but build his pedestal
A narrow but a tall one

Frigate

[4PW's]

Given you put the question that way, Ferris, I'd just love to sit down and have a fireside chat with you about why this and why that. Only I can't. I just don't have time. Real nice of you to ask, though.

[aussie027]

Chimbu, good call!!:ok:
Those roast clips are fantastic, been watching em for yrs, Rickles is a riot and yes they were hilarious without a swear word and before the PC BS took over the whole world.:ok::D

[Gnadenburg]

Gnadenburg

Quote:
Well if you had of taken my advice, bought good Australian property last year and funded it with the USD, you could have currency switched and made a fortune.

For an ex-currency trader, living in Hong Kong, it should have been plain to see. But required street smarts and balls.
Just for your info I do have a very nice property on Sydney’s Northern Beaches which I bought very close to the bottom of the market and I did move a great chunk of my loan to HK late last year when the AUD was near its lowest to the HKD and USD. So yes I have done nicely because of this, but it wasn’t from any advice I got here or street smarts or balls as you put it. It was because of my background and the fact I am constantly researching the markets that allowed me to get the timing roughly right. Do I think my property has or will continue to decline any further? Yes but I haven’t bought it to speculate a capital gain. It is a very long term investment and probably where I will retire when I have finished my stint here in Hong Kong.


Just one property in Sydney? Forex gambled with just a "great chunk" of your loan and not the lot?

You are a very conservative investor. Good luck to you. But many pilots would have left you behind this cycle without the benefit of your "financial education" and dogged research.

How is your Hong Kong property fairing? From what I read dogged research would not have have picked the current market gains.

[Gnadenburg]

I'd be interested in even ONE good reason, 4PW's, for this imminent USD bull-run.

Me too 4PW.

I want out of the USD. Again, this month, my bank rang me and offered a Starbucks coffee for my 500,000 USD deposit. :confused:

Wish I had bought even more Oz property 6 months ago.

[Chimbu chuckles]

Well maybe one day you'll feel differently about that.

The Australian dream of home ownership is slipping away, leaving a threat of a US-style collapse in house prices, according to a team of university researchers.

Analysis by researchers from South Australia's Flinders University has revealed home ownership in the 10 years from 1996 rose only 0.8 per cent despite strong economic growth and low interest rates in that period.

The Flinders Institute for Housing, Urban and Regional Research analysis found home ownership fell by 15 per cent over the two decades to 2006 for low income earners over 45 years of age and medium-high income earners under 45 years.

Other findings included large gains in national income from the resources boom were "wasted" by increasing house prices and accumulating debt to unreasonable levels.

The analysis found the first home owners scheme boosted home purchases for people under 25 years of age but many lower income earners in the 25-44 age bracket were unlikely to ever own their own homes because their parents were spending their inheritances and prices remained high.

Dr Joe Flood, the institute's adjunct professor, said the "the writing is on the wall for the 'Australian dream'."

"The country that promised limitless land, cheap housing and near universal home ownership to all comers now has the most expensive housing in the world amid very tight housing and land markets and little prospect of restoring the balance," Dr Flood said in a statement on Monday.

"As long as the government, the public and the media remain in denial, and self-congratulatory rhetoric continues that Australia has cleverly avoided the housing market correction it needed to have, there is little chance that matters will improve.

"The only ways that this would happen are through a US-style price collapse or a complete re-evaluation of the situation and a coordinated effort by governments, planning and financial institutions to restore the balance between housing supply and demand - or tax away the imbalance - so that all Australians may benefit."

Dr Flood and his team assessed Census data to conclude that Australia's housing market is in "a very dangerous and unstable situation which has received little adverse attention".

The researchers found that after 1996, average house prices increased by three times on average - to around 6.8 times medium household income - and debt levels surged.

"On the one hand Australia is vulnerable to a collapse like the United States, where prices fell by a half during the sub-prime collapse ... or to a long slow decline as in Japan since 1988," Dr Flood said.

[Gnadenburg]

No Chimbu. On a commercial holding it would have been an absolute winner in hindsight. When you factor in the purchasing power of the USD versus the Aussie at the time, and the fact that anytime the AUD is that low I place debt in USD.

So, a 2 million dollar commercial property, comfortably leveraged with the 500,000 USD, yielding 8-9%. The AUD has since appreciated and now you flip your debt to profit or maintain a fantastic yield by keeping debt in USD.

A simple strategy I had with a residential holding. Just wish I had the balls to do it with a commercial property. Fact is, I read some crap here on the vulnerability of BNE commercial property and went conservative.


That article is just crap Chimbu. Speculative journalism drawing on inconclusive and possible scenarios.

Many folks I know could pay out their mortgage in OZ but have leveraged against their house to invest elsewhere. If the Australian economy does badly I could speculate that this is very unwise. If the Australian economy does well I could pat them on the back for their resourcefulness.

[frigatebird]

Pretensions.. Pretensions..Name dropping pretensions.. Gnads with "my bank rang me and offered a starbucks coffee for my 500,000 usd deposit" - Have read that this sort of thing goes on with the trendy on Facebook too - thats why I havn't been there !
Why don't you lord it up in a Real Estate Forum then, if you're so good, amongs't your peers !!!

[Gnadenburg]

No pretentiousness intended and I can see how I would upset your working to middle class sensibilities.

Instead of using cut n' pasted newspaper articles with selected quotations and excerpts from reports, I have used personal experiences and that of others I know in the real estate game- including a very relevant reference to family members with significant commercial holdings, not experiencing any duress in market that according to two posters here would collapse!

To me, that is real, workable data. And in the past 12 months it gave me suspicions of the doomsayers.

Financial literacy and fluency in my experience is a huge problem for pilots. I recently worked in liason with my company, our union and the banks on the issue of financial stress in the GFC. Not much could be done except make awareness to counselling services. Some banks were helpful on margin calls. And incidentally, in discussions with the banks it wasn't just dumb professionals like pilots who made huge, unrecoverable personal losses. But those from the financial community!

This isn't the first time I have witnessed pilots lose their shirts. I recall from Ansett days the tax scams- there were two- that suckered in highly paid individuals; some with financial degrees. Yes they were fools but the loss, financial and personal, was a sad lesson.

And today the sharks are back. The suits who circle pilots with promises of grand short-term returns through finance, shares, property, insurance, trusts etc etc.

Financial literacy is important for the modern professional pilot who must self-fund retirement. Like you, some can choose to switch off to what is said or discussed - the curse of the poor. Or alternatively.Take in snippets of information, tips, mistakes made and confessed lessons- and make your own successful path.

Funny. That last sentence is an aviation mindset of most successful pilots as they professionally progress. As soon as $ mentioned it's a dirty concept. :confused:

[frigatebird]

LORD GNADENBURG - Sorry , Me Lord, very uppity of me to suggest you should post to YOUR PROFESSIONAL FORUM. Forgive me M'Lord. (Tugging forelock). By the way, how far back can you trace your ancestors? All the way back to the cattle duffers armed with swords maybe? Then their kids (sorry - Descendants) were knighted for supplying the serfs to another bandit with a bigger pile of rocks (Castle - I think its called!) Wasn't very good at this at the Ag.College, dad didn't have a mansion or factory in The City, so I just used to ride on the trams when I was passing through. But I DID manage to get a Senior Commercial PILOTS licence later, and helped start somethings. Oh, and we (the guys and me) used to provide an actual Service to People, by actually having them pay us to regularly convey them between places marked "A" and "B", and sometimes with other companies we got to go to "C", and "D", and all the letters of the alphabet. (Day and night - I kid you not!). And you know, in my working and middle class way, I really liked it. Do you provide a service to others free or for a fee, or is it all just greed for you? How did you get to find the love affair of your life with Real Estate, M'Lord ? With all your Squillions, and KNOWLEDGE, there must be quite a story there, if you INSIST on denigrating the effort of professionals in lesser occupations . :ooh:
Me, well I don't want any more than what I already have. Compared to what some have in some of the places I have worked, by their standards I am already well off. (I don't have or need a title other than Captain). What I just have to do for the next 20 or 30 years, is to make sure it doesn't decrease or run out because of the greedy speculation of the get rich quick schemes of the Whiz Kids that are now in charge of the nations and worlds pursestrings. People like you, M'Lord.
Sorry, another specialist in the medical profession once told me that I Didn't Suffer Fools Gladly. I completely agree with the finding, to which I might add that I also don't take kindly to those who denigrate others as a group the way you have done.

[ferris]

Only I can't. I just don't have time. 4PW's, in the time it took you to type your post, advising that you didn't have time to reply, you could've supplied even ONE reason. Tells a tale, really.

[obie2]

Very impressive Frigatebird!
Do you think you have too much time on your hands?
[great stuff tho!] :ok:

[frigatebird]

Yes, unfortunately.. That's why I spend so much time here.. I should be out there "A" to "B" ing --

[Mr. Hat]

Recession over in the US?

US recession very likely over, says Federal Reserve chairman Ben Bernanke | The Australian (http://www.theaustralian.news.com.au/business/story/0,28124,26080730-5018001,00.html)

[Gnadenburg]

Me, well I don't want any more than what I already have. Compared to what some have in some of the places I have worked, by their standards I am already well off. (I don't have or need a title other than Captain

If you were ever confused as to how the "Race to the Bottom" came about this is compelling evidence.

If there was more financial nouse amongst pilots. Perhaps we wouldn't see characters using 'feeding their families' as an excuse to cross a picket lines, buy an endorsement for a meagre return , get pushed around by management or be eligible for food stamps in some countries.

And when they are on the bones of their ass, in a once lauded profession, folks like frigatebird are just happy to be called Captain.

[frigatebird]

I've done my bit to keep the standards up, make the flights productive, and keep myself working, much, much more than many I have worked with recently. Play in your own sandbox, make your own rules, swing upside down on your swings if that's what turns you on. Watch plenty of American "D" grade movies to show you how it's done, You seem to be an "Expert" commentator on all things. For me, the CRM training is cutting in, and have found there is no point arguing with drunks, devout religeous, and dizzy guys like you. Understand now why the old soldiers used to put so much emphasis on mateship when their lives were on the line, because in real life, in Civvy street, there is so little of it.
Have a Nice Day.

[Gnadenburg]

Your the second bloke who has mentioned CRM on this thread.

What's with that?

BTW. I know plenty of old soldiers who put emphasis on securing their family's future through nouse and a sense of community. Don't cheapen your argument Captain.

[The Professor]

The US economy will not recover to the same level as before. We are witnessing the end of greenback hegemony and without this, the US is in a terrible position. And the rest of the consuming world also. Oil will again go beyond $150 pb.

As Jim Rogers said, get out of USD and teach your kids to speak Chinese.

[frigatebird]

Did my National Service during the Vietnam Era. How about you? Didn't go overseas then, and used the saved pay later to fund my Commercial flying lessons.
There will always be people who take the shortcut through the swamp if they think they can make it, rather than the hard road on the ridge around it. But when they bog the company bus then there will be others who will be affected. - 'Course for them it doesn't matter as long as they got more than their share of the mangos and bananas picked on the way. The Gordon Gekko's M'Lord.
Living on the edge and revolution for the sake of it has passed by for me. Years of striving for an on-time departure, a smooth ride, and a squeaker landing have left their mark.
Live your fantasies if you must, - just don't disrupt economies on a grand scale. There are 6 billion hard working other individuals in the world with a desire for what passes for financial security in their environment too.
Read once that, you don't get what you deserve you get what you negotiate. So true.
Only ever was suprised once, when I found an extra 10,000 in the contract to what I had negotiated.

That's the Rumour anyway. ;)

[skol]

The current rise in property prices in Australia, NZ, UK and a few other countries are a flash in the pan or a 'false dawn' according to the FT, and there's more carnage to come.
The price increases are due to a temporary shortage of properties for sale, seasonal factors and a host of other fleeting considerations.
Commercial property in the US is facing a very grim time with some down 45%.
I used to do a bit of property a few years back but got out before the current rout. Following a crash in the property market it's my observation it takes a several years for punters to regain the confidence to get back in.

Here's something from the UK.

BBC NEWS | Business | 'False dawn' in UK housing market (http://news.bbc.co.uk/2/hi/business/8253017.stm)

[Chimbu chuckles]

In the US they have extended and increased the first home buyers tax credit from 8k to 15k and from first home buyers to anyone who wants to buy a house - sound like they think the bottom of the market has been reached?

On commercial real estate they have changed the tax laws to remove the tax burden on refinance - but the lenders are not lending because they understand and fear the potential potential losses in this sector. Why would you refi a debt on a property that may be worth 50% of current book value in 6 - 12 months?

The entirety of the small boost in manufacturing was down to the pump priming effects of the cash for clunkers etc - that has stopped so we can look forward to demand from the US car manufacturers falling in a heap next year - starting soon the US Govt is offering USD1000 rebate to anyone who wants to buy new white goods.

Only a fool would believe the rhetoric coming out of the Govt that the US recession is 'likely over'. If it was they wouldn't be doing any of the above - and the true picture will not be manifest until they DO stop the above.

And the good ship RMS Australian Housing sails on at full steam oblivious to the ice field ahead.

[404 Titan]

Gnadenburg
Just one property in Sydney? Forex gambled with just a "great chunk" of your loan and not the lot?

You are a very conservative investor. Good luck to you. But many pilots would have left you behind this cycle without the benefit of your "financial education" and dogged research.

How is your Hong Kong property fairing? From what I read dogged research would not have have picked the current market gains.
Apart from the places I live in I don’t invest in residential property. The returns quite frankly are crap to my other investments and tenants give me the sh*ts. My parents before they retired had numerous residential investment properties and they got rid of all of them because of the problems they were having with tenants and the lack of legal protection afforded to landlords in most states.

Forex trading has been very good to me. I average a 15 - 20% return most years. Last year it was almost 45% which I used to pay down debt in Australia.

Yes I am a conservative investor and I plan to stay that way by investing my own money and not the banks. I have a number of rules with investing sensibly. My number one rule is if you can’t afford to loose it, you can’t afford the investment. My number two rule is if you don’t understand the investment and the risk associated with that investment stay away.

If some pilots leave me behind, good on them. I couldn’t care less. I don't take pilots financial advise and never will. I dance to my own tune. As long as I am comfortable and in good health and am providing well for my retirement with a sensible balance of investments then I am happy.

[inandout]

CC you are spot on, the W is coming, hold onto your hats.:\

[Thylacine]

W or a zig zag, whatever, it ain't over by a long chalk. The banks are back with their snouts in the trough and excessive executive remuneration for ppp is still alive and well.

For those with the patience, I recommend investing 25 minutes listening to Professor Simon Johnson, currently the Ronald A. Kurtz Professor of Entrepreneurship at the Sloan School of Management at the Massachusetts Institute of Technology,http://http://www.bbc.co.uk/programmes/p00472bj (http://www.bbc.co.uk/programmes/p00472bj)

[Transition Layer]

I'm no expert, but surely this has something to do with Japan's property prices never recovering from their highs:

(from Today's SMH)

http://images.smh.com.au/2009/09/22/747172/world-pop-420x0.jpg

[Mr. Hat]

Crisis is over boys.

Flash in the pan.

(bullet proof vest on for incoming tirade)

[training wheels]

I agree with Mr Hat, crisis over. Again, I have no scientific nor economic reasoning, other than the fact that it took me half an hour to get a parking spot last weekend at Highpoint shopping centre! People are starting to spend again!! (Either that or they were there to window shop :hmm: )

[Mr. Hat]

Our flying has picked up considerably with significant loads.

[ElPerro]

Never was a massive problem as reserve bank(s) looked after the money supply.

Relax... just don't put you money in Telstra as the sovereign risk is too high. Actually don't invest in anything you think the government will decide to "invest in" .

[Mr. Hat]

My only regret is not buying more shares in feb march. Still can't complan the ones I got are lookin good.

[4PW's]

Sell them now, Hat.

Only asset that'll be appreciating is the USD.

Mark this moment in time.

[Mr. Hat]

Yeah they're only a small percentage of assets its all fairly diversified at the moment ome I'm not concerned about them

[Foie gras]

The "GURU" is quoting my "Coffin Corner" theory :-

The Horrible Conundrum Facing The Fed - The Market Ticker (http://market-ticker.org/archives/1467-The-Horrible-Conundrum-Facing-The-Fed.html)

May have to give up my day job??

[Gnadenburg]

Only asset that'll be appreciating is the USD.

Wow! A contrarian, 50-50 call?

Gee there has been some great gains in classy OZ property over the last 12 months. I'd go so far as saying the market is sizzling. Glad I didn't sell when the ppruners told me too....

[The Professor]

The Truth About The Economy : Information Clearing House - ICH (http://www.informationclearinghouse.info/article23620.htm)

These guys are right on the money . . . so to speak.

[breakfastburrito]

Good link Professor. They speak the truth.

[ABX]

Very good, thanks for the link.

[DEFCON4]

Normally your posts are viewed as academic piffle.
The link you have provided is of merit....thanks

[Foie gras]

Perhaps we are sliding off the back end of the curve.
Over did the quantitative easing?
Time will tell.

At the end of the day we have to get back to basics:-

"The only way to increase the MONEY supply is to get off your ass and grow, mine or manufacture something.

Currency (and credit) are abstractions. Gold is "money" but so does a tree that I cut down and turn into lumber - the lumber is, in fact, "money", in that it is the product of an actual endeavor.

We abstract this into currency for convenience but the abstract is NOT "money", irrespective of claimed conversion rights, particularly when that claimed conversion right is only to ONE thing that is actual money. Indeed, such a conversion limitation is in and of itself a further act of fraud."

[VBPCGUY]

VBA share price will go back past .50 cents today:ok:

[tio540]

It is a mathematical fact that 0.25% interest under John Howard is a greater amount than 0.25% interest under Kevin Rudd. The media seems to think so anyway.

[Mr. Hat]

Market dives 100 points this morning - is this the start of the "W" recovery?

[4PW's]

No, it's the start of the third wave.

The first wave (down) began in July 2007, ending in March 2009.

The second wave (up) began March 6, 2009 and ended October 21.

Each turn was noted at the time by way of a complete internal formation.

Wave three (down) will be harsher than the devastation of wave one down.

Whatever...

The world is not ending; that's ridiculous.

But a lot of things will come to end, like the massive debt overhanging the world's economy's. The rush will be to sell assets to cover debt.

Given the lion's share of the world's debt is denominated in USDs, the USD will be in demand.

You pay back debt denominated in dollars with dollars, not oranges or fig leaves...or IOUs on real estate or anything else that has been inflated with credit these last 25 years.

Credit withdrawal is the opposite of credit expansion. The latter is inflation, which has been the buzz word for all assets basis the expanding money supply. The former leads to a deflation of credit, which is the opposite of inflation. We're now entering a deflationary depression. It is inevitable. The US Fed cannot stop it anymore than they could stop Lehman going broke.

[ferris]

On 13 Sep 4PW's said The USD is about to enter a multi-year bull move.

Don't be caught short. Then, again on 26th Sept Sell them now, Hat.

Only asset that'll be appreciating is the USD.

Mark this moment in time.

So, how much money have you actually lost, following your own advice? Perhaps you are not a complete fool- rather a dishonest tout, as in "As these are anonymous forums the origins of the contributions may be opposite to what may be apparent"?

Will be impressive to see the USD entering a bull run while one arm of the government is buying the treasuries another is printing, just so there appears to be 100% take-up.

You keep touting, though.

[4PW's]

I don't think you have the faintest idea of how markets work, ferris. But you do seem to be quite good at throwing barbs.

Making money has never been made simple, contrary to what Noel Whittaker once said. But if one keeps at it, one finds what works and what doesn't.

In both cases, the lessons take time to absorb.

Good luck with increasing your patience and tolerance of the perspectives and opinions of others, and with increasing your own store of wealth, be that in lumber, brains or fiat money.

[boocs]

4PW,

Agreed completely with all comments!
Check this out for further info: HS Dent | Economic Research, Trends, Forecast, Asset Protection (http://www.hsdent.com/)

b.

[Mr. Hat]

Yeah was a decent size drop today. If it does that again tomorrow and the day after I'll sit up.

[Sunfish]

As for the Global Financial Crisis, we have only reached the end of the beginning.

Fasten your seatbelts.

These guys have been right each time since 2006.

English | LEAP/Europe 2020 (http://www.leap2020.eu/English_r25.html)


The major trends at work in the 4th and 5th phases of the global systemic crisis (the decanting phase and the global geopolitical dislocation phase) are unveiling every day (1). Everyone has now realized that the United States is being swept into an uncontrollable spiral involving widespread insolvency of the country and gross incompetence of the U.S. elite in implementing the necessary solutions. The foretold US default is well underway as exemplified by the falling dollar and the flight of capital from the country: only the name of the liquidator and the recognition of the bankruptcy are still missing, but it shouldn’t be long now. Following the example of its leader, the Western bloc (which Japan has undertaken to move away from, implementing completely new political, economic, financial and diplomatic policies (2)), is in total decay symbolized by NATO’s coalition in Afghanistan (3).

According to LEAP/E2020, in 2010, the European Union having four strategic core requirements, will be compelled to take a number of urgent decisions in a context of a fast collapse of the Western camp that could be summed up as the US Dollar’s fate. The decisions taken by the EU will define the role the Europeans will be playing in the post-crisis world: either they start to appear as key-players in recasting tomorrow’s world and bring forward their own vision of the future, seeking the partners they need with no exceptions; or they remain the willing victims of a sinking Western Bloc, blindly following Washington's descent into hell. In the first case, the EU fulfills its historic purpose of restoring the Europeans’ command over their collective destiny; in the latter, it would just prove to be the Western equivalent of the Comecon (4), a futureless appendix of the protective superpower.

Heavy trends are already visible which, according to our team, have began to push Europe in a number of predictable directions. However, the intellectual weakness of Europe’s present political leadership (in the EU and member-states alike) compels us to soften our forecasts.

In all cases, since the EU is the world’s largest economic and trade power (5), the continuing development of these trends will soon impact directly on a large number of major economic, financial, and strategic factors: exchange rates, commodity prices, growth, social systems, budget balances, global governance…

In this 38th issue of the GEAB, besides ‘strategic and operational recommendations to survive the crisis’ and their ‘crisis-related country-risk anticipations for 2009-2014’, our team has decided to analyze these four requirements to which the EU will be compelled to find answers full of consequences:

1. Addressing the failure of the monetary system based on the USD and not becoming helpless when 1EUR=2USD
2. Avoiding exploding budget deficits like those in the US and UK
3. Responding to the aggravation of the Iran/Israel/USA crisis and war in Afghanistan by defining a specific European position
4. Learning to deal independently and constructively with the new key players of the post-crisis world: China, India, Brazil and Russia in particular.

It impossible to envisage waiting later than 2011 to deal with everyone of these crucial aspects (crucial for both the Europeans and the rest of the world). Just imagine what would happen if the Europeans remained passive beyond 2010, while faced with these four requirements:

1. If the Europeans are content to watch the Dollar sink, their exports to the US and the dollar-pegged countries will fall dramatically, exacerbating the economic and social crisis in the EU.
2. If the Europeans, their leaders in particular, are content to let public deficits swell, like France is currently doing, the Eurozone will soon become prey to profound disagreements between Northern and Southern Europe.
3. If European leaders are content to follow the Israel/Washington line in dealing with Iran’s nuclear issue and to fall in behind the Obama administration regarding Afghanistan, they will soon be faced with growing public dissatisfaction which they are not prepared nor in a good position to face, a guarantee of serious political instability in every member state.
4. If the Europeans are content to refuse independently debating the interests they have in common with the Chinese, Indians, Brazilians and Russians, they willingly deprive themselves of any means to bring forward their perspective on the previous three issues, as no significant move can be accomplished without them (6).

Historical change in China-India share of global GDP (1500-2008) - Sources: Bloomberg / Gluskin Sheff - 2009
Historical change in China-India share of global GDP (1500-2008) - Sources: Bloomberg / Gluskin Sheff - 2009
According to our researchers, 2010 is certainly a crucial year for the Europeans and their collective future. The relationship of the EU, and particularly of the Euro, with the dollar will be decisive for the Europeans, as much as for the Dollar and the global monetary order altogether. Not that the Europeans chose the year (2010) or the subject (the Dollar) (the leaders of the Euroland would certainly prefer to go on with their « business as usual »), but History is very ironical in calling the US “allies” bluff: sinking now with Washington or swimming without Washington.

In the image of all the developments involved in the ongoing global systemic crisis, time is going through a process of contraction: events are happening a lot faster. On this subject, we are surprised to hear various « experts » describing Robert Fisk’s article entitled « The Demise of the Dollar » (7) - where the author suggests that the Russians, Chinese, French, Japanese and Gulf oil-producing countries would be discussing the idea of pricing oil in a currency other than the US Dollar within nine years - as eccentric. According to LEAP/E2020, the only surprising element in this analysis is in the nine year delay. In fact, this development will occur much earlier, within two years, under the pressure of events.

In order to realize the extraordinary speeding up of History created by the crisis, let’s remember what kind of a place the world was nine years ago. Nine years ago, G. W. Bush had recently been elected; 9/11 would take place in two years from then; the US were neither stuck in Afghanistan nor in Iraq; Katrina had not yet destroyed New-Orleans; one Euro was worth 0.9 USD; Russia was a country adrift the EU was preparing a constitution meant to be popular; China was a poor international player; the US economy was shown to the world as an example and the United Kingdom was preaching ultra-liberalism throughout Europe; Wall Street’s investment banks seemed invincible,… the list could go on and on. What is highlighted is that each of these events seemed unthinkable to most “experts” just a few weeks before they happened. Therefore it is, in fact, very naïve to consider that it will take nine years until oil is priced other than in dollars, a currency utterly dependent on central banks’ will (increasingly a « bad » will, by the way) to buy, buy and buy more just for the sake of its survival.

As early as the second quarter of 2009, central banks from all over the world undertook to stop accumulating US dollars (dollars accounted for 37 percent only of their currency purchases while they account for 63 percent of their reserves) (8). As early as July 2009, close to USD 100 billion worth of net capital fled the US (9), at the precise moment when the US was claiming to be able to attract more than USD 100 billion a month to help finance the federal deficit (not to mention the other deficits).

In this situation, a fundamental question must be asked: who is really buying these USD 100 billion worth in Treasuries each month? Certainly not US citizens, indebted beyond any reason and left without savings or credit. Certainly not foreign private investors, more and more concerned about the economic health of the US. Certainly not the Chinese, Russian or Japanese central banks, more concerned about curbing their purchases of long-term bonds, and even starting to sell their Treasuries or exchange their long-term bonds against short-term ones. Strangely enough, the Bank of England alone seems to still have this appetite (10). Therefore, we are left we the “usual suspects’, i.e. the Fed and its network of « primary dealers ». “Money printing” is taking place on a far greater scale than acknowledged by the Fed under its official policy of « quantitative easing ».

Change in foreign purchases of Long-Term US securities (1979 – 2009) - Source: Market Oracle / Sean Brodick - 09/2009
Change in foreign purchases of Long-Term US securities (1979 – 2009) - Source: Market Oracle / Sean Brodick - 09/2009
As the US announced a federal budget deficit of USD 1,000 billion a year over the next decade (11), who can honestly believe that the rest of the world would accept nine more years being paid in funny money? Maybe those who found it impossible that Wall Street could collapse in September 2008? Or those who thought Obama would change America and the world (12)? Or else those who persist in thinking that the American consumer will rise from his ashes and fuel the « impossible recovery » (13)?

Unlike last year, no panic will come to the rescue of the dollar. This time, the US currency is seen more as a sham than as a safe haven. Indeed decoupling of the rest of the world (Asia, South America and Europe in particular) is underway (14) and it is precisely the reason why 2010 is such a crucial year for the Europeans. If they don’t do anything about it, the Euro will become a safe-haven currency and it will rise until it suffocates the European economy. The Eurozone must therefore become more aggressive and discuss with the other big economic and financial players how to avoid the Euro soaring against the Yuan, the Yen and all the other currencies of its trade partners.

On this aspect, the EU doesn’t have a choice: it cannot be lasting policy to purchase billions of USD every day that lose value every day as a result of the increasing pace at which they are printed (15). Moreover, the EU is in the strongest position to negotiate with the IMF for the suppression of the US right of veto and for sharing power with the « re-emerging » powers (16).

Relative weight of big players in global wealth - Source: IMF - 2009
Relative weight of big players in global wealth - Source: IMF - 2009
As usual, external events will push the Europeans to act in a united and proactive manner. In the present case, according to LEAP/E2020, the issue of the Dollar will be a powerful stimulus for European action in 2010. History, whose only “sense” is the sense of irony as often recalled by our team, is apparently ready to give the Europeans the role everyone thought would be played by the Chinese…

---------
Notes:

(1) See previous GEABs.

(2) See GEAB N°37 on this subject. Their radical monetary policy change is itself the hardest blow cast on the US Dollar and T-Bonds on the part of a decade-long “ally”.

(3) From the Netherland to Germany or Italy, NATO countries involved in the Afghan conflict increasingly state their desire to disengage from Afghanistan in 2010. Meanwhile Japan has announced it would freeze all logistical support to the coalition.

(4) An organization of mutual economic assistance led by the USSR, the COMECON was disbanded two years after the fall of the Berlin wall. Source: Wikipedia

(5) The EU is also the only economic power with a currency likely to become an alternative to the US Dollar. It also owns the world’s largest USD-denominated reserve assets and the largest gold reserves, and doesn’t depend heavily on the US consumer for its foreign trade. Caught in an impossible situation, the EU is a very powerful player which became, this year, the world’s richest region, ahead of North America. Source: Bloomberg, 09/15/2009

(6) Clearly remarked on by Barack Obama in declaring the end of the G7, and as illustrated in the chart below. In effect, not only has the Sino-Indian partnership seen the share of world GDP increase by almost a third in 10 years but, in the long term, leaving apart the last two centuries, these two countries have generally represented almost 50% of the world’s wealth. It is difficult for the Europeans to “finesse” this « hard fact ».

(7) Source: The Independent, 10/06/2009

(8) Source: Bloomberg, 10/12/2009

(9) Source: ShockedInvestor, 09/16/2009

(10) Considering the state of UK public finances, it cannot be of great help to the US. Indeed the Tory party seems ready to play the role of the IMF with its programme based on severe public spending cuts, while Gordon Brown is selling the State’s “family jewels”. Sources: BBC, 10/06/2009; BBC, 10/12/2009

(11) Most probably, these estimates are much less than reality as they are based on the federal government’s own growth forecasts. Source : US Congressional Budget Office, 08/2009

(12) Obviously, there are still a few, for instance in the Norwegian snow, among those responsible for awarding the Nobel Peace Prize.

(13) See GEAB N°37

(14) See « crisis-related country-risks » anticipations in this GEAB N°38.

(15) This is exactly the message Japanese citizens sent out when they voted for a radical change of power in Tokyo a little more than a month ago.

(16) For those with some knowledge of History, it is quite difficult to call China, India or Russia « emerging » powers.

Vendredi 16 Octobre 2009

[bubble.head]

Something I thought it is interesting to share.

Debt Clock Australia (http://www.debtclock.com.au/)

How much is your share...?:mad:

[Pindan warrior]

In a statement this morning, Sun 8th Nov09, British Airways posted a loss before tax of £292m (€325m) for the six months to the end of September.

This compares with a profit of £52m (€58m) in the same period last year and includes the airline's first April-to-June loss since privatisation.

A small example of the bigger problem, clearly still a long way to go before things settle down

[Mr. Hat]

flip sde of the coin..


Emirates reports surging first-half profit, predicts demand recovery in 1-2 years

Emirates appears to have flown untouched through the industry downturn, reporting a AED752 million ($204.7 million) profit in the fiscal semester ended Sept. 30, more than double the AED284 million earned in the year-ago period.

"Emirates remained focused on its long-term strategy despite the global economic slowdown. We have continued to invest in our eco-efficient aircraft fleet, in strengthening our global route network and also in supporting the infrastructure for our growing business," Chairman and CEO Ahmed bin Saeed Al Maktoum said. "Unlike others in the industry, Emirates did not cut back on its product, service or people. Instead, we invested in these areas and looked to our people to develop ever more innovative ways to manage costs, improve efficiencies, reallocate resources, and drive alternative strategies for the business."

EK added eight aircraft and two destinations (Durban and Luanda) during the semester and now operates 139 planes to 101 destinations. It plans to take 10 additional aircraft before the end of its fiscal year on March 31. It said it raised aircraft financing of AED3.3 billion in the first half.

Six-month revenue fell 13.5% year-over-year to AED19.8 billion, which EK said was a reflection of "lower passenger and cargo yields." Expenses sank 15.8% to AED19 billion. Traffic measured in RPKs rose 21% against a 22% increase in capacity that dropped load factor 0.8 point to 77.5%. Cargo carriage was "in line" with the year-ago period.

Al Maktoum said, "We expect it will take at least another year or two before demand for air transport and travel services starts picking up again. In the meantime, Emirates is well-placed to weather the rest of the storm."

Yesterday the airline announced a 13% increase in seat capacity to the Asia/Pacific beginning next month, comprising a fourth daily service to Bangkok, a third daily to Sydney, the 13th and 14th weekly flights to Manila and an 11th weekly service to Jakarta.

"Asian markets are rebounding with reports of resurgent traffic at key airports in the region. We are confident of seeing a recovery soon and are introducing additional capacity to serve the increasing demand," Senior VP- Commercial Operations-Far East and Australasia Richa

[FFG 02]

Mr. Hat,

Check out the middle east forums and see the pilots take on Emirates profit.
Makes for interesting reading!

[ferris]

As someone who "has no idea how markets work", I'm just wondering how that USD bull run is going? You haven't touted the USD for a few weeks now, 4PW's. We should be due another effort any minute, right?

http://www.theage.com.au/business/between-parity-and-a-hard-place-20091113-idpm.html

A few expats might be considering their options more closely as the USD sinks.

[Foie gras]

Sorry to regurgitate the subject, but bad vibes suggest that the "Crisis" is not that far away, and most certainly IMMINENT.

The Mad Monk's mate Barnaby, wasn't half wrong recently, when he made public the fact that the US could quite easily default, creating global financial Armageddon. Subject went pretty quiet after everyone came down on him like a ton of bricks!
Obviously.
We don't want to create a panic.
This is serious ####!

Maybe we have been focusing on the US too much.
What about the EU?
Have a read of this report from a Russian political commentator:-

Eurasian Home - Opinion of Boris Kagarlitsky: Default in Europe (http://www.eurasianhome.org/xml/t/opinion.xml?lang=en&nic=opinion&pid=1498)

In these uncertain times, preparedness is an absolute.
For that reason why not order something like a chook tractor for Christmas.
eg.:-

McCALLUM MADE Chicken Tractors (http://www.thechickentractor.com.au/)

[hongkongfooey]

Only 2 weeks of 2009 left, not looking good for the " another crash by the end of the year " experts :hmm:

[teresa green]

Not much fun out there is there. Yet another warning of another crash, meanwhile the butterflys are getting seriously involved with the frogs, all the aircraft will have to be fitted with floats, you will need a boat to get to work, the whole bloody box and dice is about to fall on our heads, and that is just today! I don't think I will be too sad to head off to that crew bar in the sky, and watch the fun below!:)

[training wheels]

Some good news to lift everyone's spirits;

Qantas shares jump on profit forecast (http://www.theage.com.au/business/qantas-ramps-up-services-as-outlook-brightens-20091221-l8hl.html)

:)

[4PW's]

2010 is the year to be safely out of stocks, out of debt and into cash.

Which currency? USD, NZD or SGD, but not the Aussie.

It's kind of amusing in a way to read how a sceptic of the current thinking, be it AGM, Swine Flu or the accepted wisdom pertaining to the direction of stocks, currencies, bonds or real estate is said to be a pessimist.

Anyway, roll on.

[Gnadenburg]

I reckon the $AUD has a bit left in it. I went in again at 88 cents with debt.

I have also bought a couple of residential properties- one international and one in SYD. Wouldn't mind buying in on some speculative oil shares all my pilot mates are in on. Dunno. Being pretty cautious.

What are the doomsayers doing? Sleeping on their cash?

[Hempy]

What are the doomsayers doing? Sleeping on their cash? mostly this (http://www.longwavegroup.com/publications/special_editions/2009/pdf/091222_Dow1000.pdf)

So there’s what I think are pretty compelling reasons for Dow 1,000. I challenge you to give one good reason why that target is ridiculous. By the way, “This time it’s different” or “the Government and the Federal Reserve know what they are doing” receive an ‘F’ grade.

We are not oblivious to the meaning of Dow 1,000. After all, our work on the Kondratieff cycle has long forecast the winter depression brought about by too much debt. We don’t take any pleasure in making these forecasts. We know that if they come to fruition many people will be financially destroyed. Such destruction will wear heavy on personal relationships and on people’s health. It will engender massive anger from those who have been dispossessed of their wealth and livelihood. We don’t want it to happen but we are frightened that it will. So far everything that we have anticipated through our knowledge of the Kondratieff cycle has happened. The future looks particularly bleak

[Capt Kremin]

Maybe this is what concerned 4PW. It sure as hell concerned me...

Global Financial Crisis (http://www.smh.com.au/business/call-that-a-crisis-stand-by-for-the-worst-is-yet-to-come-20100108-lyzc.html)

[Wiley]

Which currency? USD, NZD or SGD, but not the AussieApart from the obvious "If China sneezes, Australia catches pneumonia...", care to elaborate on your unease re the AUD, 4PW?

[ferris]

If you look back thru the history of this thread, 4PW's has made a complete arse of himself as he spruiked the USD. Still spruiking- and the AUD is up thru .93 today.

He must have lost a fortune so far. In fact, you could've MADE a fortune if you had done the exact opposite of his advice.

[4PW's]

Go easy, muscles. Don't take yourself so seriously. This is a forum, not a boxing ring.

I've got time off soon, so perhaps I'll have time to lay out a few lines on why this and why that.

The end of the world is not nigh.

[Gnadenburg]

"If China sneezes, Australia catches pneumonia..."

My haven't things changed. And I bet when it does, the indebted citizens of the Lucky Country will have India come on line as a big buyer.

[Gnadenburg]

He must have lost a fortune so far. In fact, you could've MADE a fortune if you had done the exact opposite of his advice.

The doomsayers have a valid point of view. There are many problems.

However, what I find with many pilot doomsayers, is they subscribe to one author such as Harry Dent or depression2007.com and use it to validate their neutral or do nothing approach to investing. And when property or shares come off 30% they still do nothing- because they are waiting for it to drop further.

[4PW's]

Much has been made of market calls. Littering this thread like rubbish are demands for explanations to why this and why that. Holding hands with these demands stand comments that amount to nothing more than derogatory character assassination. There is also the smell of fear.

My response doesn’t hope to answer or assuage any of that. I am responding because I am responding. Make what you will of that. My perspective is my perspective. It needs no justification to any but my own financial account, an account that showed great losses in its early life circa 1995.

So how to add to the sum of knowledge, then? What can I possibly write that can be of any use to anyone? Perhaps I could start and end with a truism: emotions rule markets. Wow, what a revelation. But how you measure emotion, if you agree emotion rules markets, is therefore important.

I use a lens that acts as a microscope for the close-in work, and a telescope for long range forecasting. The lens is the lens. It has to be appreciated for what it is, a lens. It is not the market. It allows me to observe the market, focusing on what the herd’s emotions indicate as the next probable move - up or down. But that’s a critical word, probable, for nothing is certain in this realm. Which is why one must appreciate that a lens, be it one whose roots are of a fundamental or technical nature, requires more of a person than mere possession.

More ‘than just a lens’ comes in the form of a trading plan, and guts.

You need to know when to trade or you might as well just throw darts at a board. For what it’s worth, my trading plan has a lens that demands action in three instances, and three instances alone.

The trading plan itself can be broken down to three parts as well. Only three? Why not. Good things are simple things. There’s no need to rely on four or five or 15 or 22 parts. Just three will do; a market tool (the lens), money management and a psychological approach to complete the trio.

Money management isn’t difficult to describe. It’s a plan or system for containing losses (and letting profits run) through effective management of actions, limits on capital application and stop loss positions.

What I see through my lens is not always interpreted correctly for the time frame being worked on. If the market tool says buy for the medium term, the short term may prove that to have been a ‘not yet, sucker’ signal. That’s not to say the market tool was wrong, only more complex than my interpretation of the lens indicated. If the immediate movement has gone against you, there is an urgent need for an objective price at which interpretation is absolutely wrong. That’s money management. That’s also when you get out.

MM tells you never to risk more than a specific figure on any position. This may be as low as 2% of your capital on hand, which may limit access to many, many leveraged markets. So suck eggs from the sideline. Or get a job with Goldman Sachs. Meanwhile, limiting access to a market is not the big deal. Ensuring an ability to stop losses immediately when interpretation of what the lens indicates proves to be wrong is. Hence the need for a maximum of 2% capital application to a position.

Bit too esoteric? Hey, I’m doing the best I can here. Moving right along: An individual should not hold onto a position to ‘prove’ he or she is right. That would be counter productive. But, oddly enough, it’s not uncommon, which leads me to the psychological approach, the last but by far not the least of three pillars supporting success.

Why buy real estate? Why trade leveraged instruments? Why save money in a low interest bearing deposit account? We do these things for a reason. What that reason is bears investigation. If you’re doing it for accolades from the digital reproduction of thoughts (hailing from anonymous sources, of course) in a chat-room like this, you definitely need to know that is the reason for your decision to enter your specified market.

You need to know for one reason, and one reason alone, which is to limit losses. When do you exit or enter or hold onto a position? When a well liked contributor on PPRuNe says so? If your psychological reasons for trading, saving money or buying real estate are based on approval of a chat room audience, that chat room audience’s approval will guide you into ruin. Fast. So good luck. Market Wizards, by Marty Schwartz, is a frightening account of how destructive an untamed psychological approach can be if not fully understood.

On the other hand if you know you’re in it to make money and not to brag about it to friends, colleagues or digital reproductions of thoughts (hailing from anonymous sources, of course) in a chat-room like this, the only thing that matters is cutting out of a position should it be unprofitable. This you would do for the psychological reasons underpinning the trade, that being to make money, not hot air.

So there are three pillars: market tool, money management and psychological approach.

Of the USD, there is a very high probability in the medium term that a major reversal in trend has occurred. The sideways movement of the past year, of which most are aware of only one part, the down part, appears complete. The last leg took a long time to play out.

It confused a lot of people, me included. It tried many a person’s patience and savaged perhaps more wallets, but the probability is that the bottom is in on the USD. If that is correct, my lens allows for a multi-year Dollar bull to surge out of the pen.

But I am asked WHY the Dollar rally. Here’s what may be a clearer answer than the above slightly cryptic one. It comes in the form of one word: securitization.

In 1999, normal banking blended with investment banking. What started out in the good ol’ USA quickly went viral, global. The reason is not in any way complex. It’s because Wall Street wasn’t making enough money, bound as they were by the straight jacket of regulator-imposed capital ratios, by borrowing short and lending long, that is, regular banking.

So, with some tricky footwork, main street banks thwarted capital ratios via the creation of the shadow banking system. Australian banks are exposed. The big-four hope to fool everyone into thinking they’re not exposed, but they bought into CDS’, CDO’s and all the other exotic instruments created at the beginning of this decade (we’re not done with the decade until the end of 2010 by the way).

At any rate, the shadow banking system has not shrunk since the big rally in equities circa March 2009. On the contrary, the system has gone further underground and, indeed, grown exponentially. Which is to say that of the 60 trillion plus, yes, that’s trillion, dollars in credit default swaps and collateralized debt obligations created by the former Lehman Brothers and the current Morgan Stanley, Goldman Sachs et al market wizards, none of it has been cleared. NONE of it.

De-leveraging is now the operative word.

Martin Wolf (FT), Bill Gross (PIMCO) and yes Ambrose Evans-Pritchard have been blowing on that trumpet for some time. Few listen. Those who hate the tune attempt to belittle and discredit those that hear the music and fear it. Wolf, Gross, EP are referred to as pessimists. And here’s the irony of it all. They are learned, studied, immensely well read and connected individuals with pedigree! They are anything but pessimists. They’re realists, critical analysts who have not allowed their critical faculties to just tune out because the herd says we’re done with that annoying retraction of ever-upward growth.

The tune will play. As it does, the instrument demanded in return for assets requiring selling off are not apples, woodchips, pens, trinkets, promises, IOU’s or even a fine piece of ass. The instrument will be dollars, for the world’s massive overhang of debt is denominated in USD. It is for this reason, this FUNDAMENTAL reason, for the Dollar rally.

Don’t be fooled. While the US Fed has been busy buying Treasuries and printing money via quantitative easing, the amounts they’ve come up with have not come anywhere near the overhang of debt out there. What’s a few trillion to what is a minimum of $60 trillion in debt? You need to really think about those figures. As for me spruiking the USD, all I can say is tell him he’s dreamin’. That’s so ridiculous it’s laughable.

But if you need objective proof of that, go to the library and hire the tome that is William Greider’s ‘Secrets of the Temple – How the Federal Reserve Works’. Or buy the book. Far from being a Dan Brown look-alike, Greider is a consummate professional leading you through history, and reality, of meetings and the results of actions by the Fed to try and control the direction of their currency, the USD.

To wit, no amount of money is enough if going against a market as big as the currencies market. No matter if you are the Fed, the Bank of Japan, the ECB or have four Pratt and Whitney’s at your disposal: if the market decides the Euro will cave, the Euro will do just that. If the market decides the Dollar will rally, the Dollar will do just that.

Which makes Thomas L Friedman so ridiculous when he asks in today’s IHT if China is “the next Enron”. There he is, giving advice to James Chanos that you should ‘never short a country with $2 trillion dollars in reserves’. He failed to mention the daily, that’s daily not monthly, amount changing hands in the Forex market is in excess of that whopping reserve. Or that he is not John Chanos.

If I’m going to drop names, I might as well end by dropping another. Jaron Lanier is a digital pioneer. He too comes with pedigree. Lanier is the guy that coined the phrase ‘virtual reality’. I think that qualifies him, somewhat, to speak of the Web. So here’s the thing: he wonders “if the Web’s structure and ideology are fostering nasty group dynamics and mediocre collaborations”. I wonder about that, too. I wonder about the application of such to PPRuNe. In Lanier’s new book ‘You Are Not a Gadget’ he blames the Web’s drive-by anonymity for fostering vicious pack behavior on blogs, forums and social networks.

I read most of that in one of those paper’s you find yourself reading. The writer is a New Yorker, John Tierney. Look him up. He’s not bad. The article reminded me of this thread, and how a mere OPINION of mine on the likely direction of the USD led to manifestations of pure hatred in private messages from someone I don’t know, have never heard of or spoken to, and yet thinks he has the RIGHT to send vitriolic bile my way, your way, any way, because of my temerity to dare post a one-liner here, in the most hallowed sanctuary that is PPRuNe, indicating the likely movement of the USD.

The bottom is in, at any rate. The lens I use indicated 74 on the Dollar Index. The market stopped dead at 74.2 and has rallied ever since. The likely direction is short term sideways, medium term up (way up) and long term down (way down). Whatever.

If your (active) interest is real estate, bonds, equities or securities, it can only be but patently obvious that the terrain is not always friendly. If you are yet to dip your toe in the waters of finance, do say carefully. And good luck with your learning. Don’t be put off by the mosquitoes that need swatting every now and then, or by the rather long time it takes to truly understand the meaning and essential value in the strength of having three very solid pillars to your trading foundation.

Buy dollars, sell China (medium term, not long term).

With respect to Gnads.

[CHAIRMAN]

What's the cheapest way to buy USD?
BTW - my gut cunning instinct tells me you're right!