Flation wars

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–Hmm, so gold took a tumble from its lofty heights. And markets in the US didn’t look too much better. Europe was ok though.

–But what’s changed? Have people forgotten that the world is about to be flooded with the “full faith and credit of the US government”? (That’s the text printed on Federal Reserve Notes, which the US government has declared to be legal tender). Perhaps people would prefer J.F. Kennedy’s silver backed dollars, which were quickly taken out of circulation by the Federal Reserve after his assassination. With them, we’d be on a sound money footing, which makes sound investing a lot more likely.

–Maybe the “awwww” part of the “shock and awe policy” has set in, as discussed yesterday. QE1 didn’t work, why should 2 do any better? Not that it won’t do anything.

–But how does frying bigger fish today sound to you?

–Lets take on the decisive question. The mother of all queries. The game-changer of all known unknowns: inflation or deflation? Better known to your editor as the ‘flation wars’. That’s the big one, dear reader.

–Those with a shred of credibility post GFC are the ones who predicted it. But they are far from the monotonous bunch you’d expect. And the ‘flation wars’ are where they really come head to head.

–You see, anyone outside the mainstream could predict a crisis was around the corner. Simply by being different, that is. It’s an inherent contrarian characteristic. Some contrarians fancy themselves as a modern Galileo or Luther. Sometimes they turn out to be more like the people you see walking around in circles outside our office, muttering to themselves. The point is that being correct isn’t the same as being right. Seeing something coming doesn’t mean your understanding of why it’s coming is correct.

–So you have to dig down deeper to discover who has a more sound theory. Track records aren’t everything. But they do matter, so let’s narrow the ‘flation war field down to some of those left standing after 3 years of hullabaloo.

–Hold on. It’s probably best to frame the battlefield first. Sun Tzu would approve. We live in a highly leveraged world with an audacious academic in charge of the most important central bank and a community organiser in charge of the most important economy.

–Two of those three facts favour the inflationists. As Marc Faber often says, simply look into the eyes of Bernanke, Obama, Geithner and advisor Summers and you can conclude nothing but inflation to come.

–The deflationists, notably Robert Prechter, think a repeat of ’08 is in the cards before any inflation can really appear. That’s because the world’s leveraging troubles aren’t solved. And interest rates can only go up. So, even if inflationists are correct initially, the inevitable increase in nominal interest rates will trigger a crisis, which means deflation. To put it plainly, any inflation will trigger deflation anyway.

–A mental image might clarify things.

–Imagine a tug of war with Bernanke and the entire Obama administration on the inflation side, with the private sector (importantly including banks) on the deflation side. Yes, the banks are involuntarily on your side for this one. The question is which side will outweigh the other.

–Deflationists would contend that the private sector has jumped off a cliff without letting go of the tug of war rope and Bernanke and Obama will be dragged down with them. Inflationists would argue that Bernanke has tied a helicopter to his side of the rope and plans to lift everyone into the skies, cliff or no.

–It’s a power struggle. The problem is that half of it is a political one. And politics doesn’t conform to the usual laws of economic theory. That leaves analysts like us with a problem. Austrian Economics believes in an inherent logic to all actions. Not that the logic is often decipherable to the observer. Bernanke’s certainly isn’t. But even he acts based on incentives. The question is, what are they?

–To paraphrase a congressman during a recent hearing, “We do not question that you are working hard. We question who you are working for.” The obvious answer is that Ben Bernanke is working for Ben Bernanke. But what is the highest bid in that auction? The fulfilling reward of putting the economy back on a sound footing? Not likely.

–So what side do you take as an investor on the battlefield of the ‘flation wars? Precious metals and commodities generally signal inflation. But when things reach all time highs, it’s usually not the best time to join in. It seems like an amateur mistake to do so.

–So how about you just sit it out for a round and watch the carnage unfold – to the upside or downside. But where? Bonds aren’t risk free (don’t believe your economics teacher). The Aussie dollar isn’t too bad, but it seems like a small fish in a big, big pool and US investors will determine investment trends to come. They can’t stay in US dollars if inflation takes hold, so that isn’t safe either.

–The logical place to turn to if nothing seems appealing is liquidity. Keep your portfolio dynamic so you can move fast as things play out. Talking of fast, dynamic and responsive, did you see this yet?

Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
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Comments

  1. “The logical place to turn to if nothing seems appealing is liquidity. Keep your portfolio dynamic so you can move fast as things play out. Talking of fast, dynamic and responsive, did you see this yet?”

    So Nick recommends being highly liquid, fast, dynamic and responsive – Sounds like a recommendation for dealing with an economy that has diarrhoea to me?

    Reply
  2. “Talking of fast, dynamic and responsive, did you see this yet?”

    _Must_ have been fast. I never saw it. Did you?!~

    Reply
  3. Faster than a speeding bullet our Nick, Biker! ;)

    Reply
  4. Could this have been the article Nick omitted to link to in haste after it inspired thoughts of “liquid, fast, dynamic, responsive”? :

    http://www.smh.com.au/lifestyle/lifematters/conception-chances-magnified-by-giant-sperm-20101110-17npa.html

    Reply
  5. Well, Nick certainly has lots of character, Ned. I guess he’s the third specimen?!~

    “Keep your portfolio dynamic so you can move fast as things play out.”

    Never was one to put all my eggs in the same basket, Ned… but these daze it’s getting harder to even locate the basket… . ;)

    Reply
  6. Old bulls ‘n young bulls Biker; Keep poking around patiently and you’ll probably locate the basket??? :D

    Reply
  7. Hope so, mate!~ It’d be a terrible thing to misplace it permanently!!!~ :D

    Reply
  8. Along Ned’s lines about taking gift trading profits those UUCP calls might be a sell within days rather than the many months like last time. There always seems to be an Ireland problem immediately following a US QE and as the EU banks own the majority of the EU bonds who knows? Maybe the timing of EU sovereign near default events is not as random as we might think. You can’t expect the EU to lay down dead in a ‘beggar thy neighbour war’ can you? Mr trader Prozac what do you think?

    Today Brazil called for the G20 to debate the USD to be replaced by a basket currency as the global reserve for international trade (no AUD mentioned in it). Traditionally the Chinese and Australians (who recycle and wash the dirty devalued USD’s between them) would not support that.

    It would be noteworthy if DR and any of the brains trust put its mind to the current state of politics for significant or representative countries on the USD as global reserve currency. One of the questions would be: has there been any change? Would Mahatir’s capital control scenario be any different today due to more trade engagement with China (as a case in point for developing export countries pinning themselves to the USD)? We know what Brazil thinks but they are more pinned to the US.

    As a side issue I have long been interested in the delta between the AUD and CAD (due to CAD’s distinctive relationship & crossborder trade with the US vs commonality as commodity currency plays). I went long into Viterra to play soft commodities on one side vs that currency scenario on the other. So far I’ve been thumped on currency but am more than covered on share price gain derived from the soft commodity inflation and investment interest. I am however looking for the double bumped top.

    Cuedos to watcher7 on the second half’s market movements. He’s on track. Thank the lord for the AUD marker saving my backside.

    I’m still deflation followed by inflation though and we have divergence between whats happening on US main streets suporting my view and what’s happening in the markets supporting watcher. Interestingly in Germany it’s going watchers way on both even given EU sovereign problems.

    Back to the book for me.

    Reply
  9. The days of the USD as the major global reserve currency will come to end eventually Ross. With it being pretty obvious that the US’s quite dominant role in the world is in decline.

    A basket of currencies might have interim merit. But given that they are all fiat, they are all fundamentally untrustworthy.

    I’d like to hear the idea of a basket of commodities discussed more – Not sure how it would work?

    But ultimately sovereign entities can always default regardless of what supposedly backs their currency. So none of them are really ever going to be any better than their economy and others expectations that they’ll handle same responsibly. It’s just not that much different to a small business choosing who they would and wouldn’t extend credit to in the days before everyone had credit cards perhaps?

    As to the present, and China and the US in particular, and the future, if the US continues to see relatively low growth and China continues to see relatively high growth, the Chinese economy will eventually be bigger than that of the US – So why would China get especially upset and actually rock the boat? As opposed to having a bit of a reciprocal moan back about how they are being shafted along the way I guess.

    Reply
  10. The rise and rise of the pharmaceuticals might yet be the saviour of the US economy, Ned. The potential for healthy longevity is virtually untapped.

    If we imagine this to be an optimistic view, let’s temper any pessimism with the certainty that we really can’t take it with us.. . :D

    Reply
  11. I’d imagine the Chinese unis will start getting heavily into pharmaceuticals related courses one day Biker (assuming they don’t already which would seem unlikely!?) – And especially if they reckon there’s a buck to be made in it.

    Plus if one has a few trillion in reserves, one can possibly even buy up some existing companies ‘n patents to give one’s fledgling industry a help along??? Plus they are in the interesting situation of being able to potentially bring a long history of alternative treatments into the mix. With not all of them being quackery is my guess?

    Then again developing nations can also be pretty practical about health care for their own. It’s my understanding that the Russians crunched their numbers a few years back and figured it was cheaper to let HIV positive types croak than to treat them. Though they continued to give handouts to really poor countries to do a bit of the same. To keep up appearances would be my guess.

    Reply
  12. As with all technologies, there’s bound to be some misappropriation, Ned, but it may, as you say, be easier to simply buy the US company and then own the patents, anyway.

    The US probably missed the immense opportunity to dominate alternative energy markets, being so petroleum-focussed. Wouldn’t be at all surprised if they gave away their lead in biotechnology!~

    Reply
  13. Ned here is an article about renting out a home that WAS a principle place of residence then rented out for 4 years.. The reader asks about capital gains tax..

    Capital Gains Tax is payable even though the owners were away from the home for less than 6 years..

    http://www.theage.com.au/money/investing/fractions-reap-rewards-20101108-17jpt.html

    Stillgotshoeson
    November 11, 2010
    Reply
  14. Still a better option than selling it to a grumpy bear, Ned!~ :D

    Reply
  15. From your link Shoes: “We purchased the house in June 1988 on 650 square metres and lived in it for 18 years as our main residence, then bought an unrenovated property and completed renovations, extensions and resubdivision with an adjoining property, so it is now an 800-square-metre lot.”

    With a pretty key word there being ‘resubdivision’ is my guess.

    So it was far from a simple case of them renting out their original home property for under 6 years. I’d have to check the details, but it is my recollection that if one even subdivides their original property and sells the bit of land that has been subdivided off, one gets into a tangle regarding CGT that most people probably wouldn’t expect.

    Reply
  16. Did I ever tell you about my HIV test Biker? Turned up at the doc’s for the verdict – Doc announces: “Well, THAT’S a positive result!” Hmmm – A doc with a sense of humour can be an over-rated experience on occasion. :D

    Reply
  17. But I recall that your original supposition was that a young FHB couple who could not keep up repayments were better off renting that property out and moving back in with M & D; rather than taking a loss, wasn’t it, Ned?

    Shoes was correct that CGT would be proportional… but that’s a better move than a.) letting a bank sell it off; or, b.) selling to an investor hovering overhead, all vulture-like… . ;)

    It’s our view that the live-in-it-six-months-rule was devised to permit anyone later caught out by unemployment, rising rates, marriage-demise, etc., an escape route. Nice bit of policy, IMO. :D

    Reply
  18. Do you happen to know the period a FHB is required to live in a property minimum before they can rent it out re avoiding getting caught up in having to pay back the grant money? (I don’t but certainly wouldn’t just assume it is 6 months.) Then I’d also be wanting to know about what (if any) implications are there regarding the wavering of stamp duty on purchase. Plus implications re any of the ‘extra’ grant money I think some states were handing out.

    It’s quite doable is my understanding, BUT, as stated, one would have to do their homework and/or get good advice to be sure they didn’t get caught by any one of a number of possible traps.

    Reply
  19. My understanding is:

    a. six months
    b. no stamp duty was payable for FHBs in WA (other states???!~)
    c. no idea if the six-month provision applied to shared equity.

    Reply
  20. We can expect to see a minor jump in the market when the first four-year FHSA periods mature; although only 20% of those eligible have applied.

    Reply
  21. Comment by Biker on 11 November 2010:

    My understanding is:

    a. six months
    b. no stamp duty was payable for FHBs in WA (other states???!~)
    c. no idea if the six-month provision applied to shared equity.

    In Victoria it is 6 months
    New homes are stamp duty exempt but not existing dwellings
    no shared equity schemes here..

    I agree with Biker in that it was an “escape” clause.. I personally view the whole FHB scheme as wrong, however that is probably the “best” bit of a flawed policy.

    I might be a property investor soon… Looking to buy a house with my super.. 60%/40% split.. Using funds from my SMSF and loaning the SMSF the other 40% from my capital at 7.5% Interest only
    $300000 from my super. $200000 from me for the house. Super fund pays me $15000 a year.. Estimated Rental $21000 pa for the property. Have submitted an offer, waiting for a reply.

    Stillgotshoeson
    November 11, 2010
    Reply
  22. Comment by Biker on 11 November 2010:

    We can expect to see a minor jump in the market when the first four-year FHSA periods mature; although only 20% of those eligible have applied.

    There has been such a small take up on this I think there will be no impact seen from it.

    Stillgotshoeson
    November 11, 2010
    Reply
  23. “I personally view the whole FHB scheme as wrong, however that is probably the “best” bit of a flawed policy.”

    Disagree. The best aspect, for Aussies generally, was that it emptied the tenant pool. Prior to that, I was continually interrupted in my soakwell-digging, half-a-dozen times a day, by prospective tenants _pleading_ to take one of our new rentals, four of which were surrounded by sandy wastes!
    In 33 years renting out homes, we’d never witnessed such desperation for rentals. After two years of FHOGs, that pre$$ure disappeared… .

    If that had been the only positive outcome of that very successful government program (many programs weren’t!) it would have been worthwhile (for Aussies, generally. It was all down$ide, for us, personally. :D )

    We don’t regret the loss of (many tens of) thousands of dollars.
    It was one of Labor’s major achievements… and to this day, they haven’t publicised its incredible success. (Considering their string of abject failures, this is incomprehensible… . ;)

    Reply
  24. Congratulations on your potential acquisition, Shoes.

    FHSA: “There has been such a small take up on this I think there will be no impact seen from it.”

    We believe it will reduce supply in Perth, currently running 4000+ above average, at a time when demand is increasing here.

    May affect the east coast marginally… .

    Reply
  25. Comment by Biker on 11 November 2010:

    “I personally view the whole FHB scheme as wrong, however that is probably the “best” bit of a flawed policy.”

    Disagree.
    It was one of Labor’s major achievements… and to this day, they haven’t publicised its incredible success. (Considering their string of abject failures, this is incomprehensible… . ;)

    The incredible success side remains to be seen.. with 50% of FHB’s suffering financial stress and rates tipped to rise even more this may well turn out to be a disaster.

    The home in question is a 4 bedder 2 bath room BV on an elevated block with views to the CBD. 1/2 acre block sloping toward road. When it was built the ground excavated for the building was placed in the back yard to level it out.. Front yard slopes to road.. Backyard is quite flat. DBL Garage under house with workshop and Rumpus Room with built in bar.. small door leads to under house storage (currently used as a cellar) Built in the early 70’s. Still original inside (new carpet/paint) however bathrooms/Kitchen/Laundry are all original laminated bench top affairs.. no ceasar stone tops here.. Kitchen bench tops are a Yellow colour with Chocolate Brown tiling on the walls.. you guys probably no the sort.. about 2″ x 2″.. Bathroom/Laundry tiles are the same size but “royal Blue” I think was the colour terminology for them back then. With an updating/refurb it would probably fetch more in the future.. Is very liveable as is… Workshop has a sink area with hot and cold running water.. could probably get a shower down there with out too much difficulty.

    Stillgotshoeson
    November 11, 2010
    Reply
  26. The house is not officially on market yet.. Owners are parents of children at my childrens school.. They are building a 70 Square house on a 10(ish) acre property..
    They have gone over budget and have decided to sell earlier then planned to fund the finishing of the property and give them funds to rent for 6 to 12 months whilst they complete the new home.

    Stillgotshoeson
    November 11, 2010
    Reply
  27. Sounds ideal.

    One of the benefits of this kind of project is doing an upgrade yourself, at your own pace; or finding a top tradie: honest, skilled, and who values his/her reputation. We have found such workers. We no longer allow our two agencies to send in their ‘own’ people, who provide a percentage back to the agent and charge 30 – 50% more. We now have a data base of preferred repairers: sparkies, plumbers, painters, etc. We’ve reduced maintenance costs by well over 30%.. and there are never any arguments about faulty workmanship, warranties, etc.

    It’s only in the last decade we’ve seen a need to do this.
    It has certainly paid off.

    Reply
  28. A friend is a chippie another is a sparkie.. I would not be in a hurry to do anything anyway…

    Stillgotshoeson
    November 11, 2010
    Reply
  29. FHOG – It pushed prices up. And while the guv knew it would, I fully expect they underestimated the effect. Given that they almost certainly expected declines due to higher unemployment to offset at least some or all of the effect. With such declines in employment never really eventuating of course.

    Which leaves the RBA to try and clean up any potential fallout. By leaning against house prices while hoping and praying the anticipated minerals boom goes ahead. Until such time as they suddenly find they don’t want to be leaning against house prices any longer. Because a significant downwards correction in them is something they have no interest in seeing either.

    It’s all a bit of a mess for mine. But the world economy generally is. So if we can hang in reasonably well, we should just be happy chappies collectively I guess.

    Reply
  30. “FHOG – It pushed prices up.”

    May well have, over there, Ned.

    We know of not one WA family who bought an _existing_ house.
    We know there were many hundreds who took the full $21K and built near our projects during that two-year period. We do not know any experiencing difficulties… but it’s a high-waged, full-employment beachside community.

    Another peripheral benefit was the spur to construction in WA.

    My own view? Happy ending*. :D

    * Sorry if that offends anyone… .

    Reply
  31. I’m bearish so would question your timing a bit Shoes. But timing markets is something I have an abysmal track record in.

    The property you describe sounds like it has a lot going for it. Being that vintage, I’d fully expect it has a hardwood frame – Which I see as a plus. Over pine anyway. Plus it has the second and often overlooked factor regarding property (aside from position) with the second being potential. Namely a ginormous block and while being quite liveable now also has reno potential.

    It surprises me that a few more with decent super don’t at least give a bit of thought to buying a house in the name of their fund. There are disadvantages when it comes to doing renos on it yourself I gather under current tax regs. But it’s not a bad way to ensure home ownership in the future. Because even though rents might look comparatively cheap while one is working fulltime, I suspect they mightn’t when one is retired?

    With such considerations being affected by one’s age, current circumstances and lots of other things I’m sure.

    Reply
  32. FHOG put them up in Brissy Biker. But we are down again now.

    Big picture – GO ASIA! (Fingers crossed.) Though even barring any little hiccups along the way, it is about as close to a certainty as I can imagine.

    As to the US (and Europe?), even BB opined a while back that it could become a reasonably laid back and pleasant enough, though somewhat less prosperous place to be retired in – Given some more time.

    Reply
  33. “FHOG put them up in Brissy Biker. But we are down again now.”

    There ya go: Another Happy Ending…!~ :D

    Reply
  34. Ned, I am bearish on house prices too in the shorter term but feel confident for the future that they will regain any shorter term loss in value.
    It may suffer a fall of 10% or 20% who knows, but may never be available to me either.. Potential is good so I have made an offer.. They are mulling over and deciding whether too list it on market or do a private sale with me..
    They like that I am a “cash” buyer and don’t have to worry about subject to finance clause… I am flexible on settlement terms too so we will see..

    The people most likely to be effected by any house correction are the over commited whom have purchased in the last 2 or 3 years. Also I believe some areas are going to be less effected than others. Timing the market is a mugs game. Price is what you pay.. Value is what you get. The above property represents value to me.. If I can get it for the price I am willing to pay.

    Yes it is hardwood construction which appeals to me as well.. Walls/Floorboards and roof trusses are all hardwood.
    Terra Cotta roof too :)

    I don’t agree with Keens 40% average decline over the next decade.. Some areas may experience this but I doubt more than 20% average decline.

    Stillgotshoeson
    November 11, 2010
    Reply
  35. Being such a positive chap Biker, I’m not at all sure I’d recommend you go for a HIV test! ;)

    Reply
  36. Comment by Biker Pete on 11 November 2010:

    “FHOG – It pushed prices up.”

    May well have, over there, Ned.

    We know of not one WA family who bought an _existing_ house.

    Most in Melbourne bought existing housing stock.. There is no doubt that the FHOG boosted prices here. Anecdotal evidence suggests 50% of them are struggling now. Partly blamed on poor budgeting/savings history/experience partly blamed on over commitment to home loan and other finance commitments and of course the 7 rate rises.. More rate rises to come will increase these financial pressures. Northern and Western suburbs of Melbourne seem most effected (industrial and immigration areas)

    Investment magazine I subscribe to is quite specific in advising people NOT to invest in property in Melbournes Western suburbs.

    Stillgotshoeson
    November 11, 2010
    Reply
  37. Sincere best wishes with it Shoes. Must admit I’ve never been in the Steve Keen type bear camp either. And inflationary pressures would seem to be the long term trend to me.

    Reply
  38. Shoes: “Anecdotal evidence suggests 50% of them are struggling now.”

    I’d be surprised to learn that more than 20% are struggling. But the term ‘struggling’ is, in itself, interesting, used in this context:

    http://www.watoday.com.au/wa-news/struggling-perth-homeowners-turn-to-renting-20101111-17oto.html

    There are numerous ways to hold property through plateaus.
    It’s interesting that some Perth families are choosing this successful holding strategy. Don’s unemployment figures for Cairns, confirmed during our recent visit, mean that, as you’ve inferred, some areas will do it harder than others. WA’s current unemployment rate is 4.7%, less than half that of some FNQLD cities. I suspect that we’ll ride it out better than most states.

    Friends have recently pooled resources to buy an inner city Melbourne apartment. We may see more interstaters choosing to do so. One of our sons is considering it. A 10 – 20% correction would probably see us consider that step ourselves.

    On interest rates, I’m the skeptic here. I’ll be surprised if we see any further rate rises (apart from the last two pillars, of course) in the short term. As less buoyant states suffer, the RBA will have to decide whether they’re to be further flayed because WA is thriving. Moreover backlash against the banks introduces the spectre of government intervention at a level we haven’t seen since the Keating days… .

    As Ned has stated, we live in interesting times… . ;)

    Reply
  39. Comment by Biker Pete on 12 November 2010:

    Shoes: “Anecdotal evidence suggests 50% of them are struggling now.”

    I’d be surprised to learn that more than 20% are struggling. But the term ‘struggling’ is, in itself, interesting, used in this context:

    http://www.abc.net.au/news/stories/2010/10/25/3047493.htm

    Specifically mentioned Melbourne and Brisbane…

    Stillgotshoeson
    November 12, 2010
    Reply
  40. Interesting link.

    It does note increasing rents as a barrier to buying: “The reality is that many of them are staying in rental properties, which is not necessarily a great place to be in terms of the sort of rental shortage we are seeing at the moment and the high rents that many inner city renters are having to pay. Of course whilst you are paying those high rents it is difficult to actually save money for a deposit.”

    Two opposing views seem relevant here. ‘FHOGs exposed these folk to future loss’ VS ‘FHOGs assisted these folk to get a home’.

    We’ve little sympathy with those who believed a FHOG was a lotto win to be accompanied by a new car, new furniture and appliances, etc. Their inability to plan and budget exposed them to high risk.

    The Melbourne and Brisbane contexts do support the view that any pain may be localised… .

    Reply
  41. Comment by Biker Pete on 12 November 2010:

    We’ve little sympathy with those who believed a FHOG was a lotto win to be accompanied by a new car, new furniture and appliances, etc. Their inability to plan and budget exposed them to high risk.

    The Melbourne and Brisbane contexts do support the view that any pain may be localised… .

    A lot of FHB’s in Melbourne instead of using the grant to borrow less, either bought a bigger home than they other wise would have with the “extra” or used it to fund a host of shiny new things for the home or driveway… all of which have lost value.

    Many also had zero budgeting/savings history and the rest of the deposit for the home was from mum and dad.. The reality of council rates, insurances, rising utility costs and rising mortgage costs with the rate rises (I see NAB and Westpac have finally moved as well) has caught many unawares…
    Suburbs like Doreen, Mernda, Point Cook, Sth Morang, Craigeburn, Greenvale and Roxburgh Park I am watching to see any increase in homes for sale.. these suburbs have high numbers of first home buyers.

    Stillgotshoeson
    November 12, 2010
    Reply
  42. In the context you describe, the First Home Savers Accounts meet the criteria you’ve outlined, Shoes; particularly in respect to a (four year) savings history.

    We can agree that the funding a ‘host of shiny things’ often complemented FHOG home purchase. As you say, all these shiny things have lost value.
    If mum and dad assisted with the deposit, chances are they’ll help keep the boat afloat if it looks like sinking… even if that only means allowing the kids to move back home and rent out the new house.
    Although we give our kids _nothing_ we’d give them shelter
    if they really needed it.

    There may or may not be correlation between distress and the number of homes for sale. Anticipating a boom in WA, we see the number of homes on the market in Perth has increased by 25%. We believe it’s an ‘upgrade’ move. Unlike the stockmarket, property owners rarely set stop losses on homes. The bogeyman of negative equity is, in reality, a wraith projected by bears around the campfire. A paper loss on housing is really only an issue if unemployment or marital issues loom large. Even then, couples in distress have numerous avenues to negotiate, prior to a forced sale.
    Extending the loan period is just one of these.

    Having said all that, some naifs do panic and sell!~ We’re currently researching a home owned by an investor, in a street in which we currently have three rentals. If it’s not a misprint, this fella has just dropped his price from $450K to $345K(!) It sounds too good to be true… and probably is. We know it cost him $400K+ to build… . No house in this street has ever been listed below $420K.

    Bargains do occur… and they rarely last longer than a few days. ;)

    Reply
  43. Steve was happy that the other 2 banks lifted their interest rates well above the RBA
    :D

    Reply
  44. Steve’s always just a happy chappy – ‘cept when he’s not … :D

    Reply
  45. True Ned,
    Hopefully some of these priks will start to default now…

    Its about bloody time

    hehehe

    Reply
  46. Happy? Here’s a 25yo stuck in his room with his keyboard, all Friday night.
    At his age I was out on the town having fun… . :D

    Reply
  47. “If it’s not a misprint, this fella has just dropped his price from $450K to $345K(!) It sounds too good to be true… and probably is.”

    It was a misprint, all right. Apologetic agent called back. Price is $445K.
    Owner has dropped the price by just $5K. Realtor wasn’t keen to disclose how many calls he’d had. (“A few!~”) ;)

    Reply
  48. Yes, many a true thing said in jest – I gave a bit of thought to heading up North QLD way and getting into red claw commercially in about 2006 Biker. With NOT doing it, being a pretty good move in hindsight quite possibly.

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  49. ‘red claw’?

    Don managed to put us off Cairns… and Port Douglas seems overpriced, given the tourist decline.

    If Shoes’ predictions for Melbourne eventuate, a high-rise city apartment would be great for quick trips. We don’t have an an(y) apartment(s) and I’m a little regretful Son2 didn’t pick one up back when Keen was shouting to the rooftops that it was all gonna fall over.

    Talking of high rise:

    http://gizmodo.com/5687521/chinese-build-15+story-hotel-in-just-six-days-rest-on-seventh

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  50. Red Claw: A bit like your Marron perhaps?

    http://en.wikipedia.org/wiki/Australian_red_claw_crayfish

    Not sure I’d fancy competing with Asian producers if a few billion Chinese and Indians should ever develop a taste for them though?

    Prefab: Recall my old man building at least one house that way – Cut the frame out at home using his brace ‘n bit ‘n hammer ‘n chisel ‘n saw, then get a truck in to cart it all to the site.

    Reply
  51. I didn’t mean to put you off, Biker – rather I was just advising caution :(

    Apparently the unemployment rate is now down to 7.9% with things looking on the up but who knows how they juice these figures.

    That said we have moved and are renting a place in Mission beach. After being there for the last few weeks it is amazing just how much cooler, temperature wise than Cairns. For whatever reason, Cairns is in some kind of bowl which traps in all the heat and humidity.

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  52. Yes Biker when you were my age you could have quite easily owned a nice house mortgage free if you wanted to.
    Unfortunately I can’t afford to go out because I have to save hard to fund someone’s (like you) retirement just because they were born before me.

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  53. Very much like our marron, Ned. Local variety is known as The Hairy Marron!~

    Yes, I expressed that quite poorly, Don. You’re right about the micro-climate of Cairns. Very different.
    Was trying to describe the birdlife to two Canadians during breakfast. Indescribable!
    Good to hear things are on the up-and-up… .

    Steve, you’re right, too. We used to line up outside the realtors, where on production of either a driver’s licence or passport, free land titles (one per customer, per day) were given out to all and sundry. :D

    Seriously, do ya ever listen, son? I had to _leave_ Perth at 21, because I could not afford a property there. My first three homes were in a regional centre 460 km north of Perth. Bought small, bought larger, bought small again. Paid that little place off fully by 31. You’re handicapped, I know. Your house has to be: a.) where your work is; b.) where you want it; c.) paid for fully in cash. Can’t help you there. Couldn’t have achieved any of those three, at your age. I really don’t think _you_ can, either… . Tip: Don’t waste your youth in a small bedroom typing up revenge on all those who have conspired against you. Your youth will pass too quickly… .

    Reply
  54. Well Biker if you couldn’t afford a house for 3-4 times yearly income in Perth when you were my age

    Then I am not going to have any hope of buying one for 10 times income.

    And No I am not prepared to go and buy one and live in Dubbo or Broken Hill

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  55. Mate, I was on $2200 per year. Houses in Perth _started_ at 15 times that… and they were dumps. You have this jaded view that your generation alone bears all the suffering of mankind… and you have a list as long as your arm blaming others for your incarceration in a small Sydney bedroom… .

    You’ve missed my main point again. Here it is, Saturday night… and you’re whingeing about your misfortune again. Both our sons are out having a great time with friends.

    Can’t solve your problems, but I do know that wishing misfortune on others won’t solve your unhappiness. Get a life, Steve. Good luck with that… .

    Reply
  56. “Comment by Biker on 13 November 2010:

    ‘red claw’?

    Don managed to put us off Cairns… and Port Douglas seems overpriced, given the tourist decline.”

    On your recent visit to FNQ you said that it was pump’in, bi_ker peat.

    Guess spruikin is your game and pumpin_peat should be your name.

    You greedy baby boomers truly are ‘generational tapeworm’. Your ilk are now spruikin coastal north east brazil (fortaleza, natal, sao louis and many in between) properties, situated on coastal sand dunes where being sand blasted whilst taking an evening stroll after downing freshly shucked oysters followed by fresh local and imported lobster tails (lol) along sand duned beaches is common.

    The tapeworm/s, in its need to bloat itself merely for personal indulgence by consuming anything and everything in its path , then ransacked Ecuador by duping the locals into selling them their land ‘cheap as chips’ where the ‘baby boomer generational tapeworm’ proceeded to build the typical cheap poxy villas in a mandatory ‘gated community with 24/7 security’ to fend off the duped disgruntled locals.

    I hope you are all very proud of yourselves slithering around the world duping peoples into selling their ‘useless’ land cheap then packaging and spruiking it into a ‘new lifestyle’ in the middle of pharkin nowhere just to keep the income a comin in.

    It must be genetic I guess since after 8 or so centuries of pillaging ya canny help ya selves but carry_on the indulgence.

    My math and inglish is poor so please bear with me but if the global baby boomer generational tapeworm population is approx 1/4 of approx 6.8 bill that leaves us approx 1.7 billion of these tapeworms. So within the next 20-30 years (or less) they will die and according to current birthrate stats not many to replace them, no?

    So we’re back to approx 5 billion humans.

    Reply
  57. “Comment by Biker on 14 November 2010:

    Mate, I was on $2200 per year. Houses in Perth _started_ at 15 times that… and they were dumps. You have this jaded view that your generation alone bears all the suffering of mankind… and you have a list as long as your arm blaming others for your incarceration in a small Sydney bedroom… .”

    Mate, me uncle was on 750 QUID A YEAR, thats right, QUID A YEAR, and bought a dump of a terrace in paddington sydney for 1,500 QUID. FIFTEEN HUNDRED PHAAAARKIN QUID. Mind you he had to work 4 hours overtime on Wednesday night and 4 hours on Saturday morning to earn the 15quid but hey I’d give me one testicle to have a job where I worked Monday to Friday and 8 hours overtime to afford me a dump of a paddington terrace in two (2) years in two (2) years.in two (2) years.in two (2) years.in two (2) years.in two (2) years.

    I’m not complainin or anything, just sayin.

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  58. “It must be genetic I guess since after 8 or so centuries of pillaging ya canny help ya selves but carry_on the indulgence.”

    So does that mean baby boomers have been raping the world since about 1200 AD??? Hmmm …

    “So within the next 20-30 years (or less) they will die and according to current birthrate stats not many to replace them, no?”

    Actually “No” probably is the correct answer – With India and lots of others still having high fecundity, there’s no need for you to panic about you and your descendants for the next several generations not having abundant competition to star against NV.

    “I’m not complainin or anything, just sayin.”

    That’s what we like a see – A chap who is truly contented with everything in the past, present and future, that could possibly have impacted or have impact, on him or anyone else in the entire world!!! :D

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  59. “A chap who is truly contented with everything in the past, present and future, that could possibly have impacted or have impact, on him or anyone else in the entire world…”

    Couple of pills and he IS truly contented, Ned.

    His passion for dissing the older generation is something we’re well used to here, part of his condition… and probably a contributing factor to his illness. Just keep popping your fluox, son. ;)

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  60. Wonder how a bloke might have done if he’d bought a shitebox in downtown Singapore or Honkers back in the days when Aussies still thought in terms of how many bob there were in a quid Biker? Even better than in Paddington, Sydney perhaps? (Proving it was AFTER WWII maybe???) Some things just could actually change a bit over time I guess? Ah for the good ole days! :)

    On a totally unrelated note, I wonder if its hate of others that causes mental illness or mental illness that causes hate of others? Then again it could just be that stuffing up financial trades can cause both??? – For some anyway. Though it’s ALL too deep for me!!!

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  61. Wonder how a bloke might have done if he’d bought a dunga in Singapore or Honkers back in the days when Aussies still thought of terms of how many bob there were in a quid Biker? Even better than in Paddington, Sydney perhaps? (Proving it was AFTER WWII maybe???) ‘Course the price of Moscow property has appreciated a bit since then as well perhaps? So some things just could actually change a bit over time I guess? Ah for the good ole days! :)

    On a totally unrelated note, I wonder if its hate of others that causes mental illness or mental illness that causes hate of others? Then again it could just be that stuffing up financial trades can cause both??? – For some anyway. Though it’s ALL too deep for me!!!

    Reply
  62. I think the sad fact a few here forget, is that it has always been difficult for most young people to get into a quality home, Ned. There’s often the perception that it was a.) a breeze; b.) cheaper, relatively; c.) the previous generation’s fault that the current generation can’t have immediate gratification, as they generally have with _most_ acquisitions.

    “I wonder if its hate of others that causes mental illness or mental illness that causes hate of others?” Well, in my view, Prozak’s illness is possibly fallout from a series of poor choices. That probably erodes his sense of empowerment. It’s likely that blaming a whole generation for his own failures is equivalent to a legal class action against those who conspired against him. He’s certainly far removed from the Australian scene, if he isn’t aware of the strong Oz dollar’s effect on tourism in recent months. In fact he’s probably far removed from any kind of reality.
    I’d feel some empathy for the poor bugg@r, but he’ll be part of the previous generation soon enough… if he reads and comprehends the fine print on the bottle…

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  63. HAHA its funny I was just talking to the old girl.

    I showed her a property that (well lets just say the price is moving in the correct direction) just out of curiosity to see what she thought.

    She said “I know it might sound horrible but I think you should wait until after Christmas, because people will get more into debt and will really start to struggle with interest rates going up too”.

    At least she has got half a heart by saying “I know this might sound horrible”, because I couldn’t give a Fuk about them…

    Reply
  64. The old man Yes. But the old girl is always mum or ma to the likes of me mate?

    “I couldn’t give a Fuk about them…” – When push comes to shove most of us probably accept that we need to do what’s best for us and ours within reason providing it’s legal and not completely immoral? But enjoying it too much can get a bit iffy??? IMO.

    But yep, I’m glad you reckon you are having a bit of a win.

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  65. But yep, I’m glad you reckon you are having a bit of a win.

    Thanks Ned I know you want prices to come down to, so we both win :D

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  66. “I know you want prices to come down” – I think it would be healthier all round. Plus ‘could’ benefit me personally. But definitely won’t if the RBA crashes the interest rates that I rely on for the bulk of my income. And do worry about the effect on our economy if we were to see a real full-on Steve Keen type depression.

    But with those few little provisos, it’s good to see you having a win regardless! :)

    Reply
  67. The Old Girl just couldn’t face her Chrissie without her Young Boy, Steve.

    Yes, Christmas will f*k ’em, mate. They’ll whack it all on gifts for the family and you’ll be in-like-Flynn.

    So I guess that by January you’ll be paying cash for your new place.
    Wonder if DRA will introduce some emoticons with balloons and bubbly?! ;)

    Reply
  68. It’s a curious one for me Biker. Truth be told, if property goes down I’m pretty sure I’ll be worse off in absolute value – Given that I’m weighted more to property than cash (on own home which earns no income, plus one in my SMSF which I can’t access the income from for three more long weary years :) , plus the rental in my name that I do get a bit of income from; And that the RBA will trash interest rates and thus my main income source; And that the AUD will drop so any and all plans of riding things out OS will be impacted – With my SMSF Super Fund trustee status also becoming a potential hassle should I live OS for more than 6 mo in any financial year. None of which means that I don’t see a correction as ‘healthy’ – Prices are just TOO high to be good for ‘us’ generally. IMO. Unless we move to restructure our entire economy. With none of our current pollies being even close to showing leadership in doing so. Or ever the likes of Henry and Stevens whose ongoing hope is the same as mine – In the absence of any desire (or pressing need) for Aussies to genuinely compete internationally – Namely: GO ASIA!!! :D

    Though if there is a drop in house prices, it will represent a buying opportunity for the cashed up potential landlords of Oz who weren’t smart enough to seriously move into property 5 yrs ago or more. Which ‘should’ held offset some of the potential pain for me personally just maybe!? (As well as it being a buying opportunity for the Steves of the nation of course.)

    Interesting times as we’ve previously mentioned.

    Reply
  69. Up, down, it really makes no difference to us personally, Ned. We’ve reached that point where, should there be a ‘rush to rentals’ (either due to population increase or along-the-lines of Keen’s perception that we’re all better off renting) our retirement will be very comfortable indeed. Should home prices rise, the win is all just on paper, anyway.

    Looking at our own kids, they can already ‘do a Steve’ and pay cash (if indeed Steve can! Frankly, i doubt there are too many Sydney apartments around $150K… .)

    Now, to the country… . If rates rise, few(er) will build. We don’t think rates _will_ rise, but the RBA must be perceived to be doing something, just as the government must be perceived to be doing something. If rates increase, we might expect construction to thrive where there’s mining… and nowhere else… . And, if it all goes pear-shaped, expect government intervention to be over-the-top: tax claims on all mortgages, super-tax on banks, doubling of FHSAs, etc. All the latter are _cheaper_ than public housing construction… .

    Whatever happens, the feedback loop is shortening and it’s amplified.
    We can expect government awareness of the public mood through electronic media to increase. McLuhan thought television to be the hot medium. Had he survived another three decades to witness the ‘inferno’ of the internet, where voice and feedback are instant… and where every mouth expert* he’d be toast. :D

    * In the sense that _anyone_ including a drug-impaired derelict clicks SUBMIT and he’s ‘published’ worldwide. Such is the breadth of opinion that he’ll earn affirmation from any of a dozen audiences whose goals intersect.
    McLuhan must be spinning in his grave… !!~ ;)

    Reply

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