A Funds Industry Built on Turning Debt into an Income Paying Asset

Reddit

In today’s financial multiverse we find smart people saying seemingly sensible (but utterly destructive) things about debt. We also find Australian household debt-to-GDP ratios leading the Western world at 112%. And we find heaps of evidence that your best bet for a financial future is to retire now.

More on all that in a moment. First up today is this little pearler from Bloomberg, “Australian banks, including Westpac Banking Corp. and Commonwealth Bank of Australia, risk more loan defaults as the government unwinds economic stimulus and the central bank raises interest rates, according to Fitch Ratings.”

Fitch says it’s the small and medium size businesses that are starting to show “signs of stress.” The $42 billion in stimulus money – to the extent it went to these businesses – is all spent with little multiplying effect. The government (bearing down on an election) can’t give more money away. And with rates rising, businesses are feeling the pinch of higher loan costs.

Fitch reckons all of this will add up to higher bad debt charges for Aussie banks. It says the threat of “large corporate collapses” has receded, though. And the banks themselves don’t seem too terribly fussed. They say even the chance of higher mortgage defaults in Australia is “manageable.”

Frankly, the banks and the media and the financial industry are incredibly blasé about the risks to the economy and the financial system. We’re not two years removed from a major systemic crisis, and most financial professionals are treating it like it was an anomalous “near miss” and not a sign of a more fundamental rot in the very DNA of the financial system.

That rot, we would contend, is the attitude towards debt and leverage. It’s a series of embedded assumptions about how to use borrowed money and what to expect (in terms of risk and performance) from asset markets over time. The financial world is using 20th century assumptions for a 21st century world in which the basic premises (the cost and availability of capital) have radically changed.

Take the Commonwealth Bank and its mortgage fund Colonial First State. It has again halted withdrawals from its $850 million mortgage fund after “being caught out by a spike in lending losses,” according to Eric Johnston in today’s Sydney Morning Herald.

“With rising interest rates likely to spur further mortgage stress, Colonial First State’s move suggests the nation’s troubled mortgage fund market could face a fresh round of problems after the $30 billion sector was hit by the introduction of the bank deposit guarantee about 14 months ago.”

There are three issues here and each gets to the heart of the modern problem with debt, investing, and banks. First is asset quality. The mortgage funds are pools of mortgages or mortgaged backed securities. Colonial First’s has a reputation for being conservative. Right.

But in a note to clients yesterday it reported that, “Since the withdrawal offer opened on November 25th, 2009, we have identified a small number of mortgages in the fund’s portfolio that have the potential to become bad bets…We have commenced a review of the fund’s assets to fully assess these loans and determine the impact on the fund and investors.”

We’ll take the fund at face value on these comments, although that is generous these days. The withdrawal offer, by the way, is the fund allowing withdrawals as of November 25th. They had previously been halted. That limited lifting seemed to be a sign of normal times.

But these are not normal investments. Any time a security is backed by a pool of mortgages – no matter how vigilant the underwriting standards – asset quality is going to be an issue. Asset values are variable, and funds made up of variable assets are generally not as safe and sound and their prospectuses make them out to be. Keep an eye on the default rates in prime U.S. mortages and you’ll see what we mean.

The second issue with the mortgage gunds is that government bank deposit guarantee that came into effect last year. Talk about unintended consequences. When the Rudd government slapped a government guarantee on bank deposits last year, it may have done the Big Four a favour by driving scared depositors into their arms. But it hit the mortgage funds especially hard.

Investors treat those mortgage funds like a high interest bank account that produces a steady, reliable, and secure income. Fixed income with a high yield! But minus a government guarantee, the $30 billion fund industry with over 150,000 investors saw so many redemptions that it had to halt them and freeze investors out from getting their cash.

Reminder: your money isn’t really yours unless it’s in your hot little hand.

The funding model for the funds industry was seriously strained by the outflows. As we understand it, the funds have three sources of funding: deposits, bank credit facilities, and the mortgage payments it receives from mortgagees (commercial and residential). The bank credit facilities are exercised either to make new mortgage loans or pay out withdrawals that exceed what the fund takes in via mortgage payments.

You can see this train wreck coming. If bank credit tightens up, asset quality declines, and withdrawals (for any reason) accelerate, the model gets stretched. Not to the breaking point. But to the point where you look at the model and reach the conclusion that this is not a safe, steady, reliable way of generating income.

But then there is a whole funds industry in Australia (and the world) built on turning debt into an income-paying asset. Often that debt is collateralised by a real asset (like a house, or a toll road). Just to be clear, however, there is no Income Fairy that makes sure you always get paid in these investments. They only work if the funding pipeline is clear and asset quality doesn’t deteriorate.

The trouble in a credit bubble, though, is that plenty of assets get built and valued and prices far above their ability to pay themselves off AND generate returns for investors. What’s more, sometimes the assets fail to generate an income stream capable of sustaining the debt service costs. The inevitable result is falling valuations or insolvency. For investors in these schemes, the result is a loss.

The last point worth making about this story is about the idea of income investing itself. We were yapping with our colleague Kris Sayce about the issue the other day. Kris was looking at high-yield listed investments in Australia and examining how they produced the payouts made to investors. Some of them would make Rube Goldberg, Ken Lay, and Bernie Madoff envious with their ingenuity.

The point?

Not all dividend yields are created equal. There is an assumption among today’s investors, bred by complacency, that higher yield is always available if you’re prepared to take the risk. But the way some of those income streams are manufactured, and the way the funds are structured, is, if not misleading, certainly not safe.

Not that you’re going to retire rich on bank interest. But be wary of funds promising safe yields with no risk. It doesn’t exist. In fact, we’d be wary of nearly the entire universe of financial investments at the moment. We’ll tell you why tomorrow.

You can’t blame investors for chasing yield. With real incomes falling in the Western World – as a result of a corporatist policy to off-shore high-wage jobs – the only way most people can achieve a standard of living that matches cultural expectations is to borrow money from the bank. Debt is just a means to an end. And that end is social respectability.

Perhaps that is why bankers have become so blasé about how they risk shareholder money. We’re referring to the response of former banker Saul Eslake to the news, commented on by Terry Barnes in the Age on the 13th, that Australian households have $1.2 trillion in debt – or 112% of GDP according to the ABS. That’s $56,000 for every man, woman, and little nipper in the country.

In today’s Age, Eslake says debt won’t “roon” us and that the debt-to-GDP numbers don’t convey anything significant. The important numbers, he says, are the debt-to-asset ratio and the debt payment as a percentage of disposable income. By both measures, Eslake says there’s nothing much to worry about.

To prove his point, he uses a hypothetical example where a customer walks into the bank with $100,000 in cash, annual after tax income of $100,000 and a request to the bank manager to borrow $200,000 for the purchase of $300,000 home. Elsake says, “The manager would not reject the customer’s request for a loan on the grounds that he or she would then have a debt-to-income ratio of 200 percent.”

“Rather, the manger would look at the customer’s debt-to-assets ratio, which in this hypothetical example would be 67 percent [a $200k mortgage as % of a $300k house]. Banks will normally lend for owner occupied housing up to 80 per cent of the value of the property (or up to 90 per cent with mortgage insurance. No problem there.”

No problem there?

We can think of at least one. The main one is the point we made before: the value of the property. The assumption embedded in Eslake’s risk assessment is that that the loan-to-value ratio can be that high because house prices generally go up. The borrower is getting an appreciating asset in exchange for his debt. That’s a good trade as long as asset prices rise.

It’s just worth pointing out the nonchalant assumption. Of course if house prices don’t rise, or if they fall, the debt-to-asset ratio would get closer to parity. In practical terms, the mortgagee has a debt that doesn’t change and an asset whose value does. During certain phases of the real estate and credit cycle, that is a formula for indentured servitude to the bank.

But what about the ability to service the debt? Eslake says that, “The manager would also consider the customer’s capacity to service the loan out of his or her income. Assuming a mortgage rate of, say 7 per cent, interest payments would be absorbing 14 per cent of his or her disposable income, plus a little more for principal repayment. Banks will typically lend amounts requiring up to 25 or even 30 per cent of a customer’s disposable income before becoming seriously concerned about his capacity to service the mortgage.”

What’s left unsaid here is just as important as what’s assumed. What’s left unsaid because it’s assumed is that the borrower will have an income. That’s a basic assumption, it’s true. But is full time employment over the life of the loan something you can take for granted in an economy like this? Perhaps these kinds of assumptions explain the track record of global bankers in making good loan decisions over the last ten years.

But what’s left unsaid is that the bank is obviously happy for the borrower to maximise the amount of his income that goes to service the loan. After all, the bank is getting paid. What does it care how much stress it puts on the borrower? For the bank, the borrower and his stressed out mortgage payments are just as much an asset as the collateral itself, the house.

For the bank, the borrower is a kind of fixed income investment. Mortgagees are literally a cash crop to be planted, farmed, rotated, and reaped cyclically. The bank only really risks a loss if the cost of servicing the loan breaks the back of the borrower. The banks allow for that in their loan loss and bad debt provisions. But generally, if you break your financial back it’s your problem, not the banks.

We’re not bashing on the banks, mind you. They sell money. It’s a valuable service. But we are showing that if the underlying assumptions behind their lending practices are faulty, or not in your interests, you should be very cautious when they tell you it’s okay to go into debt. They’re in the business of selling you debt. What else would you expect them to say?

Eslake adds, that “Not only would the customer’s request be approved more or less on the spot, but mindful of the ‘cross-selling’ targets, the manger would have had, he or she would have probably also offered a further $100,000 loan for a geared investment in the share market.”

To give him the benefit of the doubt, we detect a note of irony in Eslake’s telling of this anecdote. He’s not endorsing or approving of the scenario. But we think he is saying that under common practices, this is how a bank would behave and that this behaviour is reasonable, prudent, and ultimately, wildly profitable for the bank.

That tells you a lot about the banking sector. It shows you why the financial services industry has every incentive to load you up with debt so you can buy houses and stocks. And in boom times, that strategy appears to make people richer. But when the cost of capital goes up and debt deflation sets in, both banks and their borrowers will regret the debt.

And not just in a financial way, which is bad enough. Debt is not inherently evil. But it is a burden. And a society that loads itself up with obligations it strains to pay the interest on, much less the principal, is a very unhappy, heavily burdened society.

There was a lot more we meant to get today, including cyclical attitudes toward debt. But we’ve gone on too long already. More on why you should retire now and other financial taboos in Friday’s episode. Until then!

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
Reddit

Comments

  1. “To prove his point, he uses a hypothetical example where a customer walks into the bank with $100,000 in cash, annual after tax income of $100,000 and a request to the bank manager to borrow $200,000 for the purchase of $300,000 home. ”

    $300,000 ?? This was obviously an example from New Zealand then :))

    Reply
  2. Colonial First State’s paper must be trading at a discount. What’s the bet the RBA becomes ‘buyer of last resort’?

    Reply
  3. “For the bank, the borrower is a kind of fixed income investment. ” is very telling DD, an interesting perspective thanx.

    Reply
  4. I’m very grateful to Dan for reading and discussing my piece in Thursday’s Age.

    Dan is right – I was being ironic in suggesting that managers of the bank I work for would have offered my hypothetical customer $100,000 for a geared investment into the sharemarket as well as approving his or her request for a $200,000 housing loan on the spot. It was an allusion to the pressure many of my former colleagues used to be under to ‘cross sell’ various financial products.

    He’s also right, of course, that the denominator in the debt-asset ratio, ie asset values, can fall, whereas the only way debt falls is by being paid off. However my point was that with the average debt-asset ratio at only 20%, way way below the level at which banks and other lenders start to get nervous about individual customers, asset prices would have to fall an awful lot – more even than Steve Keen has (so far wrongly) forecast, for the ‘average’ household to be in serious trouble.

    Of course as I acknowledged, these averages can conceal a lot that is important, and hence it is also necessary to look at the distribution of these ratios around the average. My point here was that most of the debt owed by Australian households is owed by high-income, high net worth households; and that Australian low-income or low net worth households seem to be rather less indebted, by any metric, than their American peers. This could be because Australian lenders have been, for the most part, more ‘prudent’ than American ones, or better regulated. Or it could just be a matter of chance.

    But the fact is that Australian households have sustained far less damage during the financial crisis than American ones, despite having a higher overall debt-to-income ratio (and, for that matter, paying higher interest rates on average than American households) – which prima facie suggests, to me at least, that the debt-to-income ratio doesn’t matter as much as many people seem to think.

    Reply
  5. Saul, aren’t you just saying asset values are high?

    Reply
  6. Saul, 15/01/’10: “….most of the debt owed by Australian households is owed by high-income, high net worth households; and that Australian low-income or low net worth households seem to be rather less indebted, by any metric, than their American peers. This could be because Australian lenders have been, for the most part, more ‘prudent’ than American ones, or better regulated.”

    Completely agree!

    Reply
  7. DRA’s notoriety is gaining exponentially. I think some of the property bulls out there are starting to become disenfranchised with their former darling investments. Congrats DD on the commentary storm you have created since discussing and analysing the “OZ property bubble” and its (possible) aftermath. When you throw facts and common sense at people over a period of time it’s possible to make your biggest sceptics feel a bit woozy and disorientated. I do agree with Saul that our situation is different than the USA, however, our interest rates are higher and still rising, so I assume foreclosures will also rise, given that wages haven’t been keeping up with inflation – unless, of course you distort the figures by including the top end of town. I hope they never filter / censor DRA. I would love for you to do an article on bankruptcy laws and how we may be able get our super into gold or into my subprime mortgage…… Why I voted for KRudd I do not know. I still despise JHoward however have managed to strike up a sort of AWA in addition to my pathetic award and am still battling to get ahead. This “working family” is feeling a little duped. Like Roman peasants in a crumbling empire watching kings commission indepent inquiries into why it takes so long now for the pigeon to fly the report to the castle crier who has been advised to delay his crying until the peasant’s are nearing revolt. Of course the report always says that either the issue is no longer of relevance or the science needs to be verified with further research, or my favourite – the original report has been found to be not entirely true therefore we will conduct a royal commission into how the figures were falsified before we reconduct another independent report. Low and behold it’s election time and nothing significant has been done. Prepare for the brainwash and open ended promises again.

    Claytonator
    January 15, 2010
    Reply
  8. Claytonator, try spectrumsuper.com.au

    Reply
  9. Claytonator, 15/10/’10: “I think some of the property bulls out there are starting to become disenfranchised with their former darling investments.”

    And elsewhere: “I do not know” … “…am still battling to get ahead…” “…feeling a little duped” “… peasants in a crumbling empire…” “… the peasant’s are nearing revolt…”

    Sounds like some of the property bears are wholly ‘franchised’ with their lot in life. ;) One thing on which we totally agree. You were duped. You’re not entirely to blame. Father Christmas, the Easter Bunny, and the Tooth Fairy are the myths on which we cut our teeth. When Santa Keen promised a 40% discount… not quite an open-ended promise, either(!) many of the ‘franchised’ were led a merry dance down the garden path.

    Reply
  10. I like it how Saul calls loans “financial products”.

    How many of these housing loans were given to FHB’s in the “boom time” using their First Home Buyers Grants as the deposit? People who had no savings history and no idea what they were getting into.

    Now that interest rates are on the rise, and they are going to go up a lot more yet, anyone want to have a stab at the percentage of these “banking investments” are going to turn into “Bank liabilities”?

    Flood the market with a product:ie foreclosed houses, and the price of housing in this country will drop like a hot rock!

    Just look at whats happened in America. Houses that used to be worth $100’s of thousands cant even be flogged off for a thousand.

    I’ll save my money for the bargains that are just round the corner.

    Reply
  11. Justin, Austrlaian asset prices are indeed ‘high’ by historical standards. I wasn’t explicitly saying that in my original article, or in my comment here; but it’s true nonetheless. My point is that asset prices would need to fall by a LOT (more than they did in America, more than Steve Keen said they would) in order to increase the overall debt-asset ratio to a level that would trigger alarm bells in the case of an individual borrower.

    In response to ‘Anonymous’, the truth as I understand it is that (with one exception) banks and other lenders did not, in the past 15 months, make loans to first home buyers with no savings history and using the increased grant as a substitute for a deposit. Indeed the bank for which I used to work (and let me emphasize that I don’t work for them any more, and am no longer a spokesmen for them or banks in general) explicitly discounted the increased first home owner grant as an element of saving, and lowered the maximum loan-to-valuation ratio at which it would lend. (Perhaps I should also add here that I have been a life-long opponent of cash grants and other subsidies to home buyers).

    So although I don’t doubt that there are some first-time buyers who over-extended themselves during the recent period of exceptionally low interest rates and exceptionally (and in my view excessively) generous assistance to first-time buyers, I would nonetheless assert that they are not a material proportion of the total number of households paying off a mortgage.

    Reply
  12. PerthNow, 15/01/’10: “The Commonwealth Bank is going from strength to strength in the wake of the global financial crisis and expects a massive 44 per cent rise in first-half cash profit, boosted by fewer bad debts, improved equities markets and volume growth.

    The country’s largest lender expects cash profit for the six months ending December 31 to be $2.9 billion, compared with the prior year’s cash figure of $2 billion and the consensus analyst forecast of $2.7 billion.”

    B-b-b-but….I thought that CBA was in dire straits… headed for the rocks…. Must go back and read the above article again. (Interesting perception that CFS is ‘conservative’, BTW. Who’d have thunk it?)

    Reply
  13. Australia’s whole economic thinking is currently based on the ‘fools paradise’ notion that China will provide never ending growth.
    The longer Australia avoids a healthy, necessary correction the worse the experience will be when it actually happens.
    Australians are growing fat,lazy and complacent – complacency’s a killer.

    Reply
  14. My point Saul is that you are using debt/asset value, concluding this ratio is only 20% so not a problem.

    A smaller [debt/asset value] implies a higher figure for asset value, why are asset values high. I contend they are inflated.

    Not only that, you will find the ‘equation’ above describes an exponential function. That is he ratio will increase exponentially as asset values decline.

    Reply
  15. the ratio will increase

    Reply
  16. Bargearse, 15/01/’10: ” Australians are growing fat,lazy…” Now THAT’S irony… . Delightful… . ;)

    Reply
  17. I was a meeting where Saul Eslake was the speaker.
    The man thinks that stimulus & more government programs are the best solution to this problem. My blood was boiling the whole meeting.

    The man is the definition of an ‘educated fool’.

    Reply
  18. “My blood was boiling the whole meeting.” Sounds like _more_ of the property bears are wholly ‘franchised’ with their lot in life.

    Reply
  19. Jack, I don’t know which meeting you’re referring to, but if your “blood was boiling” as you say, I wish you’d said so either during the time allotted for questions or by coming up to me afterwards, as people often do.

    I do indeed think that fiscal stimulus (principally in the form of ‘timely, temporary and targeted’ government spending) is the most effective response to a situation such as that created by the global financial crisis, where jobs are being lost, businesses are failing and interest rate policy (the usual response in more normal circumstances) won’t work because banks can’t or won’t lend, and people and businesses want to repay debt rather than borrow more. And my sense is that most economists, to say nothing of most of the world’s governments, are of a similar opinion.

    So if I am an ‘educated fool’, as Jack so generously suggests, I am not Robinson Crusoe in that regard.

    It might have been more interesting so learn what Jack believes should have been done.

    Reply
  20. Saul, try looking around the rest of this site a little. Perhaps its presumptious of me, but it seems you found your name showing up in google and looked at the comment only.

    There seems to be no other sign of your posting here.
    If you’d been reading the site (albeit without commenting) for the past 6mths like I have, you would not be so mystified as to why he took offence to your defense of stimulus, and most posting here would feel the same.

    Eg. Read this new article, fairly typical of the site.
    http://www.dailyreckoning.com.au/mr-market-never-gets-a-say-on-government-jobs/2010/01/15/

    Reply
  21. So Saul, when in the early noughties you were asked in “question time” about the yuan and trade/deficit imbalances with the US and you guffawed it off (just as you have done here with “not being Robinson Crusoe”) and so we get to the lack of substance in all your positions. Bad jobs need too be lost, under productive assets need to be written down, no asset market should henceforth primarily serve the interests of banksters, the taxman, and the bloated nanny state government ahead of those of the consumer and investor.

    Bubble inflated assets will be marked to market; Andrew Mellon was right about the optimal means and pace of liquidation and you and the rest of the Bernanke world are both wrong in the cowardly appropriation of taxes to exascerbate existing imbalances until such times as the inevitable default from tax receipt / public debt service collapse. Your cohort have bought only a delay in the personal reckoning of you fellow ticket clipping villains, those that were the making of the bubbles, and following it the happy clapping crowd for the makers policies that increase the severity of the shortly delayed chaos.

    Reply
  22. Saul fiscal stimulus, government bailouts etc do to economic growth and productivity what welfare payments do to the work ethic.
    All produce the opposite of what is touted by the lazy, unworthy, greedy, gamble went bad, recipients who beg to get their hands on the money and wealth generated by their hardworking, intelligent,opposites.
    Why don’t you just jump to the next step and advocate Communism or Socialism as both share the same economic, philosophical, traits and consequences that any other form of government handout does regardless of the euphamistic name given to it in order to fool those whose money is stolen by the government to provide it.

    Reply
  23. Ross makes an excellent point concerning Rudd and the nanny state mentality enabled by the incorrect assumptions of the impact the GFC would have. Australia’s bloated public sector is a prime example of what Ross refers to as ‘unproductive jobs’. Despite most other private sector businesses needing to respond to market forces the GFC excuse enabled public sector employment to grow as it did under the latter years of Howard. Lindsay Tanner never got the opportunity to wield the razor and states like NSW are in a morbid torpor – they can’t even privatise the ferries because of the unions rattling their sabres. Even local government seems immune to the realistic rationalisation of taxpayer funded roles that aren’t essential to the deliver of service to the public. Australian employment overly relies on public sector employment and it is a drain on the nation we can ill afford.

    Reply
  24. Saul, I’m sure you’re aware that gold can only rise if the economy collapses… as in the US. What these respondents are kindly trying to point out to you, is that their objective is frustrated by governments of any persuasion a.) keeping employment high; b.) keeping banks solvent; c.) supporting the country’s third largest industry, construction. Their ‘solution’ …. do nothing, let it all collapse… is borne of the highest moral and ethical altruism. They want to become extremely wealthy, perched atop stacks of the shiny yeller stuff.

    For anyone to argue that jobs, stability of the country’s financial institutions and maintenance of construction skills and trades should come before the private acquisition of bullion, is ludicrous. No wonder Jack calls you a fool! How thoughtless of you to interfere with the blood pressure of such a caring, selfless individual. As SBD notes: “Saul, try looking around the rest of this site a little.” Please do so. You’ll see unity of purpose, determination, and perseverance towards a common goal in the face of _overwhelming_ odds. It isn’t easy to daily identify multiple reasons why Australia’s economy should utterly collapse… and the martyrdom of our hero (forced to climb the mount wearing a silly T-shirt) will, in the future, result in sainthood, fasting and a national holiday.

    No more persecutions of the true believers, Saul. On your knees! Henceforth thou shalt be known as Paul. Go forth from this day and preach only the doctrine of BULLion…! ;)

    Reply
  25. “They want to become extremely wealthy, perched atop stacks of the shiny yeller stuff.”

    Beg to differ there Biker – They are narked because Oz hasn’t crashed in a deflationary depression; With them being amongst the 75% who remain employed and pick up a cheap house … From what I’ve been able to make of it anyway?

    Sure, there are Golden Calf worshippers amongst them – But only as a means to their ultimate cheapy accommodation inspired end. IMO?

    Reply
  26. Gotta admit I’ve seen about one property advertised each week since that before Chrissy out of the hundreds I’ve trawled thru on the net that would be worth considering if I knew what was on Ken Henry’s mind. Which is about one more per week than over the last year! Ah, the joys of being an investor in “interesting times”! :)

    Reply
  27. Ah, Ned, Ned… thou art misled. More religiosity for ya:

    As his namesake, Saul, was told word-for-word (Acts 9:5-6): “… it is hard for thee to kick against the pricks…” Check it out! :

    http://av1611.com/kjbp/faq/holland_ac9_5-6.html

    Yes, that’s exactly what is says…! :)

    And, with just a little poetic licence (only the name has been changed to protect the Aaroncent):

    Exodus 32:2 And yea, after his blindness was lifted, Paul went fifth and said unto them, Break off the golden earrings, which are in the ears of your wives, of your sons, and of your daughters, and bring them unto me. And all the people brake off the golden earrings which were in their ears, and brought them unto Paul. And he received them at their hand, and fashioned it with a graving tool, after he had made it a golden calf: and they said, These be thy gods, O Israel, which brought thee up out of the land of Egypt.

    Thus endeth the lesson, Ned… . :)

    Reply
  28. Then they’re even bloody stupider than I thought Biker … Surely NOT???
    Jeez, at least a house really IS worth something?

    Reply
  29. The thought comes to mind of an albeit fictional bloke from a while back who reckoned “true wealth” could be measured in four commodities – Land, gold, ivory and slaves!
    Some of those have become less fashionable over the years – But the first still seems like a reasonable bet to me?

    Reply
  30. Well, it WAS worth something, mate. Then those 40% discounts rolled in and wiped me out…. !! ;)

    Shouldn’t laugh. We did pick up a couple of nice blocks with water views, very reasonably, during the plateau. No-one except the state’s largest developer lost out… and we’d be foolish to think he lost much…!

    On property investment. It really is hard to know what to do. We commenced the journey buying (many) beach blocks, one-at-a-time; then started buying special rural blocks (3-10 acres); then started buying rentals; then started building rentals.

    I’m now _inclined_ to think the latter is the way to go. We cannot buy, for the same money, what we can build. Moreover, I think we will _hold_ rather than sell. Saw the new place today. Brilliant for the cost.
    “Let’s sell it!” I shouted… thinking $40 – $50K profit. “Barlees!” responded the Missus. “We’re KEEPING them!”
    She’s generally right, dammit.

    Reply
  31. I felt the same years ago about a property I’d built with the then lady Biker – And her thoughts went along the lines of your missus. No point moaning – Us blokes usually do as we’re told! :)
    The 40% discounts that prove you are a midget amongst all the mental giants on this site – Yes … You have my sincere and unending condolances – I can only hope you struggle by in your ongoing penury regardless. ;)
    Gotta admit mate, there is no way I’m EVER going to let ANY Oz property that comes within my grasping little clutches pass through them ever again – Not voluntarily anyway! (Barring the country forcibly removing them from me. :) )

    Reply
  32. Ned: “”…true wealth” could be measured in four commodities – Land, gold, ivory and slaves… the first still seems like a reasonable bet….”

    True enough. Most of the better-off Mexicans we met in Puerto Vallarta and Sayulita (and a few little towns further south) had achieved that happy state through the sale of part of their property.

    Did I relate our experience swimming in the crystal-clear rivers and streams of the Sierra Madres? Many of the sandbanks below the waterfalls glittered with gold dust. My mate back in Oz, emailed: “Take a GPS reading!!!!!” It wasn’t necessary. We found it all the way down to the sea… and right at the mouth of one river. I even ‘panned’ a quantity with a styrofoam meat tray… a line of tin, a line of gold. Took photos to show the disbelievers back home. Can’t be a commercial proposition, or someone would have to be in there with an airlift and gravity filter…. .
    Where’s the Mother Lode? Now if I was fifty years younger…. :)

    Reply
  33. VISIBLE GOLD – I like property a real, real lot Biker, but when the bullion shines at you out of the backs of the trucks that are carrying it away it’s definitely become tempting? I’m with your mate from Oz … Hey, some really strange things HAVE happened in this world?

    Reply
  34. Ned: “I can only hope you struggle by in your ongoing penury regardless. ;) ”

    Must admit we get a few disbelieving stares when we rock up on the bike at the tiling and carpet warehouses, Ned. “You lot… again?!!” We live very simply, Ned… he said, scoffing (homegrown) last season’s olives, washed down with a chilled Preston Vale Chardonnay, courtesy graysonline. Drowning in wine purchased every Melbourne Cup Day, when no-one else is bidding. Chardonnay? Yes, I’m a dag. Kath ‘n’ Kym are me heroes…!! :) :) :) :)

    Reply
  35. Simple is good Biker – Although it’s very easy to fall into the trap of thinking one can’t live on bread and cheese – With some olives and anchovies for flavour. PLUS A GLASS OF PLONK! :) :) :)

    Reply
  36. Ned: “…a property I’d built with the then lady Biker…”

    Well, my Lady Biker is a real find. Granddad helped found the VSE… had an entire drilling rig stolen in Alberta… held the patent for traffic lights.
    Her dad recently gave me a lump of amber as big as a fist, which came up while granddad was drilling. Scratch it and you can smell a pine forest 12,000 years old for the first time since… .

    My Lady Biker has never dropped a motorcycle. My right leg has sixteen stainless components… precious metal which I’ll wear to the grave. You can see where my kids got their gene-ious… not from me, Ned…!!! ;)

    Reply
  37. “Sixteen stainless components” – Yep, you love a bit of risk and have been rewarded! (Although I’ve known others who loved risk and whose rewards were less tolerable … :) )
    Been a pleasure mate – Gotta run and make an OS phone call. Looking forward to seeing you and the lady in July! (And chatting between times.)

    Reply
  38. DD said: “And we find heaps of evidence that your best bet for a financial future is to retire now. ”

    Was there a follow-up to this, Ned? I’m only 63… too damned young to retire! Will our booming state continue to _function_ if I pull the pin, now?!

    Reply
  39. Tamara, then.

    Reply
  40. Phone call made – Yes, the consoling thought is that the world will get by quite happily without any of us. I realised that when I saw Bob Hawke’s cheeks awash with water on being dumped! :)
    To continue the OT theme – A pearl beyond price.
    Snooze time – Cheers … Ned!

    Reply
  41. Ned, seeing as we both face a similar issue delaying construction of our next projects, I’ve been looking at retrospectivity and the rule of law. In past decades the government/taxation department has accepted that our property acquisitions were undertaken with the understanding that the rules were X, Y and Z… and that our liability should be according to those ‘old’ rules. I’d expect all our _current_ property to fall within the ‘old’ rules, even if the KRH implemented ‘new’ rules.

    It therefore seems to me that it may be quite foolish to delay our new construction projects, particularly since there are people queueing for rentals over here; and, prior to any announcement, the signing of a construction agreement would pre-empt any ‘negative’ changes. But if KRH introduced ‘positive’ support for construction, we’d also beat the rush… !

    I’ve read quite a lot on this. I strongly believe that it may be worth our while to create silage while the big star is sparkling… . Whaddya think?!

    Reply
  42. It’s certainly my understanding that Australia doesn’t often/ever(?) tweak tax laws retrospectively. Considering that and the potential negative effects generally, I find it almost impossible to imagine that for example, a property that had been purchased/built on the presumption of negative gearing applying, would have that negative gearing facility removed in the future.

    But my main issue is a bit different to your’s perhaps, in that I’m waiting to try and get a bit of an indication of what entity types assets might be best held in – With Super and a Discretionary Trust being pretty obvious options. As I understand it, the review is meant to reduce try and do away with/minimize the advantages/disadvantages of holding assets in different types of entities. But I’d like to see just what is proposed before shelling out any cash?

    Reply
  43. Think I’ll go ahead, Ned. Super is beginning to look iffy… . Notice our little friend is still hitting us both with Minus Ones, mate. We must getting to him… ! :)

    Reply
  44. I can’t see any reason why you wouldn’t go for it Biker.

    The land tax question is another potential one for me though – I’d like to keep anything I develop – So getting things in the names of different entities could be useful there too.

    Yes, if I start getting anything other than minus one, I might have to have a big rethink about everything I’m considering.

    I see Doc Cowie has gotten all concerned about banks giving loans of 30% of people’s disposable income – Seems strange – I thought that was regarded as quite acceptable? DRA really is getting pretty uptight about debt!

    Reply
  45. errata – “loans of 30% …” => “loans based on 30% …”

    Reply
  46. Ned: “DRA really is getting pretty uptight about debt!” Well, it’s actually getting harder to find anything to panic about, in Oz. Always amusing to see these little insertions from the tin tanks, bewailing the(ir) situation. One thing DD is right about, Ned. Americans really are still asleep at the wheel… .

    Reply
  47. There would seem to be some logical inconsistencies coming through – On one hand we’ve got talk of be careful because it’s “a time of rising interest rates” (which implies growth and inflation.) And on the other we’re still hearing the woe unto Oz property prices storey. Guess we’ve just got to make our own minds up.

    “Americans really are still asleep at the wheel” – Wouldn’t have credited it! I’d assumed they’d figured out they are looking at a few lean decades? With the only real question being just how that impacts the rest of us.

    Reply
  48. Ned: “….we’re still hearing the woe unto Oz property prices story…” All the repetition doesn’t make it so. It’s not hard to create a culture of dissatisfaction with the promise of half-price houses. What’s harder is to maintain that culture when the promise isn’t fulfilled.

    What we saw in two of America’s largest cities leads us to believe that a fuel crisis would cause sheer panic and dismay. Take Bill’s latest vehicle purchase, for example… an F350. His apologetic rationale “Fuel’s cheap here” (compared to Europe) means he’s really learned little there. One of the reasons outer-suburbia, with its huge malls and far-flung home-sites went through major trauma and crashing values, was that Americans experienced the reality of high(er) fuel prices. Many, on minimum wages, just couldn’t afford to live that far from work! OK, oil prices are ‘reasonable’ again… the panic has abated… God’s in his Heaven and all’s well with the world.

    Canadians aren’t that much wiser… massive ‘trucks’ (they call them) with continually empty trays. Fuel is 30% cheaper than Oz, of course. You’ve got to ask the question: “What if oil went to $200 per barrel?”

    Reply
  49. Surely ’tis a slight mark of approval to have someone so, and you can’t deny this, well regarded as Saul Eslake comment on DR.

    I also think his responses have been measured, polite, to the point, and I might say, logical.

    Be good if others could observe the same civil manner.

    Thanks for your thoughts, Saul, it’s a pleasure to be able to hear first hand the thoughts of someone so well regarded.

    Disclosure: I’m not a property bull. My dear old grandfather (W Sage of Sage Bros Real Estate in the Bayside Mel area – many years as an agent held in very high esteem with his brother Jim) has taught me many a thing about this market, and the overarching point is that we should be buying houses for a home. That is, a roof over our heads for our well being. NOT for speculation (which is where I think the real crux of the problem is, along with easy money).

    Reply
  50. Two SMALL items that seem to be missed here.
    Where would property prices be if we had not stabilised our economy temporarily by selling off another $100BILLION worth of equity in our own nation in one year????? The amount of the govt stimulus including First Home Vendors Grant, and the Gerry Harvey thank you package, is one thing. This is easily dwarfed by the amount of equity in our resources and companies sold off last year.
    Australia absorbed 15% of the world’s savings last year. This money is not sent here because they LIKE us or we deserve it!!!! It is sent here to earn a return. The repatriation of dividends and interest on the debt is already a major factor in our Current Account Deficit. It is destined to become much worse under the current regime of either political party and the banks.
    In addition, where would we be if the Govt had not put us all on the hook for the $400 BILLION the Banks needed to roll over and couldn’t do so without a Govt guarantee????
    “Resilient economy” “well managed and capitalised banks”?????? Codswallop.
    We are just lucky we are a small population with large inground resources that we are willing to sell off cheaply (not mine and sell….just SELL in the ground!!!!!) in order to pump up a housing market so that young people cannot afford a house.
    What makes me angry is this wholesale sell-off and mortgage of our country just to keep the politicians and PTB in power!!!
    Saul…what about a bit of truth to the Australian people through the media as to the true indebtedness of our nation to Foreign entities?
    What about some truth with regard to how much of our country has been sold off just to maintain the fiction that is house prices in order to save the Banks?

    Reply
  51. Some good points raised here. Flawse acknowledges that government intervention has meant Australia is in far better shape than the US and UK. He should also acknowledge that the FHOGs gave 200,000+ Aussies (many of them young people) homes… and simultaneously ‘freed-up’ 200,000+ rental properties, so that rents plateaued (and in some towns) actually fell… . The government secured its tax base, by supporting construction. It also secured the stability of the banks, ensuring not only that our financial institutions remained solvent, but our stockmarket is in better shape than it might have been. (Hard to believe I’m supporting Labor here, but let’s give credit where it’s due.)

    Tim, arguing that “… we should be buying houses for a home… ” is as profound as me suggesting we should only buy gold for jewellery. There is no economic, moral, religious or philosophical rationale for such a proposition…. .

    Reply
  52. Or you could just buy gold flawse, that way you no longer have to worry about the ‘well capitalised’ banks & governments determined to devalue the dollar.

    Reply
  53. Dear Saul,

    Thanks for your time and input, you have some interesting points. However, I put the below in point form for easier reading

    – If I understand your calculation, you take Australia’s total debt and divide by total housing
    – A bank, MBS or any other mortgage lender has a very different portfolio of LTV (for example banks don’t include fully owned homes which clearly would bring down the average, I have a vague recollection that 40-50% of houses have a mortgage)
    – I think the latest RMBS issues in the last month or so had an average LTV of around 60% (my guess is that this is lower than the a banks typical portfolio, I also called one up and they are still lending up to 95%).
    – Your type of calculations could have 40% of houses with no mortgage and 60% with a 100% mortgage, this would be a highly toxic portfolio.
    – Should housing go down by 10-20%, I would guess you would see excessive stress in portfolios amongst the 70-95% LTVs in the portfolio.

    -Hence, your analysis is good and relevant on micro scales, small portfolios and individual investors

    – but lacks on the large macro level due to distortions and adjustments you would need to make across the portfolio for who is effected and the number effected as prices come down (correlation of assets = 1 in crises).
    – Obviously slight effects even with 10-20% falls in asset prices would reek havoc on bank balance sheets with typical equity of around 10% at most at present.

    Debt to GDP
    – the debt to GDP ratios taken by Steve Keen, are relevant, as it says much about an ability to service (and how much has been pre-spent on this as IOUs) based on a level of income.

    -Ability to service is far more relevant on an economy wide basis, as it is the ultimate determinant of an ability of someone else, the next buyer perhaps (ie the general australian economy) to support the purchase price (a debt funded price at that).

    – The buyers price and ability to pay is ultimate test of the true price of an asset and the best way to snuff out a bubble or pricing distortion (pricing no matter how great, has of recent been a terrible indicator of value).

    – Hasn’t the last 12-18months taught us how terrible prices can be as an indicator?

    I suggest you read a fantastic book, “This Time it is Different” by Dr Rogoff and Dr Rheinhart of Harvard (or spellings similar to that). A brilliant piece of historical research into debt and crises, you would be very well served to read it as it goes back 150+ years across the globe, far more than the myopic statistics usually presented.

    As is the process in the US, eventually there will be a switch of attitudes from, isn’t increased lending, credit and gearing a great thing, to maybe we need to manage our level of gearing. A leverage to a de-leverage mentality. Biggest rule and insight, leveraging is quicker and easier than de-leverage (which is slow and painful)

    Reply
  54. EDH said: “Should housing go down by 10-20%, I would guess you would see excessive stress in portfolios amongst the 70-95% LTVs in the portfolio.” Nice guess, but I really fail to see why, frankly. It doesn’t work like a rise to interest rates of another 10% might… . (Even then most of us held through 17.5%!)

    Most Aussie homeowners aren’t fools, despite the desire by some to paint them as incompetent. Those with one home won’t panic and run to rent because the value of their home falls!~ :) Those with a string of rental houses will find their _equity and thus capacity to borrow more has fallen._ If you believe they’ll panic and sell, simply because their (omigoddddd!) ‘portfolio’ has lost value, then you simply don’t understand housing investors… .

    So where’s this _excessive_ stress you see ‘effecting’ the market, as you put it… ?

    Reply
  55. A debt should be tied to the income earning capacity of the asset, with the level of debt reflecting a multiple of that yield. Why? Because asset markets are sensitive. You can’t look at overall asset/liability ratio without looking at the asset’s capacity to repay that debt.

    Lenders should restrict debt to multiples of yield. It’s so simple. Otherwise you end up with a speculative situation that ends up in a positive feedback loop of ever more debt feeding rising prices, encouraging more debt and so on… Until one day, people decide they don’t want so much debt or lenders don’t want to lend it. Or simply, the number of individuals taking that level of debt on is not enough to sustain the prices…

    This is the crucial issue here and something totallly ignored in the asset/liability argument. It is founded on the assumption that if there is trouble, the asset could be sold off at the market price and everything will be fine. Well, let me tell it’s not. Let’s start with an extremely basic lesson: We live on planet earth and on planet earth, if everyone is selling the same kind of asset, what happens to its market value?

    It over corrects. No, we are not reasonable individuals. No, we don’t know the future. Asset markets are rarely in equilibrium.

    Over correction ensues… Sell off and deleveraging begins… Then no one wants to touch that asset with a barge pole let alone with mass debt as before… People save as their asset no longer does it for them, pay down their debts, aggregate demand suffers… Unemployment rises… The Central planners step and try to save everyone from what they missed!

    Now, given we agree on those points, ask yourself when it comes to what Australia’s debt consists of, whether speculation and assumption of ever rising prices applies… Is the debt linked to yield? Hmmmm. Mortgage debt at 90% of GDP? Consumer credit at 10%? House prices 250% in real terms above 1990 levels? Median house prices at 8 times annual income?

    Reply
  56. Pete
    EDH was talking about Housing speculators not investors

    Reply
  57. …said mr.”blawzay” banker saul eslake stuffing turkey with his bread, “what the hollow difference does it make whether it’s alive or dead…as long as she cooks without the shrinking, a bankers’ banquet will follow…oh yeah, and lots more drinking…!…”…

    Reply
  58. Nirvan, there’s a very, very fine line between investment and speculation, particularly in DRA’s commonly documented ‘demise-of-property’ context. In fact, as Ben Graham in ‘Intelligent Investor’, notes, “….the prototypical defensive investor is “…one interested chiefly in safety plus freedom from bother.” Graham admits, however, that “…some speculation is necessary and unavoidable, for in many common-stock situations, there are substantial possibilities of both profit and loss, and the risks therein must be assumed by someone.” DRA continually assets that there’s considerable risk in Australian property… and that investors _are_ in fact, speculators.

    To conclude: “Many long-term investors, even those who buy and hold for decades, may be classified as speculators, excepting only the rare few who are primarily motivated by income or safety of principal and not eventually selling at a profit.”

    The fact remains that a 10 – 20% fall will affect very, very few Australians. I’ll concede that a 10 – 20% rise in interest would see quite a few in distress… ! ;)

    Reply
  59. Pete I don’t know where you got that impression. My major point is that it was NOT Govt intervention which has been the major factor in Aus escaping (so far) the worst of the GFC.
    The major factor has been our willingness to sell off our future in order to continue to consume at a rate much higher than we can actually afford. The overbuilding in housing is merely part of the problem.
    What i really want is for the Australian people to be given some truth about the real situation here. Then we could all debate what our priorities ought to be.

    Reply
  60. Is anyone getting tired of Mr n-Ed and myself and our tall yarns? I was thinking (as usual :) :) :) ) that my jolly canuck mate and I might stop using this place as our little chat room in the absence of Don’s fabled forum…unless of course people want me to stay. You’d miss me anyway! :) :) :)

    On that note, i’m off to extort some money from some Haitians :) :) :)

    Reply
  61. I’m happy to move along – There’s certainly a good number of things I’d like to pick Biker Pete’s brains on – But most probably aren’t that relevant on a site that makes its bread and butter selling stocks and bullion trade picks – And expresses a loathing for housing and superannuation – Which will most likely be the backbone of my retirement.

    Reply
  62. Not my post, Ned. The Keen Klone Klowns are up to their old tricks again. It’s why I morphed from my Biker Pete tag, back to my original ‘Pete’ tag… . No worries, mate. I’m sticking around. Don’t mind the heat! :)

    Reply
  63. If I was a real biker i’d consider joining Steve too-Keen-for-his-own-good on his long ride. I just use the tag because I look like a tired old biker! :) :) :)
    Still KEEN to share that beer with you though…or 20! :) :) :)

    Reply
  64. Poor little petals – Just SO bitter and twisted!
    Think it might be a really good idea to pull out all the stops and see if I can’t outcompete them – As relying on them for some crumbs in my retirement sounds like a VERY iffy strategy.
    And there I’d been thinking of backing orf … :)

    Some good news though Biker – Was blogging with a lad recently who’d read our previous “Great House Price” debate – He followed your feelings and bought. All working out real well for him. Looks like once he’s finished his mandatory term, he’ll move back home and rent while he enjoys all the advantages of a neg geared property without the future CGT downside. He’ll miss the joint a lot. But inclines to the view that the opportunity is just too good to pass up. Damn good for him I reckon!

    Reply
  65. “Poor little petals – Just SO bitter and twisted!” HaHa… you’re not wrong, mate. If it doesn’t ring true it’s not you know who. Gawd.. They must be more worried than I thought… . :)

    Tried to get my sons to pick up the FHOG… but they ignored it and just bought rentals. Couldn’t be bothered with the required six-month term. Our classic tale is the young tenant who not only picked up the $21K, but also the Shared Equity Scheme, in which the WA Gov’t owns up to 40% and you own up to 60%. He built a brilliant house in a good area near the beach… and is paying less in repayments than he was paying us rent.
    Never been so happy to see a good tenant leave us for a better deal! :)

    Reply
  66. Pete
    Ofcourse there is a thin line that separates one kind of speculators from one type of investors. But then there is also a spectrum that separates a kind of speculators from a kind of investors.

    Reply
  67. I think we’d have to agree it’s a continuum, where the difference in definitions moves along a line starting with LOW RISK and ending with VERY HIGH RISK, Nirvan. Government policies, interest rates, immigration, employment, etc are all factors which push the PI left or right.

    While I see myself as an investor, I’ve no doubt others (Bubblepedia Pete, for example) would call me a speculator, with a few expletives preceding it… . Each to his own perception.

    Reply
  68. “more worried than I thought” … Oh Yeh, they passed up on the FHOG and have pretty much sussed that even IF there is a bit of a dip there’s a very good chance they’ll be knee deep in investors.

    That’s why I’ll look at building too – I sure don’t love effort. But, hey what to do? When bargains are limitted a bloke has to try and make his own. Which is one of the reasons I prefer property to stocks – I can add some value.

    Reply
  69. I love out little chat sessions neddy ned. They should change the name of the site in our honour – “The Daily Rambling”! :)

    I’m glad I have this site though. You know you’re my only friend Neddy? And likewise I presume. If I didn’t chat to you on here all day, every day, i’d certainly be a lonely man. I mean, even when I was on the other side of the world I made sure to check in on you :)

    My wife had better lookout ;)

    Reply
  70. Ned: “…one of the reasons I prefer property to stocks – I can add some value.” I figure I add about $25K value to a project (physically) Ned. The missus claims it’s less (she’s a great negotiator for a better price). At my age I need all the physical work I can handle. Just too hot (43 today) to dig holes and trenches at present. Getting soft in me old age. Three cooler days a-comin’…

    Reply
  71. Well, that sounds just like Just In (AKA Bubblepedia Pete). I see he’s back to the ‘wayward wife’ biz which marked his previous contributions. ;) Wasn’t he also the contributor of some pretty nasty anal rape stuff?

    Reply
  72. Nirvan – The good news is that the know nothing ignorant nuckle draggers on this site (of which I’m one) will probably be told reasonably shortly what “our” philosophical position is regarding housing “speculation” – And “investment” – With a few indicators as to which is what perhaps? – Via the Ken Henry tax review.
    Ah, I do love an easy life – Given that I’m NOT a preacher! NOR a priest! And know that those who are, are very, very often, self interested grubs … :)

    Reply
  73. That last comment wasn’t me neddy.

    By the way, have you ever wondered whether a man’s bond can go beyond just friends? I mean, sometimes I feel we have this connection that is so deep.

    Tell me you feel the same? :)

    Reply
  74. EDH 18/01/’10: “I suggest you read a fantastic book, “This Time it is Different” by Dr Rogoff and Dr Rheinhart of Harvard (or spellings similar to that). A brilliant piece of historical research into debt and crises… “

    I’m not sure the academics really do better than the soakwell diggers, EDH. Consider that Harvard University’s endowment fund suffered investment losses of 22%, or about $8 billion, initially, during the GFC. Months later the losses had risen to 27.3%. Our family made over 8% during the same period. One member of our immediate family made well over 20%, buying very close to the bottom of the ASX.

    Don’t know that I think too much of academics’ opinions, frankly. Wonder if they rescind your doctorate if your thesis proves highly inconsistent? Maybe you get a silly T-shirt as a consolation prize?!

    Reply
  75. Maybe you should put a pic of your haemorroid op up as your call sign mate? Dare say that could disconcert any little butt burglars pretending to be you!!! Cheers … Ned! :)

    PS: For all them that’s interested … Mine’s titanium!!! :) But please handle with care regardless! :) :) :)

    Reply
  76. Speaking of soakwells Neddy…did you know that I am an expert on everything?

    Frankly and honestly and truly Neddy, I have made so many millions in all types of investment. Saul Eslake should be in awe of me! :)

    Funny though, my million-dollar soakwells don’t make me happy for some reason. Here I am every day on this website, alone. But one thing does make me happy Neddy (besides your company of course)! But I can’t say it here, it could be used as evidence.

    Reply
  77. Yep, its Bubble Pete or the Fluox Man. Guess we’ll just clog up the airwaves with his silly banter. Notice most of it isn’t hetero? Wonder if there’s an arsebandits’ site we can direct him to? ;)

    Reply
  78. “That last comment wasn’t me neddy.
    By the way, have you ever wondered whether a man’s bond can go beyond just friends? I mean, sometimes I feel we have this connection that is so deep.
    Tell me you feel the same?”

    Darling – Please tell me it’s true … And that you’ve just been playing hard to get and house prices are gunna go down … 40%? 50%? (I’m starting ta quiver luv!) 70%? (Oh, oh … The earth IS moving!) 90% … OH … Let me hold off just a little bit longer so it’ll be REALLY cheap … Ho hum – Dumb Ferk!

    Reply
  79. Yeh Biker – The boy/girl/androgenous blob has a few issues to work through – Normally I’d try to help. But this one sounds like it’s more than capable of helping itself.

    Reply
  80. But this time he did sign himself off. Haven’t seen DF on the site before.

    Reply
  81. Ah it took me a moment of calm reflection but it’s YOU isn’t it Pill Boy? Jeez, ya bin missed cuz! Welcome back!!! Bit of good fun though.

    So what’s the story Prozak? Inflation? Deflation? Labour? Conservatives? More GDP printing? Even LESS chance of buying an Oz house???

    Reply
  82. Maybe you’ve got the inside running Biker? But my guess WAS Pill Boy??? (And most sincere of apologies to him IF I was wrong?)

    Reply
  83. Ah, all remains well with the world – China is looking at 10% growth. Oz is looking at 4%. And the US and DRA are trying to figure out the difference between a turkey and a stuffed eemoo! :)

    Reply
  84. Yeah, could be the Flu Ox, Ned. Wouldn’t bother to apologise. I recall some pretty twisted prose from the past… .

    “China is looking at 10% growth. Oz is looking at 4%”. We expect 6 – 8% growth on assets ourselves… a modest return, but we’re happy with that. Some are calling 10% for WA, but I doubt it, myself.

    Reply
  85. Night night neddy xx

    Reply
  86. The director of Access Economics, Chris Richardson, said the speech was a ”scene-setter” for the coming Henry review of the tax system, which is expected to propose potentially unpopular changes … http://www.smh.com.au/national/pm-warns-of-ageing-population-time-bomb-20100118-mgst.html

    So it looks like there could be some entertaining news in Ken Henry’s tax review fellahs.

    And Yes, nighty nites to all the Aussie expats in Vondelpark too! :)

    Reply
  87. “As SBD notes: “Saul, try looking around the rest of this site a little.” Please do so. You’ll see unity of purpose, determination, and perseverance towards a common goal in the face of _overwhelming_ odds. It isn’t easy to daily identify multiple reasons why Australia’s economy should utterly collapse… and the martyrdom of our hero (forced to climb the mount wearing a silly T-shirt) will, in the future, result in sainthood, fasting and a national holiday.”

    Mind if I feed the troll fella’s? What I get from this site is not; buy gold, sell stocks, the housing market is doomed. It’s “The patient is too doped up for anyone to diagnose, and is going to die as a result.” That being one of the analogies presented here. Life of people, countries, economies naturally contain ups and downs. What annoys me as a member of the public is being forced into a worse situation that would have occurred if they had kept their damn mitts off and allowed natural corrections to take course.

    FWIW I have never bought stocks, am not sitting on bullion, and own my own home outright, with zero intent to sell. 40 acres of paradise, with a few cattle and a new orchard for future income. So my only concern about valuation is with regards to how much local council extort in rates, they use rising valuations as justification for rate hikes, but claim its equalised over an entire shire, wheres the spots that devalued proportionally?

    Tho, given the singular response by the so called Saul, the lack of further contributions, and the target of his posts, it was evidently just another facet of the resident chameleons split personalities. At least we only have to put up with him IF we read his posts, he’s stuck with himself 24hours a day! Lol!

    My bad for getting suckered into believing it was genuine, I’ll return to the background. Keep up the discourse guys, its still worth reading most of the time, unlike the yahoo finance forums.

    Reply
  88. Wake up Prozak and sit ya sore sorry saggy butt down at the computer ‘n kiss me ni nites son – Bin a hard day’s thinkin’ I’ve done here … So I need a bit a cheer!

    But seriously Pill Boy, when Biker said we need more “optimists” here, I’m not sure he meant “gay” types in the way that more cultared 10 quid pom and little boy in the dutch dyke type cross breeds might interpret that? Just my thought though??? … So by all means carry on regardless! :)

    Reply
  89. “The patient is too doped up for anyone to diagnose, and is going to die as a result.”
    “If they had kept their damn (sic) mitts off and allowed natural corrections to take course.”

    Spoken like a true flatliner… .

    If you believe that _any_ government, anywhere, will tolerate ‘natural corrections’ which result in higher unemployment, collapse of financial institutions, loss of tax base and loss of a major industry, then you, my son are “too doped up” for anyone to diagnose. IF you read this (because you pretend it’s an option not to)
    please respond. I’ll know you’re exercising the advice you give others (ignore the troll) if you don’t respond;
    but please feel welcome to explain exactly what you’re doing on an investment site, if you’re not _investing_.

    Reply
  90. Ten Quid POM.. you think he gets that much per trick, Ned?! ;)

    Reply
  91. But neddy, both you and Biker’s wife are stealing his love from me! And I need his love so much! How can I ever hope to acquire a home without it? Surely you MUST understand??? I’m a truly desperate little piece of Dutch doggy do! :)

    Reply
  92. I do love the little tricksters who enjoy stirring the pot – But won’t come out and play when it gets a bit hot!

    Yeh Biker, Prozak’s stuffed – All his trading profits in GBP are worth squat. And Oz houses are powering. The boy’s pretty much had his bridges burned for him – So it’s REAL fortunate that he doesn’t like it here! :)

    Reply
  93. Yeh Biker, Prozak’s stuffed – All his trading profits in GBP are worth squat. And Oz houses are powering. The boy’s pretty much had his bridges burned for him – So it’s REAL fortunate that he doesn’t like it here! :)

    Reply
  94. Yeh, Prozak’s stuffed – All his trading profits in GBP are worth squat. And Oz houses are powering. The boy’s pretty much had his bridges burned for him – So it’s REAL fortunate that he doesn’t like it here!

    Reply
  95. Where is the little bugger? Cruising a London or Amsterdan park perhaps? Jeez Pill Boy – When I said “bend over and kiss your butt bye bye”, I didn’t mean REALLY it literally??? – A “girl” has ta try ‘n keep her self respect ya know! :)

    Reply
  96. I do so look forward to retirement in my dotage in a nice little low maintenance 76 m2 POM home with me rose bushes in the 12 m2 front yard.
    And lots of other cultcharred wogs ‘n wops ‘n coons as me neighbours – While me highly desirable Oz properties continue to earn me income in a valued currency.
    Pill Boy’s stuffed … Nah, nah, nah, nah – Stop it Ned! – Grow up!!! :)

    Reply
  97. Well, if you want to see ruination, the UK is a good place to start, Ned. It can only get worse. I’m sure he will show up to give you your g’night kiss, tho’, mate.

    Reply
  98. Yeh, Britain’s a disaster zone mate! And the US next. Sweet Yesau – How the most mighty DO fall? Think I’ll keep my head RIGHT down and just be a humble little Oz property investor type what’s happy with 10% or 12% pa regular like.

    Reply
  99. Hi guys. Have setup a temp forum @ money.vanillaforums.com

    Reply
  100. And have you ever had a look at the Yank imprisonment rate mate – It’s much the same as the bods in their military. Which is really, really high. And translates to a seriously sick society! That reckons they can and should run the world? A very kind offer Ta But as they say I think! :)

    Reply
  101. Recruitment is pretty high from that sector, too. Unapologetic about it. The TV ads push the line that you can turn your life around in the front lines. Non-stop advertising, even on some pay channels…

    Reply
  102. Russia has high imprisonment rates too. And puts lots of lads in the military. But they are definitely NOT silly enough to think that career path is going to lead to the good life anytime soon. I do seriously worry about the gullibilty of the Yank populace?

    Reply
  103. Hmmm … No ni nites kiss from Pill Boy? But I did wait up for you diddums? :)
    Perhaps you’ll feel to come back ‘n play some time when your GBP FTSE type stock investments stabilise … At whatever level that might be! :)

    Reply
  104. Good luck with the forum, FHB. Hope it goes well. Not really my scene, I’m afraid. I learn most when I’m listening to the folk who might just be able to spot the stuff I haven’t seen coming yet… even if they throw it at me. ;)

    Reply
  105. Same for me FHB … Ta.
    Gotta hang round where ones’s ideas are most despised and railed against to pick up the true gems in amongst all the arty farty flak I suspect? (And I’m not even an Oz property bull??? :) )

    Reply
  106. Flawse makes a really good point that Australia is selling off itself to fund an unsustainable lifestyle now, and selling our country cheaply, for that matter.

    I think that Foreign Ownership was last reported in the 1990’s by the ABS and was at 95%. Then it was no longer reported.

    Flawse states: “The repatriation of dividends and interest on the debt is already a major factor in our Current Account Deficit…”.

    There was (and is) a clear choice for Australia: sell your country off cheaply, do not back yourself and reap poverty for a majority of your people; or back yourselves, buy your country back, innovate and create wealth here using the resources that belong to you, and cut back the restrictions to growth (Big government, high taxation, high regulation, unstable currency environment, “one-way” Free Trade Agreements, and poor policy).

    Most Australians are not dumb, I believe – they just are never informed of the true state of their country.

    So much of the economic activity of this country is misdirected – while housing is a key long term path to wealth under current taxation, policy and subsidy structures in Australia, imagine what could be achieved if policy was skewered toward sovereign, independently owned high quality Manufacturing and Agriculture (with water kept in the soil as a precursor)? It’s not as if we have a lack of technical expertise! If Thailand can import a car to Australia with 0% tarrif, yet an Australian car can go into Thailand with, I think, an 80% tarrif, is this a Free Trade Agreement, or a one-way jobs drain? I can vividly recall talking to rural locals in a dairy/forestry area, where family farms were being bought at double the market price and turned into monocultured tree plantations. Everyday jobs on the dairy farm were lost, and the local town shrank in size. Why? The fella who told me the tale suggested that it was my tax dollar, through the managed investment schemes, that permitted these farms to be destroyed!

    It’s not too hard to imagine: go back to 1971 when Australia and Canada were the wealthiest nations on Earth – multiple (8+?) car manufacturers exporting to Asia and throughout the Southern hemisphere, a rich set of other industries, strong farming families with real wealth and not debt-for-machinery, rich resources that had a chance for independent Australian ownership. Rosy.

    This was, of course, set up by the policy makers of the post-War era, who had been young adults through the Great Depression of the 1930’s. They had seen what happens here when commodity cycles bust, and were determined to avoid this again. After 1970, policy achieved the amazing result of destroying almost all of this base for national wealth, and within a generation we are completely Foreign Owned.

    Like Flawse, it is angering from a national perspective. This is my opinion. Happy Australia Day.

    Reply
  107. Jakk, speaking of ‘Big government, high taxation, high regulation, unstable currency environment, “one-way” Free Trade Agreements, and poor policy’ try this one on for size;

    http://www.businessspectator.com.au/bs.nsf/Article/Henry-review-recommends-government-lifetime-income-pd20100123-ZXTDQ?OpenDocument&src=hp16&rf=s

    Reply
  108. Yikes, Justin. If you die early, the government will scream “Super!”.

    Reply
  109. I think Aussies are smart. People everywhere are smart, if you strip away some of the external permitting, non-permitting factors they’ve been influenced by etc. In Australia we have just had such spoiling through our resources, national security etc we have just not learnt as a young nation yet what perils could await. At least in a relative sense. So we can be accused rightly of apathy…maybe natural under the circumstances.

    Reply

Leave a Reply

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au