One Word of Advice For Those Playing the Australian Boom

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We should have more thoughts. But to tell you the truth, many of our thoughts went out of our head on our recent round-the-world trip. You need constant air pressure in order to maintain thoughts. And regular hours. Start getting up at midnight and going to bed at noon; thoughts have a way of disappearing by late afternoon. If they were ever there in the first place.

One thought that disappeared somewhere over the pacific was this:

The suntanned country must be close to getting burnt.

Australia is booming. Prices are high. It cost $38 for breakfast in the Crown Towers hotel. Even so, you could have only one cup of café latte. You’d have to pay extra for another one.

Our total bill for 3 nights was over $2,000. Impossible? Well, we thought so too. But when you throw in a bit of laundry…transfer from the airport…and breakfast for a friend, not to mention a consumption tax of $184, you end up over 2,000 bucks – without even a single dirty movie.

The boom has been going on Down Under for the last 19 years. Not even the Great Correction is stopping it. Each year, it sells more dirt to Asia… from 40% of its exports 10 years ago to 72% today. It should probably just sell all of Western Australia to the Asians and be done with it.

Meanwhile, the Ozzies enjoy their boom…raise their glasses…and throw raw meat on the barbie. Our colleague’s house in Melbourne has risen 200% in price since we sent her there four years ago. And it’s still going up. Converted shipping containers, transformed into mobile homes, sell for as much as $1 million. And truck drivers in the mining areas earn more than $100,000 a year.

How long can this go on? We don’t know. But our advice to our colleague was simple enough:

“Sell!”

*** From The Daily Bell:

The problem with where America is now is that the country has been built on one lie after another for the past decade and the lies show no signs of slowing down.

*** And here’s the Bloomberg report on the tax deal. As you will see, Congress will do “whatever it takes” to continue spending money it doesn’t have, including ignoring a law it passed last February:

Congressional Democrats and Republicans are preparing to set aside their budget constraints as they negotiate the extension of income tax cuts scheduled to expire this month

Their plans to declare a budget emergency as they approve the extension of tax cuts will override a “pay-as-you-go” law that was structured to limit Congress’s ability to finance higher spending or tax relief by expanding the budget deficit.

Extending all income-tax rates for two years, along with renewal of business tax breaks, relief from the alternative minimum tax and other moves such as expanded unemployment insurance could add about $750 billion to the deficit over the next decade, about $300 billion of which is beyond the deficit-expansion which the “pay-as-you-go” law would allow.

For all the campaign-trail rhetoric about deficit reduction and recent attention focused on a bipartisan fiscal commission, Republicans and Democrats alike say the so-called “paygo” law won’t be a procedural or political obstacle to extending all of the tax cuts without offsets in spending.

The paygo law, signed by President Barack Obama on Feb. 12, generally requires that tax cuts or increases in mandatory spending be offset by spending reductions or revenue-raising measures. The law allows Congress to exempt about $1.5 trillion if needed to extend many of the Bush-era tax cuts.

“That paygo law is just used to increase taxes,” said Senator Orrin Hatch of Utah, who is in line to become the top Republican on the Finance Committee next year. “It doesn’t make a hill of beans what the difference is as far as cutting back on spending and the overregulation that these Democrats have brought to this country.”

Regards,

Bill Bonner.
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. Once again Mr Bonner naivity has shone through:

    “It should probably just sell all of Western Australia to the Asians and be done with it.

    This means that Western Australia is not part of Australia and that the Federation owns a sovereign State.

    It seems Mr Bonner’s knowledge of Australia has been gained anecdotally and heuristically.

    Tom Dalgleish
    December 13, 2010
    Reply
  2. It is official Western Australia has no Housing Shortage. After years of implying that Perth house prices were safe because of a shortage of property in WA & demand would underpin Perth house prices REIWA president Alan Bourke said in Todays West Aust News (11th Dec 2010 Real Estate Section page #4 )” With the Exception of the Pilbara there is no housing shortage in WA “. So the foundation stone of Perth property prices has been that Under Supply would not allow house prices to fall. However now after years of saying that there was a MASSIVE under supply REIWA now say there in “NO HOUSING SHORTAGE” so much for investors buying recently at record high prices having the surety of a housing shortage keeping prices up…. Now just how sure can investors be that REINSW / REISA / REIVIC & REIQLD won’™t come out next week or next month & confirm that in their States the Great Australian Housing Shortage was Just a Myth? Next year 200,000 Migrant & Student numbers cuts will further compound oversupply! Tenants & Buyers will be few on the ground driving down Rents & Prices.Just when interest rate rises exclude many buyers from entering the market further compound the glut of listings!!

    Not Fooled By property Spruikers Hype
    December 16, 2010
    Reply
  3. Sunday Times 5th Dec 2010 Page#4 Article says Perth Average incomes went up from 2000 to 2010 by 38% … Think about this wages went up by 38% Tops { EVEN WITH A MINING BOOM IN THE MIDDLE}.. Now since 2000 house prices have gone up from $185K to $500K a rise of of 170% ??? … So wages go up 38% & house prices go up 170% ? Hands up who thinks this can keep happening? {Put your hands down Dogman / Travs / Mark }…. But wait a minute Property Spruikers Golden Rule is that property doubles every 10 years so shouldnt PRICES only be $370K? {$185K x 2} PLEASE dont forget 38% wage increases was with a mining Boom in the middle!!!…. So one could safely say that in the next 10 years that is all that wages should do up another 38-40%. even with our mining boom so todays average household income of under $70K pa will be $98K pa at most by 2020? The most a bank will lend someone is about 5 x incomes so that would be $500K on a $600K home with a 20% deposit. Now investors N*E*E*D property to double for Negative Geared investments to work & if property can only go to $600K by 2020 because of wages they will start dumping houses reducing demand & prices. This is happening today as we speak!!!

    Not Fooled By property Spruikers Hype
    December 16, 2010
    Reply
  4. First Home buyers have abandoned the housing market …. This is what REIA said …. The number of loans to first home buyers decreased 2.8% to 22,823 over the quarter and 52.9% over the year – the September quarter saw the lowest quarterly participation of first home buyers for six years….. W*O* FHB down by 52.9% in the last year . I thought Dogman said they were back??? & this is what they said about A*L*L home loans … Over the year, the total number of loans fell 28.3% – the largest annual decline in Australia since March 2001….. Ouch a decline of almost 30% … they went on to say … “These all-time lows are extremely concerning, not only is affordability on the decline but loans being issued are down and first home buyer participation in the market is the lowest it has been in six years,” …. as usual happy to supply a link to support what I say …. http://www.reia.com.au/userfiles/MEDIARELEASE_1291765327.pdf ….. You would need to be one of the biggest optimists to enter the housing market today ….Property Speculators will look at the great mining projects up north & talk of the 15,000 new jobs that they will need to get the projects but they ignore the following very conveniently. … 1) WA is in a drought thousands of jobs have been lost as there are no crops to harvest slashing incomes , plus job losses in support industries { most of these surplus farm workers then go & work on the mines driving trucks & graders etc to pay the mortgage on the farm result = ZERO NEW WORKERS ADD TO STATE} … 2) The high AU dollar has caused a crash in Overseas Tourist arrivals & a rush in internal tourists now holidaying overseas because their dollar goes further. These workers are taking up the jobs up North feeding miners cleaning rooms etc… 3) Over 40% of mining employees live in the East or NZ & commute to WA for work {They are not going to buy a house} 4) 457 Visa holders are not interested (& in most cases not able) in buying a property in Perth as the contract is only Temp they will not relocate family A) Kids schooling B) High cost of ownership due to exchange rates (up 50% since 2009) All this is academic as property has already started its slide down! Home loans down 28.3% !!!

    Not Fooled By property Spruikers Hype
    December 16, 2010
    Reply
  5. Item 7 here pretty much sums you up, son:

    http://www.perthnow.com.au/business/news/borrowers-to-be-spared-december-rate-rise-econ

    While your sales script credits you with ‘God-like power(s)’, you reaffirm it whenever you get the opportunity. Stand in front of a mirror. Take a _really_ good look. You’re not God. How you could mistake _that_ image for God is, erm, astounding. ;)

    And I’m also sure your response ‘PINHEAD’ is self-deprecating. You’ve nothing new except endless regurgitation of the same dire stats, cherry-picked in the hope that if you repeat it time-after-time-after-time, some sh*t will stick. We’ve learning to ignore you when up to six consecutive large dumps are posted.

    Finally, if I’d called you a prick rather than a prozack you might have some complaint, mate… but if the cap fits, the former seems appropriate.

    Reply
  6. “Not fooled”

    I think you are hitting the wrong audience here. You have no new material. We’re all well aware of these problems (Ignoring a decent number of weak points).

    What is your alternative?

    The best termed deposit gives you about 3-4% abover CPI. Real CPI probably is ~1-2% above a max rate 5 year TD.

    The stock market is a dog. I got out within 5% of the peak in 2007. I was all in on MBL small caps at the time. I made 70% in the previous year and 50 the year before. Since then I haven’t touched it with a pole. The bull has run it’s course. The only thing keeping it propped is the great majority of people who don’t tune their super payments, and get the default index spread. That keeps the ponzi floating… sideways.

    Trading is possible but is more likely to wipe out mums and dads without experience. In todays market there is no buy\hold startegy. I would not even hold overnight. Intraday scalping are viable, but risky, and take a LOT of effort to develop skill in.

    Outside that, the only ‘easy’ options to an average joe to plonk his cash is to buy physical PM’s and chuck it in a deposit box.

    What’s your suggestion?

    Reply
  7. @ Chris …. I am not offering an alternative …. Property has been hijacked by SPECULATORS to make a buck… They call themselves investors but they are not…. They have managed to do this because of cheap money & leverage outbidding each other & pricing it out of the average persons reach … The problem is many average families have paid too much because Speculators have forced them to & they are going to come undone & set back 10-15 years … Biker Pete path to wealth is to suck as many people as he can so as to exit the market with a profit…. I cant see any harm in reminding people of the dangers in property investment.

    Not Fooled By Property Spruikers Hype
    December 16, 2010
    Reply
  8. Poor Biker Pete … Who upset him? …. His whole property world is crashing around him & he is getting upset at the messenger? …. I would not matter what I said if it were not the truth … Property is on the way out it has had its run it is going to take you with it Biker Pete … Deal with your reality dont get upset with me …. Now if you will excuse me I have to take care of that flood thing in the east I think I left the sprinklers on too long!

    Not Fooled By Property Spruikers Hype
    December 16, 2010
    Reply
  9. Is there anyone on this site who thinks they don’t understand the dangers of leveraged property investment?

    If so, put your hand up now as ‘Not Fooled By Property Spruikers Hype’ has something he’d like to remind you of – In spite of the fact that Dan Denning, Bill Bonner and Kris Sayce have been saying the exact same thing very regularly on this site for quite a few years now.

    As to you personally Biker … You are Doomed! Doomed!! Doomed!!! Oh, I forgot – You aren’t actually leveraged are you? So I guess you won’t actually be “Doomed! Doomed!! Doomed!!!” hey? :)

    Why do I get the feeling my comment re ‘playing the ball and not the man’ was totally wasted on you ‘Not Fooled By Property Spruikers Hype’???

    Reply
  10. Ned I have the reassurance that if ever I need to know your thoughts on a topic I need only Flush!

    Not Fooled By property Spruikers Hype
    December 17, 2010
    Reply
  11. With the stuff you dump continuously and in large quantity, N Fool, I imagine you’re continually flushing.

    You look pretty flushed at the moment, repeatedly locating yourself
    ‘of Perth of Perth’ on WA boards. Tic, tic, tic… . Losing those God-like powers? Get your script filled, Prozak. Godship is just a few caps away.

    Reply
  12. “I am not offering an alternative”

    Why not? I did. See, it was easy. Take a position. I’m a doomer. The ship is clearly sinking, and the current fiat system is coming to an end. I offer solutions to this as the problem is WAY bigger than a few dopy people getting clipped.

    Remember, people only take a loss on personal property IF they sell. Otherwise they can continue paying what they agreed to. If you take offence to variable rates, stick them on fixed. If you want a 100% guarantee on prediction of rates then simply use a muslim friendly loan. They can’t be racist and refuse you and you get a 30 year fix rate ‘payment’ easy as pie!

    If you are REALLY complaining about inflation than your gripe is bigger than simply speculators, but with the foundation of fractional reserve. I’m happy to debate on that topic if you show some understanding on this subject.

    Attacks on others only exposes your own fears for others to see.

    So again, provide a solution. Make it better than my one, or support my position. I’m open to debate.

    Reply

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