Thursday 28 April 2011

History Never Repeats.


History never repeats,
I tell myself before I go to sleep.
Don't say the words you might regret,
I lost before, you know I cant forget.

You say I always play the fool,
I can't go on if thats the rule,
Better to jump than hesitate,
I need a change and I cant wait.


800 years of bursting bubbles and financial folly analysed in one book. This Time Is Different is a  book by Carmen Reinhart and Kenneth Rogoff that makes the compelling case that it’s always not different and history indeed does repeat.

As Carmen Reinhart and Kenneth Rogoff show in "This Time Is Different," financial catastrophe is invariably preceded by periods of prosperity and New Era rationalizations.

Messrs. Reinhart and Rogoff have compiled an impressive database, which covers eight centuries of government debt defaults from around the world. They have also collected statistics on inflation rates from every country where information is available and on banking crises and international capital flows over the past couple of centuries. This lengthy historical study gives what they call a "panoramic view" of the unending cycle of boom and bust, showing how claims that "this time is different" are invariably proven wrong.
Reinhart and Rogoff demonstrate that financial meltdowns typically follow real-estate bubbles, rising indebtedness and gaping current-account deficits.
"This Time Is Different" doesn't simply explain what went wrong in our most recent crisis. The book also provides a roadmap of how things are likely to pan out in the years to come. [b]Real-estate bubbles invariably give way to banking crises. Losses in the financial sector are followed by the sharp deterioration in government finances amid bailouts and decreased tax revenue. The decline in economic output that follows the bust is sharp, but the recovery tends to be slow and protracted. The situation is especially dire when the crisis is geographically widespread.


Wait there's more...

The authors present eight centuries of financial folly, demonstrating the common theme that excessive debt accumulation regardless of the source — government, business or consumer — poses greater systemic risks than it seems at the time of the boom. (MoneyWatch recently interviewed Reinhart for her views on the current state of the economy.)

  • Infusions of cash make a government look like it’s providing greater growth than is actually being provided.
  • Private-sector borrowing binges inflate housing and stock prices beyond sustainable levels and make banks seem more stable and profitable than they really are.
  • Large-scale buildups of short-term debt make an economy vulnerable to crisis of confidence.
They demonstrate that financial crises are protracted affairs that share three characteristics:

  • Asset market collapses are deep and prolonged. Declines in real housing prices average 35 percent and stretch over six years. Equity prices collapse an average of 56 percent over a downturn lasting three-and-a-half years. Thus, the most recent crisis seems quite typical.
  • The aftermath of banking crises is associated with deep declines in output and employment. Unemployment rises an average of 7 percent over cycles lasting more than four years on average. Output falls more than 9 percent over two-year periods, and it has taken about four-and-a-half years for output to fully recover.
  • Government debt surges an average of 86 percent in real terms. The main cause is not spending but a decline in revenues
The bottom line is that the aftermath of crises has a deep and lasting effect on asset prices, output and employment. Unemployment increases and housing price declines have extended for five and six years, respectively. The authors also note that V-shaped recoveries in equity prices are far more common than V-shaped recoveries in real housing prices or unemployment. (2009 is certainly not an exception.)



So lets summarise. AT LEAST a 35% fall in house prices creating a spiralling feedback loop of rising unemployment, falling asset values and business failures.

Its never different.

Those who cannot remember the past are condemned to repeat it. - George Santayana (1905).

Amazon USA
http://www.amazon.com/This-Time-Different-Centuries-Financial/dp/0691142165 (Book)

Amazon UK
http://www.amazon.co.uk/This-Time-Different-Centuries-Financial/dp/0691142165 (Book)

Wednesday 20 April 2011

To be sure, to be sure


In his inimitable way, Max Keiser analyses the Irish debacle from within. Take note Australia.

Part 1:



Part2:





There is no end in sight for this train wreck.

3% falls Q1 2011 and 14% falls over 12 months.




Tuesday 19 April 2011

Plenty of room at the Hotel California


Robert Gottliebsen in the Business Spectator on Nov 29th wrote an article titled Noosa's Hotel California.

Noosa Heads, Australia, is a long way from Ireland and California but it has experienced a similar real estate shock – a 70 per cent fall in the value of a major property. It’s a long time since Australia has seen prime property fall by that much.

The ingredients which caused the big value falls in California and Ireland were repeated at Noosa (and the Gold Coast). In the boom there was a huge influx of loan money, fanned by overseas banks led by HBOS, small regional Australian banks, independent Queensland property lending groups and the major banks. This sent property values through the roof and triggered a large number of development projects.


Then suddenly the money disappeared. Most of the foreign banks went home, the independent financers went broke, the regional banks went back to what they were good at and the majors also cut back lending. In Noosa the value of run-of-the-mill apartments has fallen between 20 to 30 per cent and similar declines would have been experienced on the Gold Coast.

But 20 and 30 per cent is a long way from 70 per cent.


and,


In all Resort Corporation spent $210 million on the Noosa Sanctuary resort and clearly believed that the market value of what they were creating was much higher than that.

The project went into receivership and it was generally thought that the very worst case scenario was a 50 per cent drop in value to $105 million. That would have gone close to covering the HBOS first mortgage debt which was in the vicinity of $120 million. But no. The highest and winning bid was just $60 million, payable in 21 days. HBOS lost half their money on a 60 per cent first mortgage security. Second and third mortgage holders plus the equity funds were wiped out.

$210M to $60M? Carnage.

The Gotti wrote a new piece today titled Why Australian Property is Losing its Shine.

What’s happening on the Sunshine and Gold Coast apartment markets is a mirror image of what happened in the housing markets in the southern and mid-west states of the US. And it provides a valuable pointer to answer the two questions that plague so many Australians: What could cause an abrupt end to the high level of Australian dwelling prices? Or, put another way, how do we maintain or increase Australian prices?
 
Reflecting local and global concern at Australian dwelling prices we have seen enormous traffic generated by two recent commentaries on Business Spectator (This housing bubble could break our banks, April 12; and Time to sell Melbourne housing? April 16, 2011).
 
In both the US and the Gold and Sunshine Coasts during the last decade we saw a mad scramble by lenders to fund dwellings. In the US it was all part of the sub-prime disaster. In the Gold and Sunshine coasts we saw overseas banks led by HBOS funding a series of apartment developments.
 
That convinced some local banks, including Queensland banks, to join the party.



And quite the party it is.

Gotti tries to polish the turd a little in the hope that Property Investors don't start queuing on the Storey Bridge to do a swan dive.

 
As long as banks keep restricting the supply of dwellings and fostering the demand by generous consumer loans, dwelling prices will not slump.
 
But if Australian banks restrict consumer housing credit in the same way as the US banks and the banks involved in the Gold and Sunshine coasts market did we will see a big fall in property asset prices, which, in turn, will lead to a rise in bank bad debts.
 
In many ways the Australian banks are trapped. They must keep up consumer housing funding to avoid a fall. As long as the bankers understand their role in the game all should be well. But you can understand why some global investors get nervous. Bankers are not always that smart.


Too late Gotti, too late mate.




 Even the professional spruiking vested interests are surrendering. From Lateline Business last night.:

EMILY STEWART: Clearance rates in the two major auction markets, Melbourne and Sydney, remain down on this time last year.

Preliminary figures from RP Data show there were more than a thousand properties up for auction in Melbourne last weekend, but only 60 per cent sold. That's down from around 80 per cent this time last year. And in Sydney, around 800 properties were auctioned, with a clearance rate of 65 per cent.

David Airey, the president of the Real Estate Institute of Australia, says the slowdown began in Perth in 2009.

DAVID AIREY: Prices have certainly softened in every mainland capital city and Tasmania as well through - more noticeably over the last six months, but in particular the trend has been over 12 to 18 months.

EMILY STEWART: Andrew Harvey from the Housing Industry Association says a spike in prices in the major markets last year was caused by the Federal Government's stimulus package for first home buyers. He agrees that demand is now softening and that it's mostly down to recent interest rate rises.

ANDREW HARVEY, SENIOR ECONOMIST, HOUSING INDUSTRY ASSOCIATION: These corrections we're seeing in the housing market are entirely appropriate. They're what you'd expect after those interest rate increases. And also, they're basically what the RBA would be after to be slowing the demand a little.

EMILY STEWART: And as for claims that a housing shortage exists in Australia, David Airey says the opposite is in fact the case and there is a significant oversupply of houses in the market.



Last night Standard and Poors put the USA on negative rating watch as their govt debt hovers around 100% of GDP and rumours circulate that QE2 will be the end of QE. Dow promptly dumps 140pts.

Click and weep: US Debt Clock

The PIIGSUK will take out global credit markets, the USA will take out equity markets, Australian property crash will take out at least one of our banks. "Easing",flatlining and soft landing my arse.

Mirrors on the ceiling,
The pink champagne on ice
And she said ’we are all just prisoners here, of our own device’
And in the master’s chambers,
They gathered for the feast
The stab it with their steely knives,
But they just can’t kill the beast

Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
’relax,’ said the night man,
We are programmed to receive.
You can checkout any time you like,
But you can never leave!



Monday 18 April 2011

Man the Barricades.

"A prayer's as good as a bayonet on a day like this."


IMF believes Greece should consider debt restructuring.

but,

Greek finance minister denies debt restructuring plan.

China raises reserve ratio to curb inflation.

World Bank President: "One shock away from a crisis"

So your super is tied to equities and hasn't made a razoo in the last 4 years.

When TSHTF I fully expect the usual whining that "nobody saw this coming".  They did and called it. You just choose not to listen.

Good luck.

Sunday 17 April 2011

Whats that on the horizon Captain?



The REIV has surrendered in their latest blurb here .

The Melbourne median house price for the March quarter is $565,000, according to the latest results from the REIV. This represents a six per cent reduction from the revised December quarter median of $601,000.

REIV CEO Enzo Raimondo said, “it is evident that the current residential market in Melbourne and Victoria has entered into a different phase of lower transaction numbers and reduced price growth.

Reduced price GROWTH? Minus 6% a quarter makes the crashes in Spain, Ireland, USA look like benign easing. String together 11.2 quarters of -6% and in October 2013 your house is half in value.

The bogan rags are foaming a little as well in an article yesterday Melbourne property prices plunge.

MELBOURNE'S property bubble is bursting, with $400 a day wiped off the average house price in the past three months.


After peaking at $601,000 late last year, the median price has fallen to $565,000 - down $36,000. The 6 per cent slump is the biggest quarterly drop in more than two years and one of the biggest the Real Estate Institute of Victoria has recorded since the height of the global financial crisis.

So Melbourne is joining Hobart, Brisbane (all of QLD actually) and Perth, which had falls according to RP data.



That 2nd green 'hump' of positive returns is all Rudd/Swann FHOG boost. Your taxes inflating a bubble.

The Courier Mail (auxiliary toilet tissue used north of the Tweed R.) had some blurb about SE Qld house prices falling at the rate of 1.25% per month. I raise eyebrows and think, hell, that's bad. Yet some idiot writes in and says -1.25% a month is nothing and his investment is safe.

At this point I spray coffee onto laptop. It then dawns on me, we are a nation of the quite stupid (how could one govt after another get away with the shit they do). I remember a study done a few years ago confirmed this and after clicking and googling I finally find it.

Literacy and Numeracy 2006 (Adult Literacy and Life Skills Survey)
Prose

  • 7 million (46%) Australians aged 15 to 74 years had scores at Level 1 or 2 on the prose scale;
  • a further 5.6 million (37%) at Level 3; and
  • 2.5 million (16%) at Level 4/5.

Results for document literacy were similar to prose.
  • There were 7 million (47%) Australians at Level 1 or 2 on the document scale;
  • 5.4 million (36%) at Level 3; and
  • 2.7 million (18%) at Level 4/5.

On the numeracy scale,
  • approximately 7.9 million (53%) Australians were assessed at Level 1 or 2;
  • 4.7 million (31%) at Level 3; and
  • 2.4 million (16%) at Level 4/5.

On the problem solving scale,
  • approximately 10.6 million (70%) Australians were assessed at Level 1 or 2,
  • 3.7 million (25%) at Level 3; and
  • 800,000 (5%) at Level 4 (table 1).

What does it mean? If you use long words, require analytical thought, or any numerical reasoning such as percentages, rates of growth/decay (eg falling house market) over 50% of Australians are not going to get it.

Read it and weep:
Australian Core Skills Framework (examples of 'level' skills at bottom of page)

Now this sits well, logically, with the demographic that actually buy investment property, those that think getting 4% yield (after expenses) on money borrowed at 7% is a good idea.

These folk:



Back to the -1.25% a month and the village idiot who claims that's nothing to worry about.

In 12 months. -14% off your "asset" (well the banks if you are mortgaged)
In 24 months. -26%
In 36 months. -36.4% (now Mr Nothing-to-worry-about is soiling himself and realises he holds a toxic lemon with a gabled roof).

Time to halving in value? 55 months and 3 days (4 years and 7 months). Oooooh that's about how long it took for Dublin prices to halve.

This doesn't account for inflation for we could possibly be in a deflationary spiral by then.

Now whose asset is it. If you have put down a 70% deposit and prices fall 30%, you've lost the lot and the bank's asset is still safe (your debt), if you stop paying because of 'circumstances' it will be a foreclosure sale and you are on the street.

If you borrowed 95% using mummy and daddy's equity and Rudd's icecream, a 30% fall is a serious bank problem. You are in the hole for over 6 figures and technically bankrupt but the bank is holding a loan backed by a lemon.

What of the slick dude who bought a house in 90s went to a seminar and using equity bought 2 investment properties, then 4, then 8. A 30% correction and he is toast, the bank is now having a collective thrombo.

I could have just wrote 'what happened in Ireland (or Spain or USA)' but what the hell.

Now Australia's GDP is around $1.2Trillion, and if Australia's mortgage debt around 85% of that (this just amazes me everytime I see it, not just how stupid are the populace but how slick are the banks and govt playing the stupidity for all its worth)...


I calculate that a cool $1,000,000,000,000 ($1T) is mortgage debt.

Now a 30-40% correction in the housing marked takes out YOUR equity first, then the banks, how much of a hole will that put in banks balance sheets? $100B? $200B?

Who do you think will pay for a $200B bank bailout? You got it.

Tasmanian Real Estate Trouble on Wednesday posted a startling article titled "Business" where he outlines just how far, deep and wide the tentacles on this monster reach into the small business community.

Let there be no doubt, when she goes 10% unemployment in this country will be a 'good set of  numbers' (consider Spain's 19% and Ireland's 14.7% which was 4.5% before the housing crash).

USA:



Australia's Economic Model:


Irish Junk, Spanish Unemployed, Greek Turmoil

No barbs on this. The EU is in trouble. The last time they had an unified currency things were run from Rome not Brussels and an Emperor had his face on Sestertii.



The Telegraph (UK not the Sydney toilet tissue) has articles here and here.

Greek, Irish, Spanish, and Portuguese 10-year government bond yields rose as markets continued to believe further debt restructurings will be needed eventually.

Fears that Greece will default rose to fresh highs yesterday after Wolfgang Schaeuble, the German Finance ministers, that a further restructuring of the company's debt may be needed, despite last year's €110bn (£97bn) bail-out.
George Papandreou, the Greek Prime Minister, did little to appease market jitters when he presented the outline of fresh fiscal plans but said the measures would only be spelled out in detail after Easter.

and,

Moody's downgraded Ireland's debt rating to just above junk status, citing "weaker economic growth prospects" and "uncertainty" created by EU solvency tests.

It said the country's austerity plan is weakening government finances and it may suffer further as a results of interest rate increases by the European Central Bank.


That downgrading is a gimme, but,

Greek banks are big holders of sovereign debt; a haircut of a third to a half would immediately trigger another banking crisis in Greece and turn an already catastrophic flight of capital into a rout. The banking system would very quickly collapse. A restructuring would also collapse the country’s pensions system, as the asset of choice among Greek pension schemes is Greek sovereign debt. Pensions too would have to be cut severely.

You can see why the Greeks are so determined not to restructure. Default would also require big write offs among German and other eurozone banks, and therefore necessitate a further round of recapitalisations. The systemic consequences would be extreme, possibly worse than the Lehman’s collapse. Much the same observations can be made about Ireland and Portugal.

and, Spain? Spain's jobless could pass 5m says finance minister 5M unemployed is akin to 2.6m in Australia. Remember what brought Spain asunder (from the article).

Spain's booming construction industry drew millions of unskilled immigrant workers and generated high levels of economic growth in the decade to 2008.
But the collapse of the property bubble, compounded by the global financial crisis, left many people out of work, especially immigrants and youths.
The unemployment rate soared to 20.33pc at the end of 2010, the highest in the industrialised world.

And Britain? Britain will not join the EU bailout find. Probably because they'll need their own bailout. PIIGSUK.

So Europe on borrowed time, China about to pop (blog comment forthcoming) and an Australian housing implosion.  Everything is fine. Wayne said so.


Wednesday 13 April 2011

"It's not a joke, it's a rope, Tuco. Now I want you to get up there and put your head in that noose."


Everytime I think of ghost towns I think of "The Good, The Bad and The Ugly" (1966). A cult movie (IMO) I used to watch with my Dad when TV was Black and White.

Just like today, the bad guy wore a suit.  I can understand the bad guy with a suit but not quite getting my head around (after 40+ years) the good guy wearing a blanket (?).

I'm busy writing quite the tome on China, Japan and history (whilst working) so these are short and sweet posts but this caught my eye. It caught my eye as I've seen swathes of empty condos and apartments in the last 12 months on the North Shore, Gold Coast, Sunny Coast and North Queensland.

Its an article about empty American towns with populations >10,000. When I mean empty, half the homes are empty.

I find it hard to imagine a county with 50,000 or 100,000 people where half the dwellings are empty. Especially in beautiful Maryland (Washington DC straddles Maryland and Virginia) or North Carolina.


4. Worcester County, Md.
Number of homes: 55,749
Vacancy rate: 60%
Population: 49,274
The Maryland State Department of Assessments and Taxation recently estimated that the county would have a sharp drop in its tax base in fiscal year 2012 and "another, more drastic, revenue decrease" for the fiscal year that follows. The twin engines of county's economy are tourism and agriculture. Experts believe the tourism business in Maryland's Eastern Shore could stay crippled for years






6. Dare County, N.C.
Number of homes: 33,492
Vacancy rate: 57%
Population: 95,828
Dare County includes the northern-most parts of North Carolina's Outer Banks. The situation in the vacation area is so severe that the "Outer Banks Voice" recently wrote, "If Dare County Manager Bobby Outten was intending to sound an alarm by suggesting that the EMS helicopter and school nurses were expendable in the next budget, he probably succeeded." His comments are unlikely to be terribly different from those of other executives of counties on the list. Vacant homes and homes which lose double-digit amounts of their value each year irreparably undermine the tax base. And, as services fall, fewer potential homeowners will consider investing in the area.




View the article here: American Ghost towns of the 21st Century.

I don't for a minute expect those Aussie locations to become ghost towns but empty developments are just that...empty.  Particularly galling whilst the thieves in suits spruik a housing shortage lie.



 Remember...good guys wear blankets.
.

Tuesday 12 April 2011

Bye bye Miss American Pie



Oh, and there we were all in one place,
A generation lost in space
With no time left to start again.
So come on: jack be nimble, jack be quick!
Jack flash sat on a candlestick
Cause fire is the devil’s only friend.

Recently the US govt was almost brought to a standstill over budget cuts. At the 11th hour a deal was brokered...and the markets cheered. How big was the pie that they fought over?

Picture = thousand words


And in the streets: the children screamed,
The lovers cried, and the poets dreamed.
But not a word was spoken;
The church bells all were broken.
And the three men I admire most:
The father, son, and the holy ghost,
They caught the last train for the coast
The day the music died.

Unstable Pillars



Prof. Steve Keen has written some interesting stuff lately on the instability of our banks due to their exposure to an over priced housing market (bubble). His work appeared in Business Spectator and his own Steve Keen's Debtwatch.

I'm not going to regurgitate it all like last Saturday's 3am Doner Kebab, read it all yourself, but here some snippets.

.
A persistent refrain from the “no bubble” camp has been that Australia and its banks won’t suffer anything like a US downturn from a house price crash, because Australian lending has been much more responsible than American lending was.
 
Actually, out debt to GDP ratio exceeds that of the US and has grown three times more rapidly than did American mortgage debt since 1990. Real estate loans are also a higher proportion of Australian bank loans than for US banks, and their rise in significance in Australia was far faster and sharper than for the US


and,


More significantly, real estate loans are a higher proportion of bank assets in Australia than in the US, and this applied throughout the subprime era in the US. The crucial role of the First Home Buyers' Boost in reversing the fall in the banks’ dependence on real estate loans is also strikingly apparent.




and,




In Australia, impaired assets hit an all-time low of 4.1 per cent of bank Tier 1 assets and 0.2 per cent of total assets in January 2008, but August that year impairment was on the rise again. Impaired assets have since reached a plateau of 25 per cent of Tier 1 capital and 1.25 per cent of total capital – while house prices were still rising. Despite full-recourse lending, this is comparable to the level of impaired assets in US banks before house prices collapsed when the subprime boom turned into the subprime crisis



.




As I said you can read it all yourself.

What happened to bank stocks when the property market fell into the poo ditch (the collapse of US bank share prices is stuff of legend so I'll skip them)?

(You can click on each chart to expand it, to identify which bank)
Britain

Ireland


ALL those bank stocks peaked in early 2007 at the 'highs' of their respective country's property bubbles well before the global stock market peak of late 2007 and the Lehmann Bros crash of Sep 2008.

Which Australian bank do I really love to watch?

The one that is the biggest general insurer in Australia (natural disaster exposure), insures "Aussie subprime" mortgages and has a massive exposure to the rotting carcass that will soon be QLD real estate - Suncorp.

Do I have long dated Put Options? I must admit I have.

If I pay insurance on my house burning down I may as well pay a premium for it halving in value.


Monday 11 April 2011

Whats that whistling sound?


Its on boys and girls.

One of the finest recalcitrant bloggers (and GFC predictors) on the planet, Mr Mike Shedlock is calling the Great Australian Housing Crash.

Feel the love here and here. Do your own reading. 

For the stimulus-will-save-us losers lounge...

Simply put, the pool of greater fools has run out.

Stimulus will not help. After all, how many rounds of stimulus did the US try to restore housing prices? Let me count the ways.

US Housing Stimulus Tried and Failed

  1. Fannie and Freddie nationalized
  2. Home buyer tax credits
  3. Home buyer tax credit extensions
  4. HAMP - Home Affordable Mortgage Program
  5. Numerous foreclosure moratoriums
  6. QE round I
  7. QE round II
  8. Fed bought $2 trillion in mortgages to keep rates low
  9. Fed holding short-term rates at zero percent
  10. Record low mortgage rates
Did any of those work? How many others did I miss?

Regardless of how many I missed, none of them worked. So why would they work in Australia?
Summarises it well in my opinion. You think the investors are listening?




Peso del Pacífico #2


Expanding on my post here, I want to post on what drives the Peso under current global interest rate (and QE) conditions.

First, the global Foreign Exchange market (FX or Forex) turns over $4,000,000,000,000 ($4T) a day of which 84% of all transactions involve a $USD and a pissant 7.6% an AUD.

Make no mistake the $USD drives the FX world.

With that in mind, the world's financial boffins created the US Dollar Index, a tradeable index (CME Futures) that measures the USD against a basket of currencies.

  • Euro (EUR), 57.6% weight
  • Pound sterling (GBP), 11.9% weight
  • Canadian dollar (CAD), 9.1% weight
  • Swedish krona (SEK), 4.2% weight and
  • Swiss franc (CHF) 3.6% weight.
  • Japanese Yen (JPY) 13.6% weight.
The index is often used on the Futures market to hedge against the equity indices, oil and metal speculation (inverse relationship).

How does it measure to the Peso del Pacífico?


A beautiful inverse relationship oui?

So how does the DX (US Dollar Index) look. Nudging some support now and if it breaks down, another 5% down to the next support level.



For a giggle you can look a the nodding Wayne Swan dog on the dashboard or the Spruiking cheerleaders in Fairfax, News Corp etc but serious Peso watchers keep an eye on the driver Mr DX, if he puts his foot to the floor and breaks 74 down the Peso at 1.10 beckons.


Sunday 10 April 2011

Hypja Sig Burtu



BBC: http://www.bbc.co.uk/news/world-europe-13022524

Iceland rejects Icesave repayment deal

Nearly 60% of people were against the plan

Icelanders have rejected the latest plan to repay the UK and Netherlands some 4bn euros lost when the country's banking system collapsed in 2008.

Partial referendum results show 58% voting no, and 42% supporting the plan.

Johanna Sigurdardottir, Iceland's Prime Minister, said the rejection meant "the worst option was chosen".

UK Treasury minister Danny Alexander said the decision was "disappointing" and the matter would go to an international court

Oh dear. Democracy works. Well, in some places it seems.

If I didn't believe 90% of the developed and semi-developed world was a kleptocracy, a plutocracy or a combination therein, blogs like this wouldn't exist.

Good on the 60% of the Icelanders that told the banksters to hypja sig burtu.

Betcha the Irish, Greek and Portugese are contemplating why their limp dick governments are more smitten with bond holders and bankers than their citizens welfare. As they face a generation or two of austerity they must consider the fact that Iceland has a sovereign currency.

Some of the piglets are not like the others.


Its all right Paddy, Stavros and Rodrigo. Everyone knows you are trying to explain to your family why you've lost your job when you worked hard, paid your bills and never borrowed too much money and always paid it back. We sympathise.

The bankers don't. Betcha the guy carving up your neighbourhood's mortgages into BB and C+ Credit Default Swap tranches earns more in one year than you would have in 40.

Suck it up.




Sacred Cows



A few days ago Unconventional Economist wrote an excellent expose of the rort that is negative gearing.

You can read  it here.

The call to end the rort is growing louder from journos such as Michael McNamara at Fairfax writing the blasphemous.

So its obvious, instead of entrepreneurial activity (that might actually add to the productivity of our economy) we instead encourage investors to gear themselves up to speculate on property. Hang-on, isn’t asset price speculation the sort of thing that creates bubbles? Sure does baby!


In short, negative gearing misallocates resources in the economy by ripping funds out of the small business sector and pouring it back into highly geared property speculation. Is that really what we want as the focus of our economy? Sounds like a one way ticket down sub-prime-collapse street to me
Stop, hey, what's that sound, everybody look what's going down*. Its the penny dropping or the whistling sound of an inbound Irish style financial missile, depending on your glass half full/empty perspective. Further,

Those like the PCA would say that negative gearing assists affordability issues because of the stimulus to supply. Tanya Plibersek as Federal Housing Minister also pushes this argument “any change in negative gearing would be a disaster for rental availability in this country”.
Yet,
The nail in the coffin in this spurious argument about the possible disastrous affects on supply is found in the lending Commitments data. In 1986, smack bang in the middle of Keating’s dalliance with negative gearing reform, the proportion of investors buying newly constructed properties rather than established ones was a healthy 62%.


Today, according to the RBA, that proportion has shrunk alarmingly to only 6%. This means that these days negative gearing is used by investors to buy established properties – not new ones.


Surely, if negative gearing was meant to encourage a lift in our nation’s housing stock then these figures show that policy to be a spectacular failure.
6%? WTF!

94% of NG is for existing properties. My rort alarm just went off...


Now the property speculation taxation rorts that feed  the bubble has gained a foothold at groups like Prosper Australia and Get Up but any low to mid-income, property investing, bogan wouldn't touch them with a jousting stick (especially the Global Warming spruiking Homo luvvies at Get Up).

I mean look at the income demographic of the property investor.

The earner on >$150k that get the most tax benefit, comparatively, wont touch this glittered turd with their G.Loomis custom made fly rod.

Bogans like:
(Things Bogans Like - The Full List).

So this is where we get to my point. Scott Pape of Barefoot Investor fame went live on talkback radio on his views as to why negative gearing is a dud policy. The information source for the Bogan Intelligentsia south of The Rio Grande, The Herald sun published this gem.

I WAS getting absolutely annihilated. Live on radio. And I was the host
For reasons I'm still trying to piece together, I agreed to be a fill-in host for a talkback radio station.
My topic?

That negative gearing - the tax perk relied on by over a million landlords - should be banned.

The hate from callers spewed through my headphones and right around the country - a parade of old, white, angry men taking turns to chew me up and spit me out.

Not for the first time in my career, I was completely out of my depth.

Don't get me wrong. As a (barefoot) investor I've been a big beneficiary of negative gearing over the years. (For those of you who've never dated an accountant, negative gearing essentially allows you to borrow to buy assets, and then claim the loss as a deduction on your tax return. Even better, if you hold the asset for more than 12 months, you get a 50 per cent discount on any capital gain you make.)

Superannuation aside, it's one of the last great (legal) tax dodges.

Over 1.7 million Aussies have worked out that you're better off from a tax point of view becoming a landlord (well, so long as your loss-making investment gets bid up by other investors using negative gearing) than you are working and saving your dough - which attracts no tax breaks.

And that's why it's a dud policy.


I suggest you read the whole article, you get a bonus story about the nutty dude that became a Real Estate Agent (obviously missed his medication) after the rudimentary 3 year apprenticeship in turd polishing. Here is the link again.

I love this bit.
The hate from callers spewed through my headphones and right around the country - a parade of old, white, angry men taking turns to chew me up and spit me out.

I think a reference back to Jefferson Airplane* is the best response.
"Paranoia strikes deep
Into your life it will creep
It starts when you're always afraid
You step out of line, the man come and take you away

We better stop, hey, what's that sound
Everybody look what's going down"




Saturday 9 April 2011

California Dreaming




Date: 9th February 2006

Publication: Thousand Oaks Accorn (like the printed bogroll cum Real Estate spruikpads that doubles for newspaper in Queensland, California's Aussie Twin).

Construction industry says housing crisis has hit California

The California Building Industry Association (CBIA) continues to express alarm over what it calls an ongoing housing crisis in Southern California.


Alan Nevin, the association’s chief economist, projected in a 2006 CBIA Housing Forecast that only 185,000 to 205,000 building permits will be granted this year, far short of the 240,000 new homes needed each year.


Southern California has been experiencing a massive population boom in recent years and it’s believed that 6 million new residents will be living in the region by 2020. The population increase, coupled with the housing shortage, has the CBIA worried that it will be increasingly difficult for first-time homebuyers to find a moderately priced unit.

“Los Angeles and Ventura counties are suffering from a housing crisis,” said Holly Schroeder, chief executive officer of the Building Industry Association Greater Los Angeles Ventura Chapter. “While we have seen increases in permitting, it still consistently falls far below the needs of our region. We have to find a way to take care of our own and provide housing to those that need it and want it.”


To solve the shortage, many Southern California cities are increasing the number of permits they allow for the construction of condominium and condominium conversion units, helping to give first-time homebuyers a less-expensive alternative. But the CBIA still warns that these efforts may be too little, too late.

“In some cases, it can take nearly a decade to get new housing projects approved.That’s longer than it takes a pharmaceutical company to bring a drug to market,” Schroeder said. “The real question facing Southern California is how do we propose to help families realize the American dream and provide housing for the current and future generations living in California?”


The 2006 forecast published by the California Association of Realtors paints a similar a picture to that of the CBIA. While home sales are expected to decline by 2 percent and unsold inventories are predicted to increase, a 10 percent increase in the median price is predicted for a California home, the association said. Next year, the average home price in California is predicted to hit $573,000.

Officials are worried locally as well.

“We are concerned that a lack of sufficient housing is causing prices to grow exponentially,” said Gary Wartik, economic development manager for the city of Thousand Oaks. “We are worried that people who work in retail, as rookie officers and firefighters or as teachers, won’t be able to afford to live in our city.”

Wartik said Thousand Oaks is currently in a “slow growth mode” and limits its housing permits to 250 annually. The population cap for the city is set at 135,000.


The city of Agoura Hills finds itself in the same predicament as its larger neighbor. Except for a few planned developments south of the 101 Freeway, the city is nearing its residential capacity, officials said.


“Agoura Hills is worried about public employees being able to live within the community,” said Greg Ramirez, Agoura Hills city manager. “A year and one-half to two years ago, we implemented a first-time homebuyer program to help public employees afford housing in the area. The problem is that there are only a couple of condo developments in the area that they can afford because of the high thresholds of housing.”

While Fannie Mae and Freddie Mac have increased the single-family conforming mortgage to $417,000 in 2006, the amount won’t benefit most firsttime homebuyers since it’s still 29 percent lower than the average home price in California.

http://www.toacorn.com/news/2006-02-09/Front_page/005.html


  • Not enough homes being built.
  • 10% predicted growth
  • $570,000 median.
  • A shortage due lifestyle immigrants.  

 

How did they go? A -40% haircut in 4 years. 10% pa all right but the other way.

What about those sought after estates? 

  

Where else but Queensland California.