Dilbert And The Deflating Property Bubble

Obviously Dilbert's colleague bought a home in the last few years, believing the vested interest spin [via the highly respected media] that 'property always goes up' because of the misguided wildebeeste's belief in a property 'shortage'*.

*(2006) Construction industry says housing crisis has hit California (I hear the same crap in SE Queensland)

Gold Flags

I haven't blogged for a while as most of the stuff I've written is coming to fruition so its pointless writing "see, I told you".

• US debt spiralling out of control and the debt fuelled recovery stalling as the election looms.
• European debt is spiralling out of control and the Monetary Union is simply imploding and civil unrest spreading as austerity triggers a poverty and economic spiral. 
• UK debt spiralling and this week, officially in recession.
• Australian property continues its slide (1.15% fall a month for 5 years is 50% off!) as the mining myth remains a mirage for the simpletons in suburbia as Australian debt approaches 270% of GDP (Australian Debt).
• The Chinese bubble deflating rapidly.
• Japan is just a train wreck.

So what next? If you think that Europe or the USA are going to pay their debts, you are delusional. Next step is an attempt at hyperinflation. They'll just print money like confetti in an attempt to make that $15Trillion debt today look like a $15 fifty years ago. It will cause chaos and spiralling unemployment but f*ck the little people, as long as the banking kleptocracy stays high and dry.


The strategy involves central bank simply printing money and buying government securities...

...and the government then drops its new money on the financial sector (M1, broad money supply) like confetti...

In 1980 the Zimbabwean dollar was worth more than the U.S. dollar, with ZWD 1 = USD 1.47. Throw in some money printing and on 18 July 2008, a report on Zimbabwe's inflation, said that an egg costs ZW$50 billion (GBP 0.17, USD 0.32), and it showed adverts for prizes of Z$100 trillion in a Zimbabwean derby and ZW$1.2 Quadrillion ($1,200,000,000,000,000.00: approx. GBP 2,100; USD 4,200) in a lottery. It also showed a monthly war pension currently is ZW$109 billion (GBP 0.37, USD 0.74), shops can only cash cheques if the customer writes double the amount, because the cost will go up by the time the cheque has cleared, and people can only withdraw a maximum of ZW$100 billion froman ATM.
http://en.wikipedia.org/wiki/Zimbabwean_dollar#Exchange_rate_history

In 2008,  thirteen US cents (yes 0.13c) got you...

Has the USA had hyperinflation before? It certainly has, Hyperiflation in History (with 32 cases).

If the USA tries to hyper-inflate, gold is going polaric. Even this week the  Bank of Japan announces fresh stimulus to boost growth.

Some signals.

1. Fed Signals No Need for More Easing Unless Growth Falters (and growth WILL falter eg The Second Foreclosure Tsunami Is Coming, And Is About To Kill Any Hopes Of A "Housing Bottom")
2. Risk off? Having Sold Most of its Own, IMF Now Lauds Gold as 'Safe Asset'
3. Peter Schiff - QE3 is coming

Gold in a Bull Flag?

Firstly, some Technical Analysis 101. What is a Bull Flag?
Bull Flag Pattern 1
Bull Flag Pattern 2

Is Gold in a bull flag like in the links above? I think so.

How high could gold go? I came across this interesting piece of analysis. Ambitious? Maybe (or maybe not).

Aiutami Mummia

You can't beat austerity. Such a wonderful tool to spur economic growth and prosperity.

Markit/ADACI Italy Services PMI

Key points:

• Output and new business both decrease rapidly
  over the month
• Employment levels fall solidly
• Petrol price increases maintain high cost
  pressures

Italy is going to enter a depression, the likes of which even nonna never saw.

Read the rest in the link.

Remember Italy, like Spain, is too big to fail.

Please Explain? An Inconvenient Truth?

Something is giving off some aroma looking at the latest house prices in Sydney (Hobart is just bizarre).

Macrobusiness relays RP Data's latest bollocks index (no offence meant Leith):
http://www.macrobusiness.com.au/2012/04/march-house-prices-leith-van-onselen/

Sydney house prices at a median of $525,000.

Lovely.

30 months ago they were $600,000 (October 2009).

Median cost of a Sydney house tops $600,000

A TYPICAL Sydney house now costs well in excess of $600,000 after surging at the rate of $5000 to $6000 a month all year.

The latest RP Data-Rismark property index shows prices in Sydney, Melbourne and Canberra continuing to climb apparently unaffected by a slowdown hitting other state capitals.

What am I missing?

RP Data November 2009 release:
Capital city dwelling values – first ten months of 2009
•Sydney values (up) 9.9% to $553,583

RP Data November 2010 release:

Change in city dwelling values: 3 months to October
•Sydney values (up) 0.8% (s.a.) / (up)1.4% (raw); median price: $512,500

Later in the tables: (Sydney growth) Year to date 6.1%

How can house prices drop from $553K to $512K in 12 months to November 2010 and one claim 6.1% growth?

Thats a 7.4% fall.

And $600K to $525K in 31 months? Thats a 5% drop year-on-year and a total of 12.5% off from peak not allowing for inflation and then its ugly.

Outlook? Well, if history is anything to go by...

Hmmmm, look, there is a light at the end of the tunnel for property investors...

Shillwatch (or Identifying Bullshit Artists)

Two of my favourite sites exposing the bullshit Ponzi scheme that is the Australian economy (aka The World's Biggest Real Estate Bubble) are The Depression and Prosper Australia.  Both sites in my useful links and well worth a perusal (unless you are a real estate investor and live near that North African river: Denial).

A recent gem from Prosper:
Don’t Buy Now! campaign saves buyers $58,000 in one year 

Consider a typical Melbourne first home buyer couple with a 20% deposit ($120,000) ready to buy a home at the median $585,000 a year ago. Instead, they waited.

Their savings:
Melbourne median house prices have fallen 6.1% (ABS) – $35,000
The difference between Melbourne median rents $17,680 (TUV) and interest at 7.46% (WBC) on a $465,000 mortgage (ignoring stamp duty, principal repayments, rates, insurance, depreciation and repairs) – $17,009
Interest earned on $120,000 savings at 5.5% (ignoring tax) – $6,600
TOTAL: $58,609

“There is a further long-term benefit not included above: the smaller required mortgage would leave an extra $250 per month interest in a buyer’s pocket, or $41,000 over a 25 year loan. This money would be available at the buyers’ discretion for living expenses or to accelerate principal repayments.

“This is not a cue to immediately buy a house,” Collyer warned.

“Prosper expects house prices to fall much further. We repeat our forecast made February 23 of house price falls of at least 15 per cent and possibly 20 per cent this calendar year.

And, the subject of this post, shills, are exposed beautifully in the links from The Depression appropriately titled Vested Interests. 

These two articles are a must read:
A toxic mess: vested interests and the real estate industry, and
Urban myths of real estate

North Queensland

I occasionally visit North Queensland and The Cairns Post is an icon of piss poor journalism regarding Real Estate and is a hive of shills pandering to vested interests. One of the last times I was up there in October, I posted The Implant .

The reason is the market is in freefall and you can smell the desperation on the sea breeze. With 22% of the region's mortgages now in negative equity.

RP Data says 6.4% of homes were valued at less than their purchase price in the December 2011 quarter, rising from 4.9% in the September quarter.

Far north Queensland had the highest proportion of mortgages in negative equity, at 22%, followed by the Gold Coast, with 19%.

The Sunshine Coast was in the third spot at 15%.

The area with the lowest amount of negative equity was Loddon, Victoria, with 1.9%, followed by Canberra with 2%.

Brisbane fared the worst among capital cities, with 9.2% of property deemed to be "underwater" in financial terms, followed by Perth at 7.4%

Sydney had 3.6% of properties in negative equity, pipping Melbourne with a 3.5% rate. In Hobart, 6.2% of properties were in negative equity, compared with 5.5% for Adelaide.

I posted this graph not long ago on where Australia sits as we follow the USA (4 years behind, typical!). The post was Australia Now Driving On The Negative Equity Super Highway, Route 1 To Financial Perdition
if you review that post we are now climbing the staircase.

I've updated the graph, big change for just 40 days...

So how are the Vested Interests trying to get more victims via the media shills? Take this article...

Have a closer look at the graph. The horizontal scale (x axis) is skewed, its doesn't reflect reality. It appears that its had a shallow run up, a small dip and is now flat lining.

I've put the data into XL and regraphed into a more appropriate perspective (WTF is an average median anyway? Anyone that wasn't asleep in senior Stats knows that data is represented either as mean (average) or a median (middle value of range))

Now for the truly ridiculous. Tasmanian Real Estate Trouble outed an agent once in a post a year ago, in an oxy moronic title of Good Value . Its well worth a review (if you are exposed to this train wreck - review on an empty stomach).

Cairns is like most regional cities, but I can't quite confirm that because I've never been. My brother lived there for a while and invited me to visit at least seven times, but it seemed a long way to travel to sweat, not everyone thinks the same apparently because Cait Bester, of the Cairns Post, reliably informs us that investors will flock to the city and grind up against as much house as they can in the coming months.

Again, a real estate agent has their finely tuned antennae picking up all the right signals and those signals say it's money making time. Why? Because Benny August is fanning some cash - six fifties to be exact...

In Benny's world, commanding legitimacy appears to be yanking out $300 large from the nearest ATM and fanning it for the camera. Now ponder some of the highly respected people who would fan cash for a photo - gangsta rappers, Jersey Shore cast members and yeah, real estate agents. That irritating metallic noise you can hear, that's the bottom of the desperation barrel scraping. As I showed above, real estate agents tend to pull the investor card when attempting to scare up a bit of business. The implication - if you locals don't get in now, all those investors will push up the prices and rent these houses back to you at inflated levels. An even more cynical interpretation - if someone doesn't buy a house now, I'm not gonna make the lease on this X3 next month.

Benny's reasoning for a coming investor plague was quite simple...

"With the share market the way it has been over the last few years, we are now seeing the older and younger generation start accessing their super or taking control of it. They are opting to put their hard-earned funds into something more solid – the good old bricks and mortar."

An Investor plague? Well obviously a few cognitively challenged souls believed this horse dung and have piled in because in the last 12 months following this sage advice, FNQs negative equity stats have climbed (Cait gets a mention in my October post The Implant ).

Not to be beaten, as the aromatic tang of the FNQ RE industry shitting itself permeates the trade winds, there is a most bizarre new direction in the northern rag as The Post (Cait again) and Benny team up again.

Lucky? Lucky you Ben. Lucky you Cait.

2010 'lucky' winners

Now what about those people who borrowed 95% of a Trinity beach property a year ago?

The ones that forked out $10,500 in Mortgage Insurance; $20,000 in Stamp Duty; $13,000 in Deposit (accounting for the $7,000 FHOG or oz-sub-prime grant). That $50,500 is GONE! And as an added bonus, after 1 year you owe $372,500 on a house worth $365,500.

You win. If you followed the 'advice' in the Post and your $43,500 is gone and you owe $5500 more than your house is worth and you pay $12,000 more per year than if you rented. But its just a bronze folks.

2008 'lucky' winners

If you bought in 2008 you get the gold medal. $11,000 in Mortgage Insurance; $21,000 in Stamp Duty; $7,000 in Deposit (accounting for the $14,000 FHOG boost or super oz-sub-prime grant). That $39,000 is GONE! And as an added bonus, after 41 months you owe $375,500 on a house worth $365,500.

You really win. If you have faithfully followed the 'advice' in the Post and your $39,000 is gone; you owe $10,500 more than your house is worth and you pay $15,500 more per year than if you rented. Now THAT is lucky!

The difference between your negative equity mortgage payments and rent is just $576 a fortnight. Imagine having the 'luck' to shred $576 a fortnight AFTER burning $39,000 and if you sold your house right now you'll have to find $10,500 to avoid bankruptcy.

Once the car is sold (and the furniture) do you have $10,500? On the upside, you can buy a bicycle and tent at Big W and get change for $400. No sub-prime in Australia, no sireeee.

Ben, you indeed are...

...having the shills at The Post willingly lure more victims into the trap. More victims of the bullshit artistry.

Investor plague? Give us a fucking break.

The US Recovery

If I read any more positive spin on the US recovery I'm going to break something.

I posted this last month:

One of my favourite fund managers (I made quite a few bucks in one of his hedge funds in the noughties), Eric Sprott explains and analyses a few facts (also some encouragement for Silver bulls). For anyone myopic enough to think the party is on its a must read:

The [Recovery] Has No Clothes

The European Shell Game

 

European links

Four from Spiegel: 

'Even a 1-Trillion Euro Firewall Wouldn't Be Enough'(whoops)

Amid Debt Crisis, Athens Falls Apart (Who would have guessed? *rolleyes*)

Despite Progress, Euro Crisis Is Far From Over (bleeding obvious but worth a read never-the-less)

'The Problem Has Only Been Deferred' (I'd say transferred to the public from the banks and deferred)

Three from ZeroHedge:

Greek Deposit Run Update: Hopeless And Getting Worse  (I've said on this blog before - watch the money flows!)

 

Europe's Scariest Chart Just Got Scarier (I've written here before - remember the 1920s in Germany and what eventuated)

The Greek €107 Billion Contingent Liability Gorilla Exposed (It just gets better!) 

A Dose of Reality:

1. If Greece borrows money from the IMF/EU which means that they have more debt now than they did before they defaulted then they are worse off and not better off as they have a larger debt.
2. If Greece has an additional $107 billion in debt that has not been accounted for because it is not in the name of the Hellenic Republic but is guaranteed by the Hellenic Republic then how are they going to pay off this debt?
3. If the goal of this entire exercise was to reduce Greece’s debt to GDP ratio to 120% then how will a larger debt accomplish this as it is fiscally impossible.
4. If the “real REAL goal” was to pay off the European banks so they wouldn’t default then Europe has accomplished this goal but at a terrible cost to Greece and to the Greek people.

New York Times:

Ranks of Working Poor Grow in Europe (Betcha none are bankers)

Finally, from Bloomberg, what actually occurred (must read!):

Greek Restructuring Delay Helps Banks as Risks Shift (Kleptocracy at its best)

Delaying Greece’s debt restructuring by more than a year reduced banks’ potential losses as firms trimmed their holdings and most of the risk shifted to European taxpayers. 

Just a redesigned Shell Game.

“This is a horrible deal for the EU taxpayer,” said Raoul Ruparel, chief economist at Open Europe, a London-based research group. “The longer we wait for these restructurings, the worse the deal gets for the public. There’s an ongoing risk transfer from the banks to the taxpayers.” 

 The new borrowing -- in effect, replacing private with public debt -- will amount to 78 billion euros, according to the EU, leaving the actual relief from the swap at 59 billion euros. Greece also will need to draw money from a second, 130 billion- euro EU and IMF rescue fund to repay other private debt and finance the government’s budget deficit. 

And, Greece's total debt?

That will leave Greece’s debt at 161 percent of gross domestic product at the end of the year, 4 percentage points less than the current level, according to a March 11 report by the European Commission. The ratio probably will return to 165 percent in 2013, the commission said.  

Got that? Greece's debt is a mere 4 percentage points less and debt will be back to 'normal' in 2013 whilst most risk is now on the EU taxpayer.

When all IMF and EU loans promised to Greece are disbursed, 66 percent to 75 percent of the country’s debt will be held by the public. In 2010, before the first bailout and before the European Central Bank started buying its bonds, Greece had about 310 billion euros of debt, all held by the private sector.  

If Greece has to restructure again, or defaults, taxpayers will be on the hook.

“The swap doesn’t achieve debt sustainability for Greece,” said Nicola Mai, an economist at JPMorgan Chase & Co. in London. “Debt relief going forward will have to come from the public sector.”

Anyone that can't see the European Monetary Union is a Kleptocracy and in full self destruct mode [whilst its citizens get royally screwed], deserves what's coming to his/her investment holdings.