Dundas

02

The above sounds very familiar....

So how do you see things in the intl credit markets?
The US are now bailing out Fannie Mae and Freddie Mac.
Do you think the worst is over?

In an earlier post you said that foreign funds are being withdrawn from Australia.
Where are those going and where can they get better and safer returns?

The Australian lending market is regulated and even if property prices drop
people have to live somewhere and they aren't walking away from their homes. Even if some people default on their loans the banks aren't losing money. The loans are insured and our banks are still reporting record high profits.

Cheers

The Freddie and Fannie disaster has been long awaited. I wanted to short those pigs 4 yrs ago but they just kept dodging the bullets and the pps remained resilient, so I avoided them.

Everyone knew they were dead men walking but no one knew how long they could draw out the whole debacle.

They haven't submitted their financial reports for years because of the internal accounting chaos. They should have been delisted years ago for failing to do that. But because they fell into the too-big-to-fail bucket they were allowed to skirt the rules and the NYSE allowed them to remain listed.

So, here we are today. The most significant day in US financial history. The day it was finally revealed that a true free market no longer exists in the USA....its a sham.

What does it mean for the future, no one can tell you, you have to guess.
Will any of this save the US property market from collapsing, no. Although it may prolong the agony into a slower slide.

Where do you put money to avoid all this, the question is still open because although central banks will do everything to generate as much inflation as possible they may simply not have the ammo to prevent deflation anyway.

What is the direction for all westen currencies ...down , its race to the bottom. First out of the gate was the US, now the rest will slump back to a more equitable level against the US but all of them weaker relative to eastern currencies. This game of western currenices chasing eachother down will continue until they've devalued enough against eastern currencies to allow domestic wage inflation to finally resume. The wage inflation when it comes will help to deflate domestic debts. IMO the devaluating of the west (and simutaneous appreciation of east) will be the biggest event over the next 3-5yrs.

This is the obvious future resulting from globalisation.

02

The above scenario is not unlikely.

In regards to Australia though I think the situation is not so bad.

Being a resource rich country, our exports of raw materials and the high commodity prices should keep us above water and we shouldn't forget that we have higher interest rates than the rest of the western world and this is likely to continue.

So where would you put your money atm?
Are term deposits still the safest option or are the share markets about to turn?

Cheers

Well, I would avoid any currencies that have experienced a property bubble because central banks in those places will be doing their best to stoke inflation which will also cause the currency to devalue.

So that leaves CHF and to some extent perhaps Yen.

I think the commodity thing is on-going but in large drawn out waves. I think we've just embarked on a commodity price down slope. This along with an interest rate cutting environment will also mean a lower AUD.

Basically, to make money I think you now need to be a market timer.... not a short-term trader. In other words, these alternating waves of stocks up and commodities down then stocks down commodities up will run in cycles of 6-12 months. Ultimately though the currencies that these things are denominated will be down and inflation will continue in stealth.

Buy and hold is dead. Life wasn't meant to be easy.

02

Cheers mate

Hey Bill,

This article really brings it home,

US Dollar Rally Signals a Severe Deflationary Depression :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

Whats being described here is basically what I'm saying ..an oscillating future between inflation/deflation (ie stocks / commodities).

Right now it looks very much like we've started on a deflationary slope, gold down , commodities down ...also stocks down because much of the market is built on leverage. Once the leverage is squeezed out we will likely see more obvious stocks up , commodities down and visa versa directions.

I think the idea of using the direction of the USD as a barometer is an interesting one and rather smart.

...and for Australia you can take the pain mentioned there and multiply it by 2.


unfortunately.

02,

just quick one.... looking at historical data each time stock market went down, within 12-18 months IP prices skyrocket. Last time after Sept11. Lets just say inflation will help to write off some of the losses, dust settles in 18 months. IP prices in 2 years will have to look some how cheap. Few "experts" already expressed opinion about next IP boom. How do you see IP market in 2 years time?

Well, as I said I think the jurys still out and at this point in time no one is in a position to really know. This thing is too big to control by the looks of it and as mentioned by the article, its likely too late to try to.

All folks invested in real estate are of course hoping and expecting inflation and lots of it.

The problem I have with that going forward is there just won't be the credit available to generate the sort of house price inflation you're expecting and wages are certainly not about to jump any time soon (haven't since about 2000). Basically, the real estate machine has been running on empty since 2000 meaning it was fueled by easy cheap credit and not wage growth.
Unemployment is just starting to move higher and immigration won't help that (and may actually cause lower wage levels).

For myself I'm trying to avoid risk right now and that means no leverage apart from my home.

Don't under estimate whats coming. Position yourself for a very rough 10 years...imo

02

Ok, lets assume that property prices in OZ stagnate and even fall in some areas.
Where do you see OZ interest rates going in the short term 0-2 years?
Is credit going to be tightened further?
I would have thought that things in the OZ credit market will be improving from now on.

Also, are you expecting the resourses boom to end?
Ok commodity prices have been coming down but how low can they go?
Surely there will be a cap somewhere and a rebound because the selling price of any product cannot be less than it's cost price or it won't be produced...


edit: by the way, the last sentence (above) applies to property as well.
Some properties (units) are now selling at below replacement cost.
So how can such a property be not good value for money?

Cheers

I always say – predict unpredictable. When I was buying my first property in 1997 people said not to do it as market will collapse after Olympics. I went against “expert advice” and I had won. No matter what economic cycle we are in people are still making money. 02, you do sound like you know what you talking about but 10 years of doom and gloom is bit over the top. Personally when I see very run down house in Western Sydney I can’t comprehend how people can pay so much for such a dump. No matter what economic conditions we live in it is just hard to justify. It all comes to good or bad decisions. What happened during the last housing and share pick is that too many people jumped into it but not many of them had idea what they are doing.
Difference between poor and rich is availability of making good decisions. As I said, people always will make money no matter what. Always buy at the bottom and sale when you are ahead. Never regret that you could have made an extra dollar if you hold it for one day more. What is difficult about it?
I personally think Australia is seriously underdeveloped in terms of infrastructure. That is where I see very big potential in the future. Europe and Japan can’t be compared to Australia for that simply reason – there is less room to expend.