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blue skies

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Posts posted by blue skies

  1. Madam, – I am an apolitical homeowner trapped in negative equity in a house purchased miles from my desired location that is worth a quarter of what I paid and dropping every month.

    Like thousands of Irish people I am incensed that banks and property developers can unfairly dump their debts in Nama – to be covered by the Irish taxpayer – and these same banks can put the squeeze on home owners in modest mortgage arrears under threat of home repossession.

    This Government didn’t distribute the fruits of the Celtic Tiger to ordinary people but seems willing to burden us with the debts. So much for cherishing the family as outlined in our Constitution.

    Despite paying lip-service on this issue, to my knowledge, the established political parties have no policies other than long fingered moratoriums and toothless financial regulatory guidelines.

    My anger has turned to action and I call on homeowners in negative equity to join with me and force our public representatives to deal with this issue and set up a Nama-type body for us the victims of their economic incompetence.

    They only understand people power – remember the medical card for the elderly U-turn? I say enough is enough, let’s get together and demand fairness and action on this issue from our politicians. – Yours, etc,


    Valley View,


    Co Dublin

  2. Nah, the definition of insanity is letting the 4 main banks in your country hold 60% of their assets in residential mortgages. What would a 10% drop in prices do. Hmmmm. Maybe it would wipe out all of their tier one capital?

    Even in the mad days in the UK, banks only held 45% of their assets as residential mortgages. No country has a figure anywhere close to Aus. There again, no country is in the situation where its consumers owe 110% of national GDP.

    Aus is a two trick pony – it sells resources to China and sells houses backwards and forwards between citizens for ever increasing levels of debt. Neither of these ‘tricks’ is sustainable.

    Interestingly, an increasing number of journalists seem to have worked this out. Unfortunately, they tend to write in the Australian Financial Review, and access to this papers articles on the tiniternet is limited to subscribers.

    Pondy what you have just said is true and very profound. Yes Australia is a very dificult situation.

    The situation that many fail to grasp is the value of any thing is not represented by the holders but by the fraction who need to sell.

  3. Some would say that buying now is just past the bottom of the cycle. Timing these things can also be a bit tricky as no one really knows, you could do nothing and play it really safe as well I guess. It can be shown when it comes to property that time in market is better than trying to time the market.

    Emphasises the folly of projecting current trends in asset prices into the infinite future. This is the famous Herengracht Index, which tracks the real price of housing on Amsterdam’s wealthiest canal from 1628–just before the Tulip Bubble–until 1973.

    350 Years of data from the land of tulips

    If you had been born in, say, 1735, you might have died as an 85-year-old, convinced that house prices always fall, compared to consumer prices, since for most of that period house prices did in fact fall in real terms.

    Hmmm yer no ones knows, but hey the fundamentals speak volumes to those who are in tune.

    Time is ticking 8 months for property to drop 10% .

    I remember one yacht race, we were well behind the skipper and others thought we had no hope, I saw that our chances were small but not impossibe, I gess because of my standing the others took heart.

  4. I can't wait for the second dip, and all those new comers will go back to were ever it was that they came from.

    Just like Ireland new houses are bein built in Australia to house the transiant working population.

    Look at Ireland now, empty houses on every street.

    Seen this happen before it will be nothing new for Australia.

    Very Interesting post earler on Investors buying at the tp of the market shows original thinking.

  5. As is widely known, I will be walking from Australia’s Parliament House to Mount Kosciousko–a distance of 225km–as the result of losing part of a bet with a well-known “bull” on property in Australia, Rory Robertson. I am obliged to wear a T-Shirt with the words “I was hopelessly wrong on house prices: ask me how” emblazoned on it.

    As I explain on www.keenwalk.com.au, I was ambushed with this bet in front of an audience of 80-100 people at Parliament House. I have responded in kind by turning the walk into a protest about the manner in which keeping property prices high has come to dominate economic policy in Australia, with what I prefer to call the First Home Vendors Boost the most outrageous example of that.

    The designs for the T-Shirt continue this theme. I will produce at least 3 of designs shown below.

    Design No. 1 highlights the impact of the First Home Buyers Grant over the last 30 years. It was first introduced in 1983 by the Hawke Labor Government, then expanded in 1988 as a way of boosting the economy when it was feared that the economy could enter a recession. It was reincarnated by Howard in 2000 as a temporary boost to help the housing sector adjust to the GST, then temporarily doubled in 2001 as part of a stimulus package to avoid a recession, and of course most recently doubled again in September 2008 by the Rudd Government as part of its anti-GFC package.

    The First Home Owners Grant and House Prices

    The First Home Owners Grant and House Prices

    The graph shows the ratio of house prices to household disposable income from 1980 until now, with the dates on which the Grant was either introduced or doubled marked by the dotted lines. It’s obvious that the Grant triggered growth in the real cost of housing every time, with its most spectacular “successes” being in 1988 and 2001.

    Unlike some commentators, I don’t blame the government entirely for the house price bubble–there I point the finger at a financial system which is always willing to finance a Ponzi Scheme when one can be found. But it’s clear that the First Home Owners Grant seeded the Ponzi Scheme by setting off a buying frenzy every time it was introduced.

    Design No. 2 highlights what has always been the main game for me: the growth in Australia’s debt to GDP ratio, driven by lending for speculation rather than lending for productive investment. This is the third debt bubble in Australia’s economic history since 1860, and it is by far the biggest.

    Debt: the engine beneath the bubble

    Since nothing has been done about this debt level–in fact, Australia has in part got out of the GFC by encouraging debt levels to grow once more–this is still the force that I expect to see dominate Australia’s future economic performance. If private debt continues to rise, then the apparent post-GFC boom will continue. But if the household sector joins the business sector in deleveraging, then the change in debt will drive aggregate demand down and Australia will find that the GFC is not quite behind it.

    The most recent data indicates that the bubble in household debt burst in the month that the First Home Vendors Boost expired. In “Home loans slump most in a decade“, Chris Zappone notes that the ABS has reported that:

    The number of home loans plummeted by 7.9 per cent in January, the biggest fall since June 2000, after the phasing out of last year’s first-home buyers’ grant boost and interest rate rises sapped demand.

    January’s result follows a revised 5.1 per cent drop in December, the Australian Bureau of Statistics reported, citing seasonally adjusted figures. Economists had been predicting a 2 per cent increase in January…

    Total housing finance by value fell by 3.3 per cent in January, seasonally adjusted, to $21.2 billion.

    Design No. 3 shows just how far out of line Australia’s house prices are with the rest of the world. Japan had its own Bubble Economy period in the 1990s, which drove Japanese real estate prices up to a peak from which they have spent the last 20 years descending; the USA’s bubble took off in 1998 and peaked in 2006; but both these are dwarfed by Australia’s roller coaster rise ever upwards.

    The Kangaroo Bubble vs the Setting Sun and the Very Bald Eagle

    Nominal prices only ever fell once–in 2008 prior to the First Home Vendors Boost, which set off the latest bubble. Unfortunately, both sides of Australian politics mistakenly identified falling house prices as the cause of the GFC, and therefore agreed to this policy to inflate house prices even further, which was disguised as a means of helping new buyers into the market.

    (Of course, the real cause of both the apparent prosperity before the GFC, and the GFC itself, was not the bubble in house prices and its bursting, but the bubble in private debt that provided the leverage that drove house and share prices up, and its bursting in 2007-08. This real cause was ignored by all politicians–and all but a handful of economists–until it was too late.)

    Design No. 4 shows that Australian house prices have fallen when adjusted for inflation, and Australia’s inflation rate has been higher than that of Japan or the USA. But even after adjusting for inflation, our house prices are twice as high as America’s, and 2.5 times as high as they were back in 1986 when the ABS began recording them.

    The Kangaroo Bubble vs the Setting Sun and the Very Bald Eagle

    Finally, Design No. 5 emphasises the folly of projecting current trends in asset prices into the infinite future. This is the famous Herengracht Index, which tracks the real price of housing on Amsterdam’s wealthiest canal from 1628–just before the Tulip Bubble–until 1973.

    350 Years of data from the land of tulips

    350 Years of data from the land of tulips

    If you had been born in, say, 1735, you might have died as an 85-year-old, convinced that house prices always fall, compared to consumer prices, since for most of that period house prices did in fact fall in real terms. However if you had been born in 1820, you might have reached our modern retirement age convinced that you could live off rising wealth from your housing assets–since they would have risen since you were born–only to find them declining for the next 60 years.

    Hey the charts are very scary, go to steve keen dedt watch if you want to have a look

  6. Back to today. We notice that even the mainstream commentary over at Business Spectator is starting to get a bit antsy with all this 'economic recovery' thing.

    Two articles yesterday, one from Karen Maley and the other from Robert Gottliebsen clearly warn - as we have - that things aren't as rosy as they seem.

    Right now we'd say, hats off to these two mainstream commentators for saying it. However it's too late, much too late for it to have any impact.

    As the saying goes, the die is cast. The bubble has expanded. It's like when you blow up a balloon. No-one likes having the thing pop right in their face, but there's still the temptation to try and make it a little bigger, and that's what's happening with the Australian economy now.

    The only problem is that in mainstream economics they either don't believe that bubbles exist, or they believe they are caused by something else, or that even if bubbles do exist then they think they're smart enough to manage them.

    I mean, they'll look at the last eighteen months and conclude they know the recipe for curing bubbles. So that even if another one is brewing, don't worry about it, they've 'fixed' it before, they can do it again.

    Look at all the economic data that's been paraded before your eyes. As you know, we've been critical of the way the ANZ Job ad numbers have been reported.

    Well, finally you could say the February job ads do look more impressive than some of the previous numbers. In February, ANZ Bank reports a total of 158,611 jobs advertised compared with just 109,177 in January.

    You'd expect a pick-up in February, but still, it's a 45% increase over the previous month. Although, compared to the same time last year, when the economy was on the verge of recession, job ads are still down by 3,723.

    And remember, we're using the original numbers, not the seasonally adjusted or trend numbers.

    And then look at the other stats: "Australian economy continues to grow: ABS."

    According to the Australian Bureau of Statistics (ABS):

    "Latest ABS figures show that GDP, in seasonally adjusted volume terms, grew 0.9% in the December quarter 2009, after growing 0.3% in the September quarter."

    The Australian economy continues to grow, grow, grow. That provides even more evidence to the mainstream that Australia has figured out how to perfectly direct and manipulate an economy to avoid collapse.

    Although, the next paragraph from the ABS statement gave the real game away:

    "Growth in the expenditure measure of GDP was driven by a 3.5% increase in private investment , a 10.2% increase in public investment and a 0.7% increase in household expenditure. Offsetting these increases was a fall in net exports. The fall in net exports was due to imports (up 7.7%) growing faster than exports (up 1.7%)."

    Actually, we'll rephrase that. We're not sure it's really given the game away as everyone knows public spending - or public 'investment' as the public sector drones prefer to call it - is going mental: money spent to 'create' jobs, then more money spent to 'save' jobs, then another bunch of cash to compensate for jobs lost.

    The madness never ends.

    But that brings us back to the point we made above. While it's good that some in the mainstream press are starting to whiff a bit of trouble, it's all rather too late.

    The time for warning about the nonsense idea that you can borrow to get yourself out of debt was a subject for twelve months or two years ago.

    Yet at the time the mainstream press was too excited about making sure their elected representatives 'did something.' At the depths of the market meltdown, it wasn't the time to 'play politics' or get bogged down in 'economic theory.' It was the time to 'save jobs' and help those families who seemed to be constantly 'sat around the kitchen table.'

    But the biggest problem right now is the sense of false security - or false sense of security, whichever you prefer.

    We've noticed quite a bit of excitement about all the increased profits Australia's robust and excellently run companies have made in 2009. Today's Australian Financial Review (AFR) trumpets, "Earnings return, are shares next", "Property turns the corner" and "How banks came out in front."

    According to the AFR, 80% of Australia's companies reported profits in-line with expectations. It goes on, "Profits for industrial companies rose 3.8 per cent from a year earlier."

    But the AFR does point out, "Cost-cutting was an important driver of profits in the half. Some big companies reported falling revenue but were able to increase profits by reducing their spending on wages, property and technology."

    That's something we noticed last week. This is what we wrote to Australian Wealth Gameplan subscribers last Friday:

    "Last week we conducted a simple exercise. We looked at the company results for that week as reported in the Australian Financial Review (AFR). It printed the earnings results for 131 companies - large and small. As you'll have read in the mainstream press, a lot of companies produced bumper profit results, such as Flight Centre [ASX: FLT]. What the mainstream press didn't report was the less than exciting news on the revenue figures. Of the 131 companies detailed, just over half (66 of them) reported lower sales revenues than the previous corresponding half-year or full-year."

    It wasn't just 'some big companies' that reported falling revenue, it was half of those companies that reported during that one-week period.

    What does that tell you? Well, as the AFR reports, many companies have slashed costs in order to beef up the bottom line. So the first question is whether they can keep doing that?

    The other question is whether they can increase sales by as much as the market is now pricing in? Our guess is that will be much harder to achieve. And much of that is down to the sense of false security and the misplaced belief that the bright economists and central bankers have engineered Australia's escape from the global meltdown.

    The economy is growing, companies are hiring again, miners are mining stuff, credit is booming, and everything appears to be ticking along as though nothing has happened.

    And as for that old subprime stuff, well surely that's all fixed up, and no-one will make that mistake again. Trouble is, it's often forgotten that subprime wasn't the cause of the problem, it was the effect. The cause of the problem was excess credit and government interference.

    Excessive credit simply manifested itself as subprime loans. Subprime borrowers were the means by which politicians could parade themselves as helping the poor, and by which bankers and young gun traders could earn themselves a bucket load of cash.

    Therefore, solving the subprime problem will do no more than shift the excesses of credit elsewhere.

    We've seen that before. Look at Enron. The trading guys at Enron weren't specialists in electricity trading. They were young kid traders sat in front of six computer screens who just had to click 'buy' or 'sell'.

    As soon as Enron collapsed they went off looking for other things to 'buy' and 'sell'. Many of them probably ended up trading credit default swaps and other such derivatives. Financial instruments that they were just as ignorant of as the electricity market.

    Solving the global meltdown by blaming it all on subprime and removing that risk is like taking the keys from a youngster who's been driving a sports car too fast, and instead handing him the keys to a 3000cc motorbike.

    There will still be carnage it's just that it will look different.

    As much as the mainstream commentators may claim that lessons have been learned and that Australia didn't have a subprime culture, it all misses the point. The old habits of excessive borrowing are still unchanged, and in fact are likely to get worse.

    So the message is, if you're looking for the next big economic meltdown to come from the US subprime housing market, odds are you're looking in the wrong place. So where will it come from?

    We'll look at that another day. But our guess remains that you need to look north. Because China is brewing up quite nicely right now.



  7. I am not a criminal, insists billionaire behind Icesave

    One of the billionaires behind collapsed internet bank Icesave and its parent Landsbanki has denied being "a criminal" in a dramatic interview about Iceland's banking crash.

    By Rowena Mason

    Published: 9:32PM GMT 07 Mar 2010

    Björgólfur Thor Björgólfsson spoke out in a new film ahead of Iceland's crucial referendum on whether to bear the €4bn (£3.6bn) cost of Icesave's failure.

    Over the weekend, more than 90pc of Iceland's electorate voted against a deal that would see the country pay back Britain and Holland for compensating 400,000 savers in the two countries.

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    XL highlights extent of Icelandic investment in the UK

    Mr Björgólfsson and his father, Björgólfur Gudmundsson, the former owner and chairman of West Ham FC, owned 41pc of Landsbanki before it collapsed in October 2008. Asked what he would say to people who describe the bank's owners as criminal, Mr Björgólfsson replied: "I have nothing to say to them. I am not a criminal and never have been." He then detaches his microphone and walks off.

    Mr Björgólfsson, whose wealth has fallen from $3.5bn (£2.3bn) at its peak to $1bn last year according to Forbes, denies any wrongdoing in relation to the crash in the new film, Maybe I Should Have. The documentary has been shown in Icelandic cinemas and was brought to Britain last week by its director, Gunnar Sigurdsson, whose attempt to trace the billions lost in the banks takes him to London, Guernsey, Luxembourg and the British Virgin Islands.

    Asked what happened to the bank's money, Mr Björgólfsson claimed: "When you lose capital in this way, a lot of money goes to money-heaven. The value that has been wiped off the stock markets, the deposits in the banks and investment funds has gone. [it] has evaporated. It's a common misunderstanding to ask: where did the money go?"

    Attempts to negotiate a better Icesave deal are set to continue this week, with Chancellor Alistair Darling indicating that he understood Iceland's position: "The fundamental point for us is that we get our money back - but on the terms and conditions and so on, we're prepared to be flexible."

    Over the past 18 months, there have been demonstrations in Reykjavik against the idea ordinary people should pay the debt of a commercial bank, with particular concern about the 5pc interest rate demanded by Britain and Holland. Public anger has intensified since the news that the authorities are pursuing 43 cases of potential fraud in Iceland's financial institutions, including Landsbanki and rivals, Kaupthing and Glitnir.

    Icesave was set up and marketed to British savers with high interest rates in October 2006, when analysts were already warning that the banks were financially unstable.

  8. View PostBardon, on 06 March 2010 - 04:18 AM, said:

    I don’t think much can or will be done about this provided the auctioneer declared his bid as a vendor bid. It depends on state law and I am not familiar with auction rules in SA. The most important thing is that the successful; bidder did not have a gun to her head when she made the winning bid and that she did this on her own volition which from your explanation is the case.

    I love auctions all the emotion and anxiety and the heat of the moment decisions the auctioneer extracting more money for his vendor great spectacle indeed they are in but only in a rising market. I wouldn't dream of buying at auction though.

    Auctions are notorious for funny business, I bid my friends house up at auction not so long ago and ended up having the highest bid. My friend did not accept this price but used it post auction as a basis for negotiating a good price for the eventual sale. There was nothing illegal about that and that fact that we were best friends and I had no intentions of actually buying his house does not have to be disclosed either.

    There has bein a law passed to punish Phantom bidders. How ever White collar criminals such as yourself offen get away with it!

    I recon you had taken part in Fraud and that comes under the criminal act.

    How ever the reality may be that one again you are trying to impress people with bulldust.

    Once again you display your ignorance in housing as depending on the conditions of the auction it is possible on the fall of the hammer to with draw your last bid.

  9. I don’t think much can or will be done about this provided the auctioneer declared his bid as a vendor bid. It depends on state law and I am not familiar with auction rules in SA. The most important thing is that the successful; bidder did not have a gun to her head when she made the winning bid and that she did this on her own volition which from your explanation is the case.

    I love auctions all the emotion and anxiety and the heat of the moment decisions the auctioneer extracting more money for his vendor great spectacle indeed they are in but only in a rising market. I wouldn't dream of buying at auction though.

    Auctions are notorious for funny business, I bid my friends house up at auction not so long ago and ended up having the highest bid. My friend did not accept this price but used it post auction as a basis for negotiating a good price for the eventual sale. There was nothing illegal about that and that fact that we were best friends and I had no intentions of actually buying his house does not have to be disclosed either.

    There has bein a law passed to punish Phantom bidders. How ever White collar criminals such as yourself offen get away with it!

  10. You'll remember this quote we relayed to you from one of Christopher Joye's recent blogs at Business Spectator:

    "There is an investment category out there that you likely have a large chunk of your wealth tied up in. The problem though, is that it is literally 11.6 times riskier than 'cash'... Australian equities also don't stack up relative to fixed income investments, such as bank bills and government bonds. I am pretty sure one could also add AAA-rated Australian home loans and A1+ corporate debt to the fixed-income outperformers..."

    It was his 'bombshell' moment. The 'revelation' that investing in shares is a risky game. Thanks for the info!

    Shares are risky, but not property. Investing in property and residential mortgages is much safer apparently. In fact, according to Joye's 'bookend' appearance on the SBS show Insight:

    "We had 11.1% house price growth in 2009. House prices have continued rising in the first month of the year - in January. Melbourne experienced 16% house price growth last year and then Sydney also experienced around 11% house price growth. The national housing shortage is estimated to be around 200,000 homes... ANZ project that will be 400,000 homes by 2015."

    And the price pressure is on the up:

    "We will have a 62% increase in our population. We are looking at 7 to 8 million people living in Sydney and Melbourne individually. One of the concerns I have is the 36 million forecast is very conservative. It assumes our population growth rate today halves so it will place huge pressure on prices."

    It's the typical spruikers mantra. A population increase means more demand for houses which means higher house prices, which means, 'Buy now before it's too late!'

    By the way, we've referred to it as a 'bookend' appearance because El Joye was asked one question at the beginning and then one at the end. And that was it. But in just a few words he managed to express almost every property myth there is.

    Hats off to him for having the argument so fine-tuned that it can be rolled out under any circumstances. Even on the occasion when you're just asked two questions during a one-hour show.

    Anyway, we thought it was about time we looked at the Transforming America's Housing Policy conference that was held at New York University in February 2009.

    We thought we'd look at it because it's the conference that El Joye has banged on about ever since, usually with statements such as, "While presenting to the Obama Administration alongside Robert Shiller last year..."

    It's obviously an appearance he's proud of. You can tell that by the number of times he mentions it.

    It was Joye's opportunity to show the Americans how fab the Australian housing market is. And how, if only they'd done things the same way as us then everything would be fine.

    So, yesterday afternoon, we settled back to listen and watch the video recording of the panel discussion that included Robert Shiller (or 'Bob' as Joye referred to him), Raphael Bostic, Eric Stein, and of course Christopher Joye.

    Click here to watch and listen for yourself. It's discussion Panel 4.

    Only a few minutes in and it was pleasing to hear Robert 'Bob' Shiller say:

    "This financial crisis was caused by a failure to manage real estate risk. We put people... no matter how low income... into a leveraged position in local real estate. Highly leveraged, and if they're low income, with their entire life savings. It's hard to believe it, but that was the conventional wisdom... Larry White was saying... people had this strange idea that home prices only go up, and he couldn't fathom how people would have thought that..."

    Sound familiar? Ask any spruiker or property investor and they'll tell you, you'll always make money on property because prices always go up.

    Even the feedback we received from yesterday's Money Morning article, readers told us our example was wrong because we should allow for property doubling in value every ten years.

    And that was from readers who class themselves as property bears. The idea that housing doubles in value every ten years and that it always goes up is brainwashed into almost every Australian.

    We don't take into account property doubling in the next ten years because we don't believe it will happen.

    The fact is, the idea that property is guaranteed to double in seven or ten years is a lie. Property is not a magical investment that can be detached from every other investment. It is inherently risky. But look, don't take my word for it, just ask Christopher Joye how risky property is...

    "What?" I hear you ask. Yep, straight up. Here's a quote from El Joye I've taken from the video I mentioned above. And if you don't believe me, watch for yourself. El Joye starts babbling on at about the 20-minute mark:

    "Our research shows the single family home is a phenomenally risky investment. It's around six-times the risk of a broad based property index. In Australia the single family home has around a 20% volatility, so volatility akin to equities and yet the average family invests 50% to 60% of all their wealth in the world in this highly idiosyncratic asset... The system [financial markets] had too much leverage, and particularly households had geared to high levels... They're leveraging against what is an incredibly risky underlying asset."

    Got that? We nearly fell off our $99 Officeworks chair when we heard those words. We finally have an admission from El Joye that residential housing is a "phenomenally risky investment" and an "incredibly risky underlying asset."

    Well, well, well. Who'd have thought it? An admission that confirms everything we've said about residential property for the last eighteen months.

    That residential property has been bid up to such a high level, and that the leverage is so enormous, it has burdened Australian households with a "phenomenally risky investment."

    It confirms exactly what we wrote a few months ago, that property is now at least just as risky as share investing - and we know how risky that is.

    But because of our comments and our busting of the conventional wisdom myth, your editor has received a barrage of abuse from Joye and his property investing cronies. All of it claiming that your editor is a liar for saying that property investing is risky.

    Yet all along, Christopher Joye was completely aware that in February 2009 he himself labelled the family home as a "phenomenally risky investment." That's taken the wordage even further than us.

    And remember, he's stating that a family home is a "phenomenally risky investment." He's not referring to investment properties or commercial real estate, he clearly states the "family home."

    And despite all this, El Joye and the other property spruiking bandits insist residential housing is a safe investment. An investment where prices always rise. An investment which according to his recent article, is less risky than shares.

    But I'll let you figure out what words you want to apply to someone who states one thing to an American audience and then states the opposite to Australian home owners.

    If you ask me it's a downright shameful disgrace.

    All I can say is, how convenient it is to tell the truth when you're trying to sell an idea to an American audience. An audience that has already experienced a housing crash and therefore the Joye solution will supposedly help prevent it happening again - or make it worse in our opinion.

    Whereas to the Australian audience, well, the crash hasn't happened yet. Joye wouldn't want to ruffle anyone's feathers. And besides, the money in the Australian market is to be made selling research to fund managers and the real estate industry.

    Those customers won't be best pleased if El Joye starts talking about housing being a "phenomenally risky investment" or a "risky underlying asset." That's not the way to keep dollars flowing through the door.

    Look, I can't believe it's taken your editor over a year to come across this gem. Maybe others have spotted it, but we can't say we've noticed.

    Yesterday I said that Joye's credibility was in negative territory, well, after viewing this video, in our opinion his credibility has gone off the scale and through the floor.

    So far, Jason Clout at the Australian Financial Review (AFR) is the only mainstream journo to call Joye out for having soggy numbers. We can only hope that the mainstream journos really do start to take everything that Joye says with a gigantic pinch of salt.

    The next time we see Joye interviewed we'll hope to see the journo ask him to explain what he means by Australian family homes being a "phenomenally risky investment."

    It's about time the mainstream press stopped thinking of Chris Joye as an independent objectively minded real estate analyst. The reality is that he's a spruiker with a vested interest in keeping the property bubble going for as long as possible.

    And then, when it pops, he'll turn up like a white knight saying, "Have I got a solution for you!"

    Can you trust another word Christopher Joye writes? And of equal importance, does the mainstream press have the balls to finally challenge what he says?

    Let's wait and see.



  11. Interest rates are up, economic depression becomes more assured, but who's going to be the winner? Yeah, there's bound to be a winner somewhere.

    OK, let's be honest, when the property collapse and economic depression hit hard there will be few winners. Most people will lose to some degree.

    Even those that have bought a few ounces of gold to tuck away for such an occasion will find themselves worse off than before. So it's more a case of who will lose least, rather than who will gain.

    But I'm convinced the 'best losers' will be a group of unsung heroes that should do quite nicely when the proverbial hits the fan. I'm referring to renters. You know the ones, the supposed sad-sacks who are "paying off the landlord's mortgage" or "throwing away money by renting."

    The reality, despite the lies poured out by the mainstream media, is that renters have been, and will continue to be the winners.

    We've chuckled many times over the last year or so when we've read comments from spruikers and landlords who claim, "I'm gonna be putting the rent up this year, thanks renters for paying my mortgage, ho, ho, ho."

    We keep hearing it, and funnily enough, it never seems to happen. We only have to point to our chums at RPData for proof of this. In its latest report it points out, "Lowest rental yields: Melbourne and Perth with gross rental yields of 3.8% for houses and Perth with a gross rental yield of 4.2% for units."

    Anyway, we thought we'd look at a quick comparison this morning.

    Take the Melbourne suburb of Chelsea. You can buy "Friendly cosiness" for $500,000, which if you're lucky to have a 10% deposit plus all the other fees, you can take out a $450,000 mortgage to give you weekly repayments of $720.

    Or, you can nip around the corner and pay a 'moneybags' landlord a "whopping" $370 per week for a "Hidden treasure."

    Based on our quick scan of the two homes, we'd say they're pretty similar. Except one will cost you nearly half the price of the other. Imagine what you can do with the extra $350 you save each week.

    In other words, why would you pay twice the cost for a dwelling just to install a bank as your effective landlord, when you can pay half the price to a sucker landlord who thinks that going into debt and losing money each week is the best path to wealth!

    For the renter, even if you stick the difference in the bank, that's $18,200 plus interest at the end of the year. Compared to the buyer who will be well under water by the end of the year and for years to come thanks to the fees, interest charges, and the opportunity cost of not being able to save $18,200 each year.

    Sure, we'll be honest, buying a home has its advantages. But are the advantages so great that it equates to paying an extra $18,200 each year for a three bedroom house in Chelsea when you can rent a comparable property for half the price?

    We wouldn't have thought so. Let's look at the picture after two years. Even if we're generous enough to say that property prices have risen by 5% each year. The homeowner is still underwater, yet to make anything back.

    Even if they were ahead, the 'gain' is tied up in the house until they sell it - and don't even think about saying, "Oh, but they've got equity in the home", we'll get onto that in a moment.

    Whereas the renter has a lovely bank balance of $36,400 plus interest.

    Who looks in better shape now? One has a whacking big liability, while the other has a whacking big cash balance.

    There's little doubt that renters have been belittled and scoffed at for years, "Rent money is dead money." But our guess is it's the renters that will be the ones laughing by the end of this year when rents still haven't risen, and the story will be the same next year and the year after.

    But even when prices crash my guess is renters won't be in any hurry to snap up any bargains. Why would they when they'll be able to upgrade their living standards and pay just the same, or perhaps even less rent.

    The message renters should have for landlords is, 'do your worst, we dare ya!'

    But while we're on the subject, what about this idea of equity in your home? Just a quick one on this. Let's bust another myth, home equity is just that, a myth, it doesn't exist.

    A more accurate name for 'home equity' is... debt.

    Because that's exactly what it is. We'll give the banks credit (if you pardon the pun) for making home owners believe that a debt is an asset, because boy, have they done a good job of spinning that one.

    The fact is, until you sell your home for a profit, then any 'equity' you've extracted from your home is debt. You're borrowing against the supposed increase in value of the property.

    When you sell the home then you repay the debt. In the meantime the withdrawn equity is no different to taking a cash advance withdrawal from your credit card.

    With a credit card cash advance you're making a bet with yourself that you'll be able to pay the money back when you get your next paycheque. With a home equity withdrawal you're making a bet that you'll sell the house for more than the amount you've borrowed plus interest.

    But at no time by any stretch of the imagination can a home equity withdrawal be classified as anything other than a debt increase.

    Just in the same way that the cash you've taken from the credit card hasn't resulted in a net increase in your wealth.

    To be blunt, home equity is a hoax. And the banks and spruikers should be raked over the coals for making the fraudulent claim that home equity is an asset.

    We're sure that comment will create a barrage of criticism from our property spruiking friends. But that's OK, we're happy for them to leave their comments on the Money Morning website when this article is posted later today.

    Because I tell you what, I'm looking forward to them explaining how an increased level of debt can be switched around and get classed as equity.

    As we've always said, the property spruikers and banks are masters of taking debt, renaming it, calling it an asset and suckering in those that don't know any better.



  12. I hope Kevin Rudd gets whacked at the next election and that the losing issue is his flopped Carbon Trading Scheme, I don’t like the opposition either but at least he isn’t a card carrying member of the Carbon Taliban, yet.

    Well here you have it I am a new Australian that is working on a solution to the lack of rain. I am gainfully employed helping to build a world class water factory that will produce drinking water at a very fast rate independent of rainfall. Problem solved for a major metroploitan area.

    Was that lose or bank volume ?

    I like big machines with flashing lights and reversing beepers that are painted yellow as well.

    I have been in some very big holes, Freeport Copper Mine in Irian Jaya is a big hole at 4500m above sea level and what is more interesting is that there is a glacier called Grasberg below you believe it or not that close to the equator.

    In my training years I had an old fella show me how to dig a hole properly with a shovel, there is a right way, it is still hard yaka though.

    We are making a big hole on the job I am on now it will be 1.25million m3 cut at the end. Also got two separate 4.5m dia tunnels going out about 1.4km to sea.

    The big one is coming and that will be the extension to the Roxby Downs Gold/Copper/uranium open cut BHP mine in South Australia that will be the biggest hole in the world when finished.

    Hmmmmmmmmmmm Brand new job in just 12 days what do you do sweep floors?

  13. I hope Kevin Rudd gets whacked at the next election and that the losing issue is his flopped Carbon Trading Scheme, I don’t like the opposition either but at least he isn’t a card carrying member of the Carbon Taliban, yet.

    Well here you have it I am a new Australian that is working on a solution to the lack of rain. I am gainfully employed helping to build a world class water factory that will produce drinking water at a very fast rate independent of rainfall. Problem solved for a major metroploitan area.

    I might be many things but a pom is not one of them.

    So if the world economy goes belly up then oz is hard hit, that is real deep man, very insighful, thanks for sharing it with me.

    Hmmmmmmmmm what ever pretend you are you are not a assie

  14. Why Debt-Deflation Causes Depressions

    “Declaring victory at half-time” is a syndrome which afflicts the entire debate over our current economic situation: optimists are of the opinion that the crisis is all over now, while pessimists think it’s only just begun. On this front, as always, I regard history as the best indicator of who may be right. On this front, I can’t commend highly enough the site New from 1930, which from January 1 2009 began publishing summaries of the Wall Street Journal from January 1 1930. The last few entries include these pearls of wisdom from February 1931:

    An Old-Timer believes the market rally “will do more to restore prosperity than anything else.” Total security values have increased over $20B since start of year; barring another dive in the market, this assures a recovery since the 10M-15M US owners of stock feel richer. Bulls say the ease with which considerable profit-taking has been absorbed recently is “the surest indication of a strong healthy market.” Market has rallied very substantially; “if it runs true to form, it will have one of those ‘healthy reactions’ that will, according to the bulls, strengthen its ‘technical position.’” “The buying power of the people and the corporations still is large … In other words, the country never was in a better position to stage a comeback after a depression … (Feb. 25th)

    One banker cites plenty of evidence that the backlog of consuming power is largest its been in years: corp. inventories are down 20% from a year ago, and even more from 2 years ago; corps. are holding more cash; production of many products is below requirements; products have been wearing out for 18 months of deferred buying; security values up $20B since Jan. 1; easy credit; record-breaking savings deposits. Last year there were few rallies on which to sell; this year there have been few dips on which to buy. Public interest has grown this year, but is still small compared to 1928 and 1929; “a market with a growing public interest is a dangerous market to sell short.” (Feb. 26th)

    Yeah, right: in both 1930 and 1931, the belief was widespread–at least in the financial community–that the Depression was over, and recovery was just around the corner. As Australia’s Alan Kohler noted when he first discovered this blog, at least early on during the Great Depression, people didn’t realise that they were in it. They too, were declaring victory at what turned out to be not even half-time.

  15. Yes at this rate the British Peso will be at parity with the oz pretty soon. We will all be buying two up and two downs in the Northern Provinces of Mud Island for cash shortly and bunging the locals a tenner out of the good of our hearts.

    The AUD dollar is known as the Aussie battler or the pacific Peso.

    Most to and froms (poms, that is you) love it when they first move here because of the exchange rate.

    How ever if the world economy goes belly up Australia will be hard hit.

    But that can never happen?

  16. Give Australia its due, the clothes hoist (aka whirly bird) has been a fantastic Australian invention. You forgot that other great one that I'm always told about - the dual toilet flush - another great Australian invention.

    And you forgot the one before the dual toilet flush: a brick placed in the bottom of the water tank! yes it is true

  17. This is pathetic. Give me the names of some companies (outside of commodities) that are globally famous for innovation? Name five famous inventions that have come out of Aus? The only well known brands you have are Fosters and Quantus and they are both failing.

    Your economy is a two trick pony. Deal with it :rolleyes:

    1 Victor, lawn mowers. 2 Hills, clothes hoist. 3 Arbor Tec, wood carver. 4 Tridant, wood working center. 5 Coclea , ear transport.

    Just off the top of my head.

    You are correct how ever take away the minerals and we will be in poverty.

  18. The only cash flow that a home brings to a home owner is as an expense. Unless you've managed to rent a room out to a lodger that is, then we'll agree there's a positive cash flow from the lodger.

    But it does highlight something else worth mentioning. And that is rental yields. Right now, according to our chums at RP Data the gross rental yield for houses in Melbourne is just 3.8%.

    Try getting a new mortgage on a home where your annual repayment is just 3.8%. That wouldn't even cover the interest costs.

    In other words, based on imputed rents, it's more cost effective for someone to rent than it is for them to buy a house. Furthermore, the chances are that if you're renting rather than buying you'll rent a house that is smaller than a house you would have bought.

    So, your cost savings as a renter are likely to be even greater still.

    But that's not all, in recent days the property spruikers are starting to ratchet up the untruths and propaganda. It seems the latest claim doing the rounds is that those who didn't buy a house last year have not only missed out, but it's cost them a potential profit of $100,000.

    Not surprisingly, none of these claims are backed up with any figures. The reason it isn't is because it isn't true. Because the real story is that despite the figures claiming that house prices have risen by 11.8%, those that bought this time last year are still in the red.

    Take off all the fees and charges and interest costs of buying a house and having a mortgage, home buyers from a year ago wouldn't even be at breakeven point. So quite how people have missed out on $100,000 of profits we're yet to figure out.

    But, it's as we've always said, the argument about buyers having missed out on the property boom flies in the face of the claims spruikers make about prices always going up.

    If house prices always rise then you'll never miss out. If house prices always double every 7 years as the spruikers claim then does it really matter if you buy this year or next? If you buy next year then you'll double your money in 8 years from now.

    What's the rush?

    The answer is, there's no rush. All the spruikers are interested in is keeping the property ponzi scheme going. So far they're succeeding. What they're also succeeding at is ensuring the long-term impoverishment of the Australian economy.

    We'll be back tomorrow with more. Until then, Murray...



  19. Is it Time to Swap Dollars for Pounds?

    By Shae Smith

    If you want to visit the UK for a holiday to visit, now is a great time to change your Aussie dollars into pounds.

    In fact, the exchange rate between the two has never been so favourable to the Australian currency. Just ten years ago, one dollar would get you a whole 35 British pence.

    Today, one dollar will get you 58 pence.

    The last 18 months has seen a rapid ascent - or descent if you border the Atlantic Ocean - as the pound weakened against the Australian dollar.

    If you look at all the major currencies around the world, the pound has been in decline since the last few months of 2008.

    So aside from planning your next holiday, or stocking up on a fancy new business shirt from TM Lewin or Thomas Pink, or ordering books from Book Depository, how does this affect you?

    If the Australian dollar is buying more pounds than ever before is it time to look at investing in the UK?

    Without a doubt you'd be able to find some bargains in the old mother land. But seeing as this once formidable empire is virtually bankrupt, would you really want to take that risk?

    Stock markets around the world haven't yet returned to the giddy highs of previous years, and the UK is no exception. In fact, in some ways the story is even worse in the UK.

    Let me explain...

    You may be familiar with the Greece debt crisis. In Greece, government debt is currently 12.7% of gross domestic product (GDP). However the UK has a government debt of 7% of GDP and that figure is expected to jump to 12.6% for this financial year.

    That staggering figure places the UK right next to Greece, giving the Brits a debt crisis of their own.

    Like other countries, a massive amount of stimulus money was thrown at the economy to supposedly keep it moving. Not only that, but major banks like Northern Rock had to be nationalised because of their aggressive investments in the housing market. And both the UK and Ireland have had firsthand the experience of over-lending to the property sector.

    Simply put, the excessive lending created a bubble, and the bubble popped.

    To add to the chaos, the pound is at its weakest level in over twelve years. Although it hasn't been all doom and gloom for the Brits. At least they've been comforted by the fact that the Euro is in just as much mess.

    If you compare the Pound to the Euro, it has remained relatively stable during the crisis.

    The weak sterling has fuelled an increase in the UK's exports. The currency has experienced about a 22% drop since 2007 with its major trading partners.

    But despite this, would the UK face these problems if it ditched the pound in favour for the Euro?

    The biggest criticism of the UK not jumping on board was the exchange risk with European countries. Germany and France no longer face this issue when trading with each other.

    As the Euro strengthened the cost of goods started to increase within the UK.

    And as the Euro gained some ground, investors decided to dump a weak pound in favour of what appeared to be a more stable currency. And due to the presence of the big German and French economies, it's naturally more common for traders to trade the Euro against the US dollar as a currency pair than the Pound and the US Dollar.

    From a trade point of view it could be argued that sterling was left behind by not joining the Euro.

    But as terrible as the UK economy is right now, maybe it's a blessing that that it didn't join after all. The European Central Bank (ECB) has a 'one size fits all' approach. This means one interest rate for sixteen separate economies.

    On the other hand, when you've got a central banker like Mervyn King running the Bank of England, and his policy of quantitative easing, maybe they would have been better off with the Euro.

    The message seems to be clear.

    It's a pretty good time to stock up on your favourite goods from the UK, but if you're looking for a currency to safely store your money then we're afraid to say that one fiat currency system is just as bad as any other!

  20. A property Bogan is laying by the beach , he notices that the tide has has slowly retreated leaving a mile of what was sea bed. fish are floping all around.

    Never one to miss a great opertunity he starts walking out to were the bigest fish are left strandard.

    Using his superior reasoning he thinks just as the tide gently resided so it will return.

  21. It seems that property bandit Christopher Joye can't help but make a fool of himself while feeding misinformation on property to his readers.

    Yesterday, by all accounts, El Joye was debating Steve Keen at the Perennial Investment Partners conference in Melbourne.

    As Joye loudly and proudly pointed out on his Business Spectator blog yesterday afternoon:

    "Update: Christopher Joye won his debate with Steve Keen in an electronically scored result in front of an audience of 500 investors at the Park Hyatt in Melbourne."

    We think the words, 'three year-old,' and 'child' spring to mind - "Tell them I won, tell them I won..."

    We've held back on Joye recently, but it's time to put his claims under the spotlight again...

    First, let's take a look at a couple of the comments in the same Business Spectator blog:

    "The total value of privately-owned residential property is around $3.5 trillion. The total value of outstanding mortgage debt is circa $1 trillion. Australia's mortgage debt LVR is therefore slightly less than 30 per cent - ie, incredibly low. But Keen ignores this."

    El Joye wrote that in response to Steve Keen's method of measuring household debt, which is to compare mortgage debt to GDP.

    According to Joye, using mortgage debt to GDP is a:

    "...Pretty meaningless benchmark. If you want to understand the viability of debt levels, you can use two key measures: debt-to-assets ratios and debt-to-income. This is exactly what any intelligent investor would do when appraising a company's leverage."

    And then El Joye explains how the Australian mortgage debt LVR is only about 30%. In other words about 30 cents of debt for every $1 of 'assets.'

    Can you see a problem with El Joye's method? For a start, where's the $3.5 trillion come from? As investors with Storm Financial well know price and value are two different things.

    And when the price readjusts to reflect the real value, that's when the problems arise.

    But apart from that, the other problem with his claims are this, when you're valuing a company and assessing the ability of a company to honour its debts, the last thing an 'intelligent investor' would do is look at the ratio for the entire market.

    What would be the point of that? Would any 'intelligent investor' really look at the balance sheet of Duet Group [ASX: DUE], which has 81% of its capital as debt, but then ignore that and invest anyway on the basis of the overall market only having a debt to capital ratio of 30%?

    We could be wrong, but we're not aware of any 'intelligent investor' that would do such a thing. But then again, we don't mix in the same circles as Christopher Joye. He's clearly got a monopoly on intelligence.

    Then he makes his second point:

    "We know that total household interest repayments as a share of disposable income are only about 10 per cent today. This is exactly the same as what they were 20 years ago."

    Do we really know that? I don't think we do. Is El Joye really suggesting that mortgage repayments only comprise 10% of household disposable income? It would seem he is.

    So, let's go to the source, his pals at the Reserve Bank of Australia (RBA). And if you look at the numbers, well, they're not quite as Joye would have you believe.

    Because according to the RBA, 'Household Interest Payments to Disposable Income' is indeed around 10% (actually 9.8%), and if you do cherry-pick 20 years ago then you will find the number was 8.7%. Which we'll give some leeway and concede is "about" 10%.

    But go a little further back and you'll see that the date Joye cherry-picked - December 1989 - was the peak following an increase from 5.2% in 1977. And funnily enough, between 1989 and the late 1990s it fell again.

    Anyway, look at the spreadsheet for yourself by clicking here. Whichever measure you look at, the debt burden has ballooned:

    Debt to Assets - 7.2% in 1977, 19.9% in 2009

    Housing Debt to Housing Assets - 8.8% in 1977, 30.2% in 2009

    Debt to disposable income (total) - 33.2% in 1977, 152.7% in 2009

    Debt to disposable income (housing) - 24% in 1977, 135.4% in 2009

    But the important part of this is that as any 'intelligent investor' will tell you, making assumptions about the ability of an individual to repay their debts based on the repayment ability of a much larger sample of people is statistical chicanery at best, and outright deception at worst.

    Let's look at a simple example. If you have two households, one with 60% of their disposable income going towards interest repayments and the other with just 5% of their income going towards interest repayments, it's hardly fair to say that no-one is in mortgage stress because the average is only 32.5%.

    The reality is much worse than Joye's rose-tinted vision would make you believe. And it doesn't fit in at all with the numbers that show borrowing levels have reached an all-time high, in part thanks to the first home buyers bribe.

    Take this example. According to the HIA-Commonwealth Bank first home buyer affordability report: "Monthly loan repayments on a typical first home mortgage in Melbourne surged from $2114 to $2600 in the year to December as federal grants were wound back and other costs jumped."

    Got that? That's a 22.9% increase in monthly repayments. It's an extra $5,832 of after-tax income each year that is diverted either from savings or other spending, and is instead spent on feeding the ponzi banks.

    But not only that, it rather makes a mockery of Joye's claim that interest repayments are only 10% of household disposable income. Do the maths. With an annual mortgage repayment of $31,200 (most of which is interest in the early years) Joye obviously believes everyone is on the same kind of wage as he is.

    Maybe the flash-Harry's at Rismark earn $312,000 of after tax income each year, but most normal people don't.

    And even if you take Joye's previous claim that household disposable income is over $90,000, then you're still looking at over 30% of disposable income going towards interest payments.

    That's backed up by Joye's pals at the RBA who have Housing Loan Repayments at nearly 30% of household disposable income:

    Housing Loan Repayments

    So for El Joye to come out and claim "We know that total household interest repayments as a share of disposable income are only about 10 per cent today" is downright misleading.

    Look, let's forget all the stats and ratios and percentages. Let's think about this logically. In 2009, 191,000 first home buyers hit the market, that's more than a 50% increase on the previous year.

    Common sense tells you that these 191,000 first home buyers aren't spending just 10% of their disposable income on interest and mortgage repayments. Even if these buyers were uber yuppies with a disposable income of say $150,000 can you really imagine they are only spending $15,000 a year on interest?

    That would mean a mortgage of just around $200,000. Maybe we're wrong, but that would need a huge stretch of the imagination and suspension of reality to believe that's the case.

    Besides, even if you take Joye's disposable income of around $90,000 then you're looking at annual interest of $9,000 and a mortgage around $120,000. The numbers just don't add up to reality.

    Of course, Joye's pal, Macquarie Group's Rory "Output Gap" Robertson has chimed in as well:

    "The 'bubble crew' seem to keep missing the main story... There's extraordinary and ongoing rapid growth in the number of actual people in Australia with money wanting to own or rent houses in which to live - as opposed to living in tents and shipping containers - while the underlying long-term trend in homebuilding remains flat near 150,000 per annum."

    His arrogance never ceases to amaze. The actual people with money, are actual people being cajoled into taking out massive debt burdens. Cajoled by the likes of Robertson and Joye who believe Australia is immune from the realities of excessive debt indulgence.

    But that's not all, because it seems as though Joye has another visual impairment. Not only does he suffer from rose-tinted vision, but he's had a bout of tunnel vision as well.

    Last week Joye offered, "Exposing the sharemarket sham."

    The conclusion of his article? Wait for it. It's a barnstormer. You're not going to believe this...

    The stockmarket is risky! He's even managed to put a number on it. It's "11.6 times riskier than 'cash'".

    Well we could have told him that. In fact, 97.9% of 'intelligent investors' could have told him that. We hope Rismark clients didn't have to pay too much to receive that pearl of wisdom.

    But at least he's not afraid to spruik for property investing at the same time, because as he informs readers:

    "Australian equities also don't stack up relative to fixed income investments, such as bank bills and government bonds. I am pretty sure one could also add AAA-rated Australian home loans and A1+ corporate debt to the fixed-income outperformers, although it is difficult to quantify their long-term returns due to a lack of suitable time-series data."

    It seems that investors should forget about the stock market. They should forget about investing in companies that make things or dig resources from the ground or provide services to people.

    According to Joye you'd be much better off if you could invest in AAA-rated Australian home loans. Oh Lordy. What a fabulous idea. And as luck would have it, Rismark is just the firm to help you out. It has been trying to flog the idea of investors investing in Australian residential property securities for years.

    And from what we can see, without much success.

    But anyway, here's a link to the proposal Joye put to the [hehem]... Fannie Mae Foundation seminar in October 2003:

    "Consider a $250,000 house that is purchased with a downpayment of $25,000. The homebuyer uses standard mortgage finance of $125,000. The remaining $75,000 is raised using equity finance in the form of a specific SRR mortgage that works as follows. There is no interest due on the SRR mortgage until the house is sold. If the house is ultimately sold for more than it cost, the interest due corresponds to 60% of the appreciation. If the house sells for less than its purchase price, no interest whatever is due, and the amount of the initial loan is written down in proportion to the decline in the property price."

    You remember Fannie Mae, it was nationalised by the US government last year when a whole bunch of its mortgages went proverbial up.

    The gist of the proposal - as we can figure it - seems to be that you buy a house but only take out part of the mortgage, the rest of the cost is paid for by an investor or group of investors through some sort of security. They call it 'shared equity.'

    That idea is probably ringing a few bells for you.

    Well, it was less than five years later that Joye was proposing an Australian version of Fannie Mae and Freddie Mac to be called 'AussieMac.'

    In that document he states:

    "We propose that the Commonwealth Government sponsor an enterprise - 'AussieMac' - that would leverage the Government's AAA-rating to issue low-cost bonds and acquire high-quality mortgage-backed securities from Australian lenders just as Fannie Mae and Freddie Mac have done in the United States."

    And this comment, which was made before Fannie and Freddie went bust, but after the first signs of trouble had emerged:

    "While Fannie Mae and Freddie Mac have been extraordinary successful institutions for the best part of 50 years, they too have been occasionally embroiled in governance sagas that tend to at one time or another afflict all major corporations."

    And this:

    "Indeed, there is a compelling case that liquid markets for securitised residential mortgages would never have emerged in the US, or for that matter anywhere else in the world, were it not for the establishment of Freddie Mac and Fannie Mae, which were the pioneers of the securitisation process and for many decades the only providers of off balance-sheet funding to US lenders."

    Joye seems to say, "All hail Freddie and Fannie!" Whereas we say, "To hell with Freddie and Fannie!"

    We assume Joye is still intent on establishing an 'AussieMac' in Australia and therefore is set on importing to the Australian housing market the very same housing disease suffered by the American market.

    But getting back to the 'Shared Equity' proposal, isn't it a great investment idea? Wouldn't it be good if investors could help buy into residential property? We're surprised it hasn't caught on. We'll tell you why it hasn't caught on, because it's a terrible idea.

    First off, it would do no more than gradually push prices even higher as more capital is allocated towards the residential housing market. Of course, it wouldn't happen overnight, but the gradual trend would be to expand the housing bubble further.

    But secondly, what investor or investment firm in its right mind would buy into an over-priced illiquid asset, an illiquid asset that they earn absolutely no income on until the property is sold, and then they only get paid interest if the house is sold for a profit?

    What the academic in Joye forgets is one simple thing about housing. And that is, there's potentially more money to be made from lending money to sucker property investors than there is to be made from owning the actual property.

    Investment pros are too smart. They may spruik to push prices higher, but they're not dumb enough to put their own clients funds at risk when they can make more money from lending cash as a loan.

    But back to Joye's "risky sharemarket" article. Because there was another hilarious line we just couldn't ignore:

    "Unfortunately, most of us underestimate risk (including many supposedly sophisticated investors), and focus obsessively on returns... And that touches on a sobering fact that one should never lose sight of: risk represents the probability of loss. This is precisely why any person who tells you that shares are 'the best place to be' is mad: the only way they can possibly arrive at this conclusion is by completely ignoring risk, or by assuming that you are trying to generate unusually high returns."

    And yet, it's Joye and the band of property spruiking bandits who every day ignore even the faintest possibility of downside risk in the housing market.

    Shares are risky, and they always have been. We'll be the first to tell you that if you didn't already know. So we'll agree with Joye on that score. If you're not prepared to accept the downside risk then you shouldn't invest in shares.

    But for Joye to point to the risks of share investing without even mentioning the potential risks of investing in a property market that is close to bursting point shows his complete lack of investment objectivity.

    It's up to Joye to put the record straight and finally admit that there is risk in taking out a massive loan that's 6 or 7 times your annual income and buying a depreciating asset, which provides a negative income stream, at the height of a thirty year property boom.

    That's what we call risky. In fact, we'll say it's just as risky as investing in shares - and that shouldn't be the case for property. Property should be low risk, but thanks to the spruikers it's on par with the risk of shares.

    Look, we're not claiming that everyone's perfect, certainly not your editor. But we do object to the propaganda that the spruikers infest the mainstream media with, that the Australian housing market is unique, like no other in the world.

    And that Australia's record high level of debt is of no concern, because, well, this is Australia and we're different.

    The reality is, to use an analogy, while the bus journey from prosperity to household economic debt Armageddon may have taken a different route to that taken in the US and UK, the ultimate destination is the same.

    It's just that Australia is taking the scenic route. And whether we like it or not, the property spruikers are the one's driving the bus.



  22. Bardon & other Oz locals,

    A friend of mine is going to be putting in an offer on a flat in Brisbane. I don't know what the property market is doing in Oz but the heated discussion on this thread suggests that it's doing something. He's asking around for advice.

    If it were you, what's the amount that you'd expect to negotiate off the asking price? How much would you offer as your first offer? Ie. what's the negotiating protocol in Brisbane/Australia, if there is such a thing?

    Also are rents advertised in Oz normally inclusive or exclusive of the service charge? Ie. does the landlord absorb it or is it passed on to the occupier? I imagine rates are covered by the landlord, unlike council tax in the UK, but tell me if I'm wrong here. I want to compare the net rental value of the place against the asking price to give him a more considered opinion of the deal.


    Well in this market just pay what they want if you think it is a bargain, right now it is the sellers who have the upper hand.

    Auctions have become common because of the super heated market.

    If the market sould suddenly change than it is the same as every were , look for the best value and then find the most desperate seller.

    One difference to the Uk is that gasumping is not common place as the agent is not allowed to say how much the other offer is only that it is better than yours.

    Non comercial Rent: the land lord pays costs except the water costs and that is up for negotion.

    there is no GST on rent if I remember correctly.

    It may or may not be that the agent gets a one off letting fee of one weeks rent from you.

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