The very simple proof this theory doesn’t hold water lies in rental returns. Why in a time of such huge demand for housing have not rents risen in concert with house prices?
F.[cowboy2]

Hi Kerwyn, thanks for the interesting post. We certainly are living in exciting times. Bring on the future!!!
There are opportunities in every market, as I’ve been told here so many times! Like a good boy-scout, I’ll try to be prepared. (Better make sure the folks don’t sell the farm!)
Cheers, F.[cowboy2]

The cheapest petrol supplier in my town (yes, the 132.9c/l mentioned above) is conveniently also a bottle shop. I try to always buy a couple of bottles at least every time I fill up – at 600c/l for VB and around 900c/l for premium, it puts some perspective on petrol prices.
I suspect that beer inflation is running well higher than milk.
Another couple of thoughts on oil – it looks like a number of US states are going to bow to public pressure and remove/reduce tax on ‘gasoline’. On the face of it this seems like a good thing for mister G. P. Ublic, but when you dig a little… Setting aside the inevitable profit margin increases that would follow thanks to refiners and service station greed, this would effectively increase demand for a product that was in fixed supply and thanks to Katrina, is now in short supply. This situation would very soon return to equilibrium – the point where the price stops demand from being higher than supply… ie, roughly the same price as before (perhaps a little higher!~). The governments, by taking the popularist route would still have to deal with public outrage yet be losing a large revenue source.
Thought 2: Transport companies in the UK are again looking to blockade refineries ‘in protest’ against high prices. This has been done before in a number of parts of Europe, around 5 years ago. The result was a shortage of petrol, temporarily higher prices, empty supermarket shelves etc, followed by government intervention – from memory I think the UK govt froze their petrol tax. At the same time our government* reduced its excise by a few cents a litre and removed the CPI increases, although I don’t recall any blockades, just a whole lot of p**sing and moaning about petrol hitting the psychologically unsettling 100c/l.
As explained above, any of these actions will only add to consumer pain, add to global demand and add to the price of oil/petrol. Food for thought.
Meanwhile the price of oil has fallen from $70 to US$64/barrel as the Australian dollar has risen from under 75c to 77.5c. A barrel of oil now costs AU$83 – down from $AU93 last week – an 11% fall. That’s the good news. The bad news is that both are likely to be temporary. The fall in oil is due to the generosity of oil producing companies/nations and the US government who are drawing from their reserves to try to prop up the US in the wake of the hurricane. The fall of the USD is based on the belief that the US Fed will have to stop hiking interest rates to prop up its economy… which is not a done deal with inflation running at 5%pa over the last 6 months. Link Here
But then again, it was largely the Fed’s response to the Tech wreck and S11 that drove the world to its current unbalanced and inflationary situation, so who knows. Anyhow, for oil, more easy money means yet higher oil prices, gold prices. Etc etc ad nauseum.

Regards, F.[cowboy2]

Nope, I think it’s more of a competition thing, as the article states. They’re reducing their margins to try to gain a competetive advantage. They have to do this because they’ve backed themselves into a hole – the vast majority of bank profit over the last few years has been the result of loan approvals, which have now plummetted. You see it’s not like the old times when banks would reap income from loans for years at 10+ percent – these day’s the mortgage debt is packaged up and onsold to, for example, investment banks and superannuation funds.
A bank might choose to lend at 6.8% money they acquire at 5.5%. They could then offload this liability at, let’s say 5.9% (I’m plucking figures here!). The purchasers of this debt see it as relatively high return, relatively low risk investment (how often do banks go bankrupt?… oh yeah, there’s Pyramid, Westpac, Mainline and Cambridge, Bank of Adelaide.. but I digress). Meanwhile the banks are in a fairly risk free situation, scooping their share of money as it flows past.
So, are banks a good investment then? Not quite. You see this system requires a steady stream of new mortgage approvals for the profits to keep flowing, an increase in mortgages to keep on growing etc.
Falling lending figures will absolutely totally without a doubt hit the banks’ bottom lines and hard too. We can expect to see a few signs of this at the next ASX reporting season. Fancy a punt? I’ll likely be buying CFDs to short a couple of our biggest banks just before they issue their profit warnings…[fear]

Oh, where was I… Right, so the reason Westpac has cut their fixed rates has bugger all to do with interest rate futures and everything to do with propping up their flaggin mortgage figures.

Cheers, F.[cowboy2]

Well put Dazzling… and you didn’t even mention stockpiling capacity at either side of the refining process, or the willingness of other countries to take this unwanted supply off our hands at the price that we’re apparently not prepared to pay…

I got this email last week as it travelled around work, but mine said September 5 was the day. Across the road I was amused to see the service station adjust it’s price from 127.9c/l to 132.9c/l on the very day. I guess that proves it didn’t work!

Cheers, F.[cowboy2]

Yes, that’s what I thought too – hence my original question. Given Mei’s statement:

…I’d be wondering whether the ATO are not already owed a fairly large CGT cheque…

Mei, if you have screwed up by claiming non-existant capital losses, it may be worth your trouble getting in touch with the ATO to sort it out. That way they’ll be much more understanding than when/if they catch up with you.

Just a thought.
F.[cowboy2]

• I errr… didn’t. I specifically stated “JP Morgan do have concerns over declining house prices.”
• “the bloke” is Chief economist of JP Morgan Australia!
• How did JP Morgan & Merril Lynch go with picking the tech-wreck, or did they continue to deny there was a problem as share values halved, quarter and evaporated?
• What constitutes a “CRASH!!!!” in your opinion? 10% declines in 12 months? 20 percent in 2 years? 20 percent in 12 months?

F.[cowboy2]

Hi Mei,
Sounds like you have some fabulous properties there – would love to see the one on the Singapore canals [blink]!
If you don’t mind me asking, how do you ‘build up capital losses’ while working overseas?
Regards, F.[cowboy2]

Dazzling – the ‘market’ I have been referring to is the one consisting mostly of 3 & 4 bedroom suburban detached houses. You know the ones – 95+% of real estate investors have one or two…[biggrin]

Anyhoo – if those who now have the spreadsheet fill down the relevant columns to 2020, the forecast is for Melbourne’s median house price (detached 3 or 4 bedroom suburban standard residential lease etc[biggrin]) to be around $550k in 2020 dollars. While this is well short of the 1.5 million that the ‘double every 7 years’ theory predicts, it indicates that gearing yourself to the eyeballs NOW to purchase the afore mentioned median house at 3.5% yields could still be a great wealth creation strategy over the next 15 years.
Of course, the cycle theory may prove wrong.

Cheers, F.[cowboy2]

Disclaimer: The above is pure conjectural bullxxxx and should not be taken as investment advice. If I was to give specific financial advice for your situation, I’d have to say “put it all on black”. What? I was wrong? So sue me.

250 unit development in Hervey Bay? I asked a friend who works in the planning field in the region whether he knew of such a development, and the answer was a resounding “NO…?”
Not meaning to doubt you, but are we talking about the same town? The one in QLD? Is this a high-rise development?

Cheers, F.[cowboy2]