- Freckle wrote:. During the 90’s we saw high inflation high interest rates and then a deflationary crash in RE. My property (NZ) went from $350k to $230k in the space of 8 months.
The Freckle
Out of interest what was the rent achieved back then and what is the current value and rent for that property now ?
bardon wrote:simple wrote:+1
In simplified form, if you are in debt – inflation is good. That is assuming business, not personal debt.
If you are saver (in fiat currency), inflation is reducing your savings and is bad for you.I have lived thru inflation and hyperinflation in Poland 1990, Russia 1992 and few others. General rule is, as inflation rate increases – more value you loose by holding the fiat over the same period of time. So people/businesses dump currency and buy goods, assets (land, buildings, factories, very large businesses, infrastructure and so on) and start trading barter (in very bad cases, think Greece).
From PI investor with debt point of view, moderate inflation is very welcome. I know as I am and I can count my money well.
The way I look on it the bets way to derive a benefit out of the situation you have described here is that you should get yourself into as much debt as you can safely handle as early as you can and never ever pay it back. From a purist perspective the investment property is merely the method of securing debt, debt that will pay dividends and growth over time.
I view it the same, agree here.
To make money, your description is spot on.
To secure money already at hand, you need to invest in asset class that is inflation adjusted, some also pay divedents along the way. Can be RE, Gold, Land… Just have to watch the cycles when making move.bardon wrote:Out of interest what was the rent achieved back then and what is the current value and rent for that property now ?Have no idea Bardon. I was a spec builder/developer in those days.
Note the plunge in inflation.
Corresponding drop in interest rates
But the killer was the plunge in house prices.
The Freckle
Freckle wrote:bardon wrote:Out of interest what was the rent achieved back then and what is the current value and rent for that property now ?Have no idea Bardon. I was a spec builder/developer in those days.
The Freckle
So would you say that they would both be higher today ?
bardon wrote:So would you say that they would both be higher today ?What? Prices and rents?
I’m from Christchurch so its a radically different market since the earthquakes. A fair chunk of the housing stock is to be condemned and the areas not rebuilt on. You can’t rent for love nor money at the moment while rebuilding kicks in. Rents resemble mining towns in Aus in some instances and property values in areas with little or no damage have risen based on the premise they sit on earthquake resilient land. Vacant blocks outside of the city have increased in some cases by 50%.
The NZ market varies considerably across the country and property can be volatile to say the least. Housing booms are short lived and the following crashes can be vicious. The cycles there tend tonrun around 5 years so in a crash you can recover relatively quickly, however, my property took over tens years to recover its 1991 values.
I recall a comparison I made between my first house (Queenspark Christchurch) and one in Fairlight (Sydney). In 1985 they where the same value. Approx $50k. By 2002 the Fairlight property sold for $1.2m if I remember correctly. The Christchurch property was only worth around $200k.
The Freckle
That is quite an interesting story. But earthquakes aside, the general rule is that in the long term both prices and rents will rise.
As far as when this inflation tsunami will be released. Maybe if Romney gets in, in the US, the economy will start moving again, under utilised resources will get busy, unemployment will drop and people will feel better. Then maybe all the new money will find its way into the system and the velocity of money will go into the fast lane once again.
bardon wrote:the general ruleAnd there in lies the problem in thinking among many investors. What most fail to realise is this is not ‘a general rule’ incident in global financial events.
There has been no time in history that I can recall when virtually every major economy is near collapse simultaneously. Economies like Australia will not be able to weather this impending collapse simply because it has a relatively stronger economy. With $1.3T in debt (something like $600m of that is in housing) Australia will fold like a pack of cards once things start to unravel.
Just about every notable investor on the global stage is not asking how do we make money but how do we preserve our capital and reduce losses.
The Freckle
Freckle- The sky will not fall in and the sun will rise tomorrow. Some countries have a debt prioblem but most do not. I strongly disagree with your statement that every major economy is near collapse.
I am guessing that you consider yourself as a notable investor on teh world stage judging by how you speak?
Having said that, I am not privvy to the information that major institutions and governments have. And I strongly suspect nor do you- We are all generally poorly informed and only know a fraction of the full global enonomic picture.
Cheers,
LukeFreckle wrote:bardon wrote:the general ruleAnd there in lies the problem in thinking among many investors. What most fail to realise is this is not ‘a general rule’ incident in global financial events.
There has been no time in history that I can recall when virtually every major economy is near collapse simultaneously. Economies like Australia will not be able to weather this impending collapse simply because it has a relatively stronger economy. With $1.3T in debt (something like $600m of that is in housing) Australia will fold like a pack of cards once things start to unravel.
Just about every notable investor on the global stage is not asking how do we make money but how do we preserve our capital and reduce losses.
The Freckle
Well if the price of that house and its rents are higher now than they were way back when, then they have conformed to the general rule, no ?
“No time in history” is a very long time for you to have a comprehensive economic knowledge of.
luke86 wrote:Freckle- The sky will not fall in and the sun will rise tomorrow.True but for how long.
Some countries have a debt prioblem but most do not.
Luke do you live in an information vacuum or something
I strongly disagree with your statement that every major economy is near collapse.
Then you don’t appreciate the interconnected nature of the financial system. The EU doesn’t have the funds to save Spain and now Italy is teetering. If you stick your head up for a minute and listen to some of the more credible analysts you start to see what a disaster the EU is. There is no way out other than to print or go bust. Problem is going bust is inevitable.
Reality is slowly setting in in Europe that they can’t beat this collapse. They’re now starting to plan how they can manage the worst of it and mitigate their loses. In other words shifting the losses to the tax payer.
Once Europe starts to unravel then the US can’t help but follow. It controls 95% (through 5 of the biggest banks) of the $706T derivative market which is largely CDS insuring loan defaults of Euro banks along with sovereigns. Another AIG but x5
I am guessing that you consider yourself as a notable investor on teh world stage judging by how you speak?
The notable ones are those who manage billions in investment funds.
Having said that, I am not privvy to the information that major institutions and governments have. And I strongly suspect nor do you- We are all generally poorly informed and only know a fraction of the full global enonomic picture.
Then you’re not looking very hard. Economic analysis and reporting is not soley a goverment function. Universities, think tanks, private analysts, investment houses, banks…. the resources for good quality verifiable data are massive and freely available. Much more than I can get through.
IMF World Economic Outlook
January 24, 2012
http://www.imf.org/external/pubs/ft/weo/2012/update/01/pdf/0112.pdfThe updated WEO projections see global activity
decelerating but not collapsing. Most advanced
economies avoid falling back into a recession,
while activity in emerging and developing
economies slows from a high pace.However, this
is predicated on the assumption that in the euro
area, policymakers intensify efforts to address the
crisis.The plonkers in the EU have been trying to stabilise this crises for well over two years now. We now have Greece, Portugal and Spain not in a recession but a depression. ECB debt through shonky back door money printing to support insolvent banks has ballooned to over a trillion Euro with more printing to come. Germany and to a lesser degree France are on the hook for this debt. Ireland is lining up to have it’s debt forgiven as they struggle under austerity.
Go and do some digging on China, Russia and India. You’ll find things aren’t as rosey as they’re made out to be there either.
The smart guys accept the fact that a GFC of significant proportions is on the way. What they and we don’t know is when and where or how bad it’ll actually get. But they’re positioning themselves to take a hit and hopefully come out the other side stronger than the next guy. That might just give them an advantage to increase their wealth in leaps and bounds.
The cheer leader types who only see positive things and ignore anything remotely construed as negative (doesn’t fit the personality or peer group image) will wake up one morning and wonder how they lost everything.
The Freckle
bardon wrote:Well if the price of that house and its rents are higher now than they were way back when, then they have conformed to the general rule, no ?“No time in history” is a very long time for you to have a comprehensive economic knowledge of.
You talk as if rents and asset prices increase in a linear fashion when they don’t. At times they’ve been up and other times they’ve been down. It’s all timing.
Don’t claim to have ‘comprehensive’ knowledge and history books cover from the year dot until now. You just have to read them.
The Freckle
“Absolute certainty is the privilege of uneducated men and fanatics.” — C.J. Keyser
Freckle wrote:bardon wrote:Well if the price of that house and its rents are higher now than they were way back when, then they have conformed to the general rule, no ?“No time in history” is a very long time for you to have a comprehensive economic knowledge of.
You talk as if rents and asset prices increase in a linear fashion when they don’t. At times they’ve been up and other times they’ve been down. It’s all timing.
Don’t claim to have ‘comprehensive’ knowledge and history books cover from the year dot until now. You just have to read them.
The Freckle
I never said that.
I am in awe of your economic knowledge and readings.
wow I am really interested in what you guys saying now !!
I think end of the day if you scared of the big crush, then sell all your properties ….. then end of the stories.
if you want to be in the property game then stay on !
always have boom and burst, it's just part of the property cycle : ) i just enjoy the roller-coaster ride : )
scha9799 wrote:wow I am really interested in what you guys saying now !!I think end of the day if you scared of the big crush, then sell all your properties ….. then end of the stories.
Not necessarily. There are arguments that support holding property in such a crises. The arguments do not centre around whether or not you loose your shirt but will property offer the opportunity of reduced losses compared to other asset classes including cash.
if you want to be in the property game then stay on !
Serious investing in any class isn’t generally considered a game. ‘Staying on’ in any investment during a crash would be foolish I would think. The smart guys move from asset class to asset class. They all have their day in the sun as well as in the shadows. Chase the sun in investment classes and your returns over 40 years would make property alone look like beer money.
always have boom and burst, it's just part of the property cycle : ) i just enjoy the roller-coaster ride : )
Yep. Always fun till someone looses an eye.
The Freckle
bardon wrote:I am in awe of your economic knowledge and readings.On average I would read 1 – 3hrs of material a day. Compared to many what I know wouldn’t fill the back of a postage stamp.
The Freckle
Hi Freckle,
Out of curiosity, do you have any IPs at all?
I’m thinking probably not considering your comment… “virtually every major economy is near collapse simultaneously”.
If you do have IPs, I’m stumped as to where you have invested?
For Luke and other non believers with cognitive dissonance.
The exponential growth in debt and declining GDP is accelerating as the massive debt loads drag on growth. Debt loads are being managed by artificially (market manipulation) suppressing interest rates. A 1% rise in US treasuries would literally cripple The US overnight.
Govt figures are massaged and manipulated to give the sheeple the idea that their governments have things under control, however, the staggering rise in unemployment (and these are suppressed official figures – real world figures are magnitudes worse again) over the last 5 years is starting to manifest itself as social unrest (OWS movement)
Spain now the 12th nation in Europe to fall into recession – the dramatically bad changes in unemployment and GDP since the crisis began (especially among the youth) suggest more angst is to come as the political compact is pushed to its limits.
Debt Overhangs: Past and Present
Carmen M. Reinhart, Vincent R. Reinhart, Kenneth S. Rogoff
NBER Working Paper No. 18015
Issued in April 2012We identify the major public debt overhang episodes in the advanced economies since the early 1800s, characterized by public debt to GDP levels exceeding 90% for at least five years. Consistent with Reinhart and Rogoff (2010) and other more recent research, we find that public debt overhang episodes are associated with growth over one percent lower than during other periods. Perhaps the most striking new finding here is the duration of the average debt overhang episode. Among the 26 episodes we identify, 20 lasted more than a decade. Five of the six shorter episodes were immediately after World Wars I and II. Across all 26 cases, the average duration in years is about 23 years. The long duration belies the view that the correlation is caused mainly by debt buildups during business cycle recessions. The long duration also implies that cumulative shortfall in output from debt overhang is potentially massive. We find that growth effects are significant even in the many episodes where debtor countries were able to secure continual access to capital markets at relatively low real interest rates. That is, growth-reducing effects of high public debt are apparently not transmitted exclusively through high real interest rates.
Presenting Bridgewater’s Weimar Hyperinflationary Case Study
http://www.zerohedge.com/news/presenting-bridgewaters-weimar-hyperinflationary-case-study
Eurozone debt web: Who owes what to whom?
http://www.bbc.co.uk/news/business-15748696
An interactive debt graphic that reveals the interdependence of the financial system. All for one and one for all. Check out the USA and UK.. staggering.Worse Than 2008
http://www.zerohedge.com/news/guest-post-worse-2008The Freckle
bandwagon wrote:If you do have IPs, I’m stumped as to where you have invested?I saw the writing on the wall years ago but like many others thought the great correction would have happened much sooner. What we didn’t realise was the lengths governments and central banks would go to in propping up a failing system. I have absolutely no intention of owning property at this point in time. Too much capital with too much risk for such a piddly return.
I’m 55, had one heart attack and have every intention of dieing in debt because I sure as hell can’t take it with me.
I invest directly into business and a little in PM’s through shares and ETF’s. My business investments have a ROI of around 500% annually. The PM’s are being hammered at the moment down around 30% but they’re a hedge and as insurance it’s relatively cheap. PM’s will recover their losses over time and if everything turns to custard like I suspect then we could see a several hundred percent return.
the Freckle
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