Nobody knows where interest rates will go in the future.
True, but the RBA is always in control of interest rates for AUD.
Quote:
Bond markets are forecasting a depression.
No. The yield curve in most countries is positive sloping - indicating and expectation of improving growth and rising short term interest rates
Quote:
If they’re right then Stock Markets and Property will fall.
Not true. Property and stock prices often move independently to interest rate movements. Notable example was in most economies between 2002-2007. Or Japan in the early 1990's.
Quote:
If they’re wrong then then interest rates will rise and Stock Markets and Property will fall.
Ditto.
Quote:
In other words: Bubble markets always crash.
Bubble are about price relative to value. Specifically, price significantly above valuation. Nothing in your post discusses this point.
Quote:
While we wait to see who is correct and which path the crash takes speculators ignore the warning signs, borrow cheap money and blow the bubble bigger.
At some point a correction in asset prices is inevitable. It has been happening since markets were invented. But this prediction is old. It has been going around by the bear Spruikers since 2009 (about 120% ago). The real issue is to not miss the rise before the crash.
For example, a crash in the S&P500 today would take the index back to 1,400. Way above the level when everyone thought Europe would disintegrate.
True, but the RBA is always in control of interest rates for AUD.
Really? So you think that if the US FED goes to 10% the RBA can still hold at current rates?
Remember, central banks do not decide mortgage rates. If a bank can plonk a few billion into UST bonds paying 10% yields, why would it lend to a homebuyer in Australia at 5%?
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
True, but the RBA is always in control of interest rates for AUD.
Not a chance. The markets determine interest rates and the RBA, despite being a big player, have no overall control.
Quote:
No. The yield curve in most countries is positive sloping - indicating and expectation of improving growth and rising short term interest rates
Interest rates consist of a risk free rate, typically 2.5%, plus an inflation premium plus a liquidity premium plus a maturity premium etc. A cash rate of close to zero is therefore forecasting significant deflation. Globally many trillions of dollars of bonds are being bought and held at a guaranteed loss on maturity at current inflation rates. Why do people do this? It’s because they’re expecting a depression and a small loss in bonds is better than a large loss in the bubble markets.
Quote:
Not true. Property and stock prices often move independently to interest rate movements. Notable example was in most economies between 2002-2007. Or Japan in the early 1990's.
Property prices do not move independently of interest rates and ease of credit. If the markets are right interest rates will fall, bank losses will lead to a significant tightening of lending standards and property prices will fall. In both cases you mentioned credit could still be eased further and was but at some point the market ends this game.
Quote:
Bubble are about price relative to value. Specifically, price significantly above valuation. Nothing in your post discusses this point.
It’s been discussed many times before. Prices are significantly above valuation but the bulls just keep adjusting valuations higher in line with rising prices and claim no bubble. Any metric from yield to debt to incomes will confirm the over valuation.
Quote:
At some point a correction in asset prices is inevitable. It has been happening since markets were invented. But this prediction is old. It has been going around by the bear Spruikers since 2009 (about 120% ago). The real issue is to not miss the rise before the crash.
the market certainly expects asset prices to correct. The markets have predicted this for a while now but haven't changed their mind. The real trick is to avoid the crash because if you’re geared and you don’t you’re bankrupt.
Quote:
For example, a crash in the S&P500 today would take the index back to 1,400. Way above the level when everyone thought Europe would disintegrate.
Really? So you think that if the US FED goes to 10% the RBA can still hold at current rates?
Remember, central banks do not decide mortgage rates. If a bank can plonk a few billion into UST bonds paying 10% yields, why would it lend to a homebuyer in Australia at 5%?
Not correct at all. Banks can only choose to park their *capital* in US T-Bonds etc if they so choose. They cannot just create a new loan for themselves, convert it to $US and invest in US T-Bonds. They are also not free to use reserve funds in this way either - which is what you may be imagining.
In terms of the ability to make profits off lending, banks are only constrained by a) regulatory capital adequacey ratios / requirements, and b) the ability to find willing credit worthy borrowers. They then make an ongoing profit on any loan off the difference between interest charges in, less cost of funds and loan adminstration out. This margin is subject to competition amongst various lenders, so will be kept to a minimum by any bank that wanted to keep the profits rolling in. In fact a higher return high teir rated capital investments (not sure how $US T-Bonds are rated?), *reduces* the banks costs, as the cost of holding the required capital is less than would otherwise be the case.
The local cost of funds, whilst it may be *influenced* by international rates, is not set overseas - the baseline cost of funds for is set and controlled 100% by the RBA via the overnight target cash rate.
Not correct at all. Banks can only choose to park their *capital* in US T-Bonds etc if they so choose. They cannot just create a new loan for themselves, convert it to $US and invest in US T-Bonds. They are also not free to use reserve funds in this way either - which is what you may be imagining.
OK, so you reckon that if the BoE or FED etc, jump to 10%, the RBA can theoretically have a 2.5% rate independent of this?
It wouldn't crash the value of the AUD, it would still attract inward investment and it wouldn't see money fly out of the country like shit off a shovel?
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
Not a chance. The markets determine interest rates and the RBA, despite being a big player, have no overall control.
The RBA is the only player. It is a monopolist issuer of bank reserves. And like like any monopolist, it absolutely controls the price of its product with the banks acting as the transmission mechanism.
You have made the same mistake as most other Bears. "Believing" the cash rate is controlled by market forces, despite all of the evidence to the contrary (like at 2:30pm every first Tuesday of the month).
If the RBA wanted the 10 year bond yield at 0%, they could do it at the stroke of a pen (or tap of a keyboard). They choose to manipulate the short end to meet their policy goals.
Quote:
Interest rates consist of a risk free rate, typically 2.5%, plus an inflation premium plus a liquidity premium plus a maturity premium etc. A cash rate of close to zero is therefore forecasting significant deflation.
The long end is simply the cumulative expectation of the short end. That is why when bad news is announced (on the economy), the long end yields fall.
The US cash rate is 0% because the fed wants it there. Simple.
When the long end is higher than the short end, there is an expectation of good news and higher interest rates and the Fed will move accordingly. You obviously do not look at markets much.
Quote:
Globally many trillions of dollars of bonds are being bought and held at a guaranteed loss on maturity at current inflation rates. Why do people do this? It’s because they’re expecting a depression and a small loss in bonds is better than a large loss in the bubble markets.
They do this because trillions of dollars are created via deficit spending. And the dollars have to end up somewhere. They can't be used to buy shares or existing bonds because that simply creates dollars for the sellers. etc etc.
And Bond yields reflect expectations of the Fed cash rate.
Who says they are a guarantee loss? If they are a guarantee loss - short them. Before you do I would recommend you look up the "widow trade" on Google first.
Quote:
Property prices do not move independently of interest rates and ease of credit.
But interest rates rose from 2002-2007 and so did property and equity prices. So the evidence disagrees with you. Morover, this pretty much happened everywhere. I see you have now added "credit" to your argument. This too is wrong. Credit growth in Australia was at record levels in 2004 yet prices stagnated.
Quote:
If the markets are right interest rates will fall
No - if the bond market is right, cash rates will rise. You need to do some homework on FRA's.
Quote:
bank losses will lead to a significant tightening of lending standards and property prices will fall
This is not analysis. Just wishful thinking plus a bit of hand waving which dates back to 2009. It has been wrong for 5 years now.
Quote:
It’s been discussed many times before. Prices are significantly above valuation but the bulls just keep adjusting valuations higher in line with rising prices and claim no bubble. Any metric from yield to debt to incomes will confirm the over valuation.
It has beed discussed and promoted by people who have been consistently wrong. They need new arguments because the old ones were useless. Yields and private debt levels are irrelevant for property valuation (but are relevant to price). The last 10 years should have been a lesson on that. It all comes back to replacement cost. Why won't people learn?
Quote:
the market certainly expects asset prices to correct. The markets have predicted this for a while now but haven't changed their mind. The real trick is to avoid the crash because if you’re geared and you don’t you’re bankrupt.
Rubbish. Selected bears expect crash. They have expected it for 1/2 a decade. If the "market" expected a crash it would have happened. That is the definitional of a market. But at some stage it will crash and the "broken clocks" will all say they were the only ones to predict it - then they will start their own blog...
Quote:
and what if it drops to 1300? or 1100 or 900?
Then I'm a buyer. As usual I suspect the bears will "predict" it will get worse and miss the bottom.
The RBA is the only player. It is a monopolist issuer of bank reserves. And like like any monopolist, it absolutely controls the price of its product with the banks acting as the transmission mechanism.
You have made the same mistake as most other Bears. "Believing" the cash rate is controlled by market forces, despite all of the evidence to the contrary (like at 2:30pm every first Tuesday of the month).
If the RBA wanted the 10 year bond yield at 0%, they could do it at the stroke of a pen (or tap of a keyboard). They choose to manipulate the short end to meet their policy goals.
The long end is simply the cumulative expectation of the short end. That is why when bad news is announced (on the economy), the long end yields fall.
The US cash rate is 0% because the fed wants it there. Simple.
When the long end is higher than the short end, there is an expectation of good news and higher interest rates and the Fed will move accordingly. You obviously do not look at markets much.
They do this because trillions of dollars are created via deficit spending. And the dollars have to end up somewhere. They can't be used to buy shares or existing bonds because that simply creates dollars for the sellers. etc etc.
And Bond yields reflect expectations of the Fed cash rate.
Who says they are a guarantee loss? bonds have been one of the best performing asset classes in Japan for 20 years.
But interest rates rose from 2002-2007 and so did property and equity prices. So the evidence disagrees with you. Morover, this pretty much happened everywhere. I see you have now added "credit" to your argument. This too is wrong. Credit growth in Australia was at record levels in 2004 yet prices stagnated.
No - if the bond market is right, cash rates will rise. You need to do some homework on FRA's.
This is not analysis. Just wishful thinking plus a bit of hand waving which dates back to 2009. It has been wrong for 5 years now.
It has beed discussed and promoted by people who have been consistently wrong. They need new arguments because the old ones were useless. Yields and private debt levels are irrelevant for property valuation (but are relevant to price). The last 10 years should have been a lesson on that. It all comes back to replacement cost. Why won't people learn?
Rubbish. Selected bears expect crash. They have expected it for 1/2 a decade. If the "market" expected a crash it would have happened. That is the definitional of a market. But at some stage it will crash and the "broken clocks" will all say they were the only ones to predict it - then they will start their own blog...
Then I'm a buyer. As usual I suspect the bears will "predict" it will get worse and miss the bottom.
The RBA will always be a prisoner of inflation when setting the rate unless it choses to ignore inflation. Yes in a vacuum it can set the rate at whatever it wants.
It is very very highly unlikely that the RBA can engineer a 0% 10 year yield, other than prior to the low yields it unproductively crashes the economy into deflation, or external conditions enable that to happen.
The idea the central bank is all powerful is naive
These kinds of ideas are only existing today because of the unusual and persistant deflationary conditions pressures where very many countries have historically high levels of debt and the post gold standard spending 'our way to prosperity' has for the time being reached a wall of worry that politically means it is very difficult to turn the spending taps on despite the generally weak growth. Countries like Finland have for example doubled their debt since 2008 and the overall debt situation is today worse than it was worldwide before this crisis began.
OK, so you reckon that if the BoE or FED etc, jump to 10%, the RBA can theoretically have a 2.5% rate independent of this?
It wouldn't crash the value of the AUD, it would still attract inward investment and it wouldn't see money fly out of the country like shit off a shovel?
My comment pertained mainly to your *second* claim about banks choosing to invest in T-Bonds instead of lending at lower rates to the local market - that is bunkem, for the reasons I explained.
As to whether the RBA could hold rates at 2.5% here with a 10% bond yield available overseas, it is certainly theoretically possible to do this, of course, but it's an unlikely situation, as yes, the consequence would likely be a significant reduction in the value of the AUD - note that this is the *same* thing as your "money flying out of the country" supposition. $AUD cannot actually leave Australia (other than physically as cash transported in suitcases!) - for every local investor in o/s assets there is a buyer of the AUD that they sell, which must remain within the banking and monetary system somewhere in Australia.
My comment pertained mainly to your *second* claim about banks choosing to invest in T-Bonds instead of lending at lower rates to the local market - that is bunkem, for the reasons I
The issue though would not only be the lower overnight rate set by the RBA but rather the cost of funding where the banking system in Australia is significantly exposed to overseas borrowing to 'be funded' and the banking system in Australia has an unusually high market valuation and where availability of 'capital' for capital adequacy for lending is related to market valuations. I find it hard to see how Australian banking would not be significantly impacted by a very low rate environment in Australia compared to the mighty USD.
I am not though making a case for higher rates. I cannot see anything to drive rates very significantly higher for years and years. The only thing that can change this situation is if social unrest builds and for example government spending increases
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy