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The world’s biggest housing bubble - Christopher Joye; CJ calls you bulls, fools...
Topic Started: 1 Sep 2014, 04:36 PM (4,570 Views)
GloomBoomDoom
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Shadow
1 Sep 2014, 06:03 PM
CJ is very careful with his language. You need to be more careful interpreting it.
I read it the same way as Shadow. CJ doesn't make predictions because he is too scared of being proven wrong. He always has an out.
MSE
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miw
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ThePauk
1 Sep 2014, 04:36 PM
I believe that Australian home values measured relative to disposable incomes are currently breaching the all-time records set in both 2007 and 2010.

Yet I expect the current boom, which is arguably turning into a bubble, to continue until the RBA starts raising interest rates. Importantly, you do not require mania or double-digit credit growth to have a bubble, as some pundits claim. What you do need is asset prices way above reasonable estimates of fair value and high levels of leverage, both of which Australia possesses today.
It may be reaching those multiples in Sydney and Melbourne, but for Australia as a whole they are not. And Sydney and Melbourne peaked earlier than 2007.

I do think he is right in saying that prices will continue to rise until interest rates start trending up again. If they continue to rise even after that, then I will be ready to call bubble. One of the signs of a bubble is that asset prices continue to go up even after the fundamentals turn down.

CJ is wrong in saying you need high levels of leverage to have a bubble. You could have a bubble even without the leverage. In fact, if asset valuations doubled from today to tomorrow, leverage levels would go *down*.

I expect most current investors would welcome a bubble. It would give them the opportunity to offload some assets at inflated prices. I have a couple of places earmarked for just that if a bubble does develop. It is the bears who turn into bulls at the last minute who get fleeced.
Edited by miw, 1 Sep 2014, 07:16 PM.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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John Frum
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GloomBoomDoom
1 Sep 2014, 06:46 PM
I read it the same way as Shadow. CJ doesn't make predictions because he is too scared of being proven wrong. He always has an out.
Agreed.

As I've mentioned here previously the guy is a self serving opportunist - albeit a cunning one.

He senses risk developing and he's hedging his bets. End of.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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Guest
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Our government has interfered with our housing market on several fronts. Not only do we have an “open for business” policy, and not only do we have unrestricted foreign buying where foreign investors who contravene the law never get questioned, let alone stopped or prosecuted, we also have other factors contributing to our housing bubble.

A high immigration rate to populate the Ponzi!

We also have the most generous laws regarding negative gearing in the world, and we also allow SMSFs to be leveraged into housing. In fact, our whole tax system is designed to have everybody speculate on housing and drive prices up.

In addition, we also have demographic factors like most of our population being squeezed into a few major cities, putting even more pressure on the housing market.

The government interferes in more ways than one and prices are artificially inflated but that doesn’t mean that things are going to change, unfortunately. I used to think that because this bubble is artificially inflated and that the fundamentals don’t stack up, that the bubble would be unsustainable, but I was wrong. There is no end to the artificial stimuli that can be applied to keep this bubble inflated.
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123
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A convincing thesis from Phillip J. Anderson, is that the great meltdown in bubbles finally comes when the central bankers are no longer in control of interest rates.

The critical event, is the yield curve on all the sovereign debt instruments that are the main means of monetary inflation, “inverting”.

This is because investors believe that inflation is inevitable, which is because of the buildup in money supply. Also a contributor, is the expectation among at least some investors, that there is going to be a default (government debt reaching unmanageable levels) but this is not essential.

Mortgage lenders tend to then be guided by the higher interest rates on the long term securities that are part of the monetary system, and no amount of low-interest-rate money from the central bank here and now, will change them. Mortgage interest rates go up – and BOOM!!!!

The yield curve can invert without this being the outcome, but the big bust always comes after such an occurrence. No yield curve inversion, no bust imminent.

Another sad feature of this thesis, is that the time frame for this to happen is always so long that the bears have been made a laughing stock and no-one is listening to them any more. Hence, the absolute maximum number of people have piled in, including FHB’s who have given up waiting for the crash – and they will have been enticed in by some special offer in the form of subsidies or new ultra-tiny “first homes” (that will still cost them a million dollars and be worth $100,000 after the crash).

It gives me no pleasure to concede that I have been persuaded by this thesis, against my earlier “bust sooner rather than later” position.
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Foxy
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Zero is coming...

You have to have a use higher than the cost of doing what ever activities you are doing., if you do not you starve.
Its just a matter of time.
Tick tock.
Peter
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peter fraser
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1 Sep 2014, 08:33 PM
Our government has interfered with our housing market on several fronts.
Yes the market is regulated, like all markets.
Any expressed market opinion is my own and is not to be taken as financial advice
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Jim
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The continued slow moving train wreck of how a country devours itself from the inside out. Who needs manufacturing when you have such a great FIRE sector? Australia is tactfully transitioning from an economy where it dug stuff out of the ground to sell overseas to selling the stuff on the ground too.

One must wonder what cock and bull story is fed to foreign investors in Australia’s housing market. No doubt only few investors ask for facts.. but would the conversation go something like..

Spruiker: ‘Come invest in Australian property, the returns have never been stronger’

Investor: ‘But what is driving this investment return – I see your unemployment rate rising, your manufacturing sector all but dead with looming unemployment from the closure of the car manufactures and with the build stage of the mining boom over. Your main trading partner China is going through painful adjustment, commodity prices are falling and your housing is the most expensive in the world on a price to rents and price to income basis and your banking sector may go through a repricing of credit through regulatory reforms.’

Spruiker: ‘Oh but you forget housing only ever goes up in Australia (except for those long periods where it went backwards) and the government is completely in favour of policies which direct further investment into housing. Australia’s population is growing even despite rising unemployment, one of the highest costs of living and a continued shakeout of industries which support low skilled labour. You my investor friend, are the reason to invest in real estate. As long as you keep believing prices will continually rise they will. If I suck enough fools like you into believing my story for long enough, it becomes and remains self perpetuating’.
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Ned Flanders
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peter fraser
1 Sep 2014, 09:17 PM
Yes the market is regulated, like all markets.
Who regulates the narcotics market? Or is that self-regulating?
------------------------------
" ... which is that all-too-familiar dynamic in Irish life where people tell lies, cover them up and create all sorts of collateral damage, sometimes spread out over decades, and never take responsibility."
- Alan Glynn
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Sydneyite
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Ned Flanders
1 Sep 2014, 10:45 PM
Who regulates the narcotics market? Or is that self-regulating?
Que? Because most narcotics are illegal - ie, the *greatest* extent of government regulation imaginable, the prices charged/paid are many many multiples of what prices for those substances would otherwise be in a legal, open and free market.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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