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The crash has begun!; It’s official - the crash has begun!
Topic Started: 4 Mar 2011, 02:16 PM (11,102 Views)
stinkbug
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b_b
17 Sep 2014, 09:42 AM
LOL.

Thanks for that Stinkbug. That was a blast form the past!
:D

I stumbled across it while searching for something completely different. It's interesting how time changes our perspective.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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peter fraser
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b_b
17 Sep 2014, 09:42 AM
LOL.

Thanks for that Stinkbug. That was a blast form the past!
You should dig up your old thread on the MMT work guarantee - that was a doozie.

Any expressed market opinion is my own and is not to be taken as financial advice
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goldbug
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I remember an article years back showing the appreciation of London housing over 350 odd years. It fitted the typic doubling in price every x-years meme. It didn't however account for the fact that the pound sterling has lost massive amounts of its purchasing power though. Same in the US where the dollar has lost 95% or so of its purchasing power.

Then you look at the Australian experience, where home in the early seventies could be had for $50k or less. But what was the average hourly rate earned by a working man then? $3.50 an hour, there abouts. With that he could buy a car, feed a family of 4 and pay a mortgage.

Without wage increases houses price rises put them straight into bubble territory. They have been it that territory for well over 10 years now.
Shadow was hopelessly wrong about the Gold Bull Market.
What else is he wrong about?
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stinkbug
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goldbug
17 Sep 2014, 09:48 AM


Then you look at the Australian experience, where home in the early seventies could be had for $50k or less. But what was the average hourly rate earned by a working man then? $3.50 an hour, there abouts. With that he could buy a car, feed a family of 4 and pay a mortgage.

This is true, but it's important to remember that in the 1970s the standard of the house, car and food in question was low compared with today.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Ex BP Golly
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cokatoo56
16 Sep 2014, 11:59 PM
So where do you guys think we are now ? enthusiasm ? greed ? delusion ?

i downloaded on wikipedia the graph of Melbourne median house prices vs wage from 1965 to 2013 . (i believe the graph for Sydney is similar).
And it is quite amazing how the graph can be overlayed on the graph that mohamed showed on the first post of this thread.
this would mean the current market is in the greed phase i assume.
the time that separates the greed from the return to normal phase is rather short.

question is how long can it take to move from one phase to the other when the market starts to decline seriously ? 6 months from now ? 1 year ? 2 more years ?
See the graph below.

Shadow, the biggest bull on this site places the tipping point about 4 years away.
Posted Image
stinkbug
17 Sep 2014, 09:52 AM
This is true, but it's important to remember that in the 1970s the standard of the house, car and food in question was low compared with today.
"Standard"?
Hmmm, entry level furniture, whitegoods, cars etc from that time are all still around and if not working fine, absolutly serviceable.

Some of these things are even considered more fashionable and expensive then their flat pack, fantastic furniture contemporaries.

I went to change my brake pads the other day on my late model yank tank to find cleverly blinded and blocked bolts all over the place . (The vehicle it superceded required every extension, even the universal joint- in my socket set to change 2 of the spark plugs). Some of the places they put the oil filter these days lol!

Modern vehicles are designed to discourage home servicing right down to discouraging even changing a light glob.

The house I was born in is still looking great with minimal maintainance in a suburb that that had only recently become attractive.

I doubt todays 'standard' will look so good at 100.

Im sure 60's valour wall paper will again be fashionable and standard one day.



Edited by Ex BP Golly, 17 Sep 2014, 10:35 AM.
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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Dr Watson
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David Llewellyn-Smith's arguments for selling property now:
Quote:
 
- the offshore bid in housing that is coming from China is not sustainable and it will get squeezed by China’s anti-corruption crackdown, as well as by currency fluctuations;
- there is a supply response in all cities right now, even if not as large as population growth and rents are under pressure everywhere;
- immigration growth is slowing and will keep doing so because unemployment remains stubborn. There are market forces at work in migration as well as government fiat;
- monetary policy is almost exhausted with perhaps 1% more cuts left in the can, versus the 4% plus drop during the GFC;
- fiscal policy is close to spent with the Budget at 21% of GDP per capita and S&P committed to stripping the AAA sovereign rating when it breaches 30%, which is certain the moment the next global downturn hits. As most business cycles last 8 years, we likely only have have only two years left on this one. That will mean downgrades for the the banks and more expensive credit during the next crisis and far less stimulus will be possible;
- the Murray Inquiry looks likely to recommend higher capital for banks meaning more expensive credit as well;
and, contrary indicators like Alan Kohler are telling us that it’ll go forever.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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b_b
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Here is my chart. I think we are more than half way to the peak relative to replacement cost.
Posted Image
Not quite as scary as the “bubble charts” but it does indicate the rising risk in housing.

The subtlety in understanding replacement cost as a driver of value is demonstrated by analysing the the market when prices are below cost. When prices increase from a (say) 10% discount to cost to a 5% discount, it creates a scenario of rising prices and no supply response.

On this basis, it can be easy to conclude, “supply is unresponsive & constipated etc”. To some extent this is true so long as prices < cost. The incentive to build at a 10% loss is the same as the incentive to build at a 5% loss. Zero.

The opposite is also true. Even if we see house prices plateau or even decline from here, I would expect ongoing new supply until price < cost.

This happens with our without RBA policy change. However policy change can accelerate the process.

Either way, over the next 3-5 years, the return outlook for property is not great.
Attached to this post:
Attachments: replacement.jpg (26.8 KB)
Edited by b_b, 17 Sep 2014, 11:34 AM.
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van
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peter fraser
17 Sep 2014, 08:25 AM
Lol - no property doesn't double in value every 10 years on average although it could in one decade as long as it corrected.

However what you do need to consider is that since we have been on a fiat money systems central banks have sought to keep inflation in a narrow band of around 2% to 3%, so they deliberately keep asset prices inflated. Doc Watson continually alludes to that point.

That plan can go wrong though. In the seventies the oil producing countries got together, formed a cartel (OPEC) and jacked up the price of their oil. Because of that inflation was around 17% pa at one stage, which is why there was a period of extreme price rises around then. It really hurt a lot of people at the time and central banks didn't regain control until the nineties.

(It has nothing to do with a boomer conspiracy as they make out over at Macrobusiness - it was out of Western control. I don't know how they peddle that crap with a straight face)

Central banks will not act to reduce asset prices, they will continue to pump them up. That didn't happen in the period prior to the post WW2 period, so the period post 1950 is particularly relevant to our current period.

Central banks may change their focus in the future, or there could be an event that takes inflation away from their control like the OPEC induced oil shock inflation in the latter half of the 20th century, but if prices fall below what central banks consider to be a healthy correction, they will pump them up again, and we know that they can.
The high inflation of the 70's had nothing to do with oil, it was because so much currency was being produced, remember America went off the gold standard in 1971.
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stinkbug
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Ex BP Golly
17 Sep 2014, 10:05 AM
See the graph below.

Shadow, the biggest bull on this site places the tipping point about 4 years away.
Posted Image

"Standard"?
Hmmm, entry level furniture, whitegoods, cars etc from that time are all still around and if not working fine, absolutly serviceable.

Some of these things are even considered more fashionable and expensive then their flat pack, fantastic furniture contemporaries.

I went to change my brake pads the other day on my late model yank tank to find cleverly blinded and blocked bolts all over the place . (The vehicle it superceded required every extension, even the universal joint- in my socket set to change 2 of the spark plugs). Some of the places they put the oil filter these days lol!

Modern vehicles are designed to discourage home servicing right down to discouraging even changing a light glob.

The house I was born in is still looking great with minimal maintainance in a suburb that that had only recently become attractive.

I doubt todays 'standard' will look so good at 100.

Im sure 60's valour wall paper will again be fashionable and standard one day.


Cars from the 70s were built like shit, needed HEAPS of servicing and you were lucky to get 150000kms out of a 4 cylinder engine. Very few have survived until now, despite being gently driven far more gently and serviced much more regularly. Most didn't have features even the cheapest models now have standard, and they were more expensive to buy, register and run.

Just because manufacturers take pains to discourage home servicing does not mean the cars are rubbish (although when it comes to American made I've never thought they were much chop).
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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b_b
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peter fraser
17 Sep 2014, 09:46 AM
You should dig up your old thread on the MMT work guarantee - that was a doozie.
If only people who made the decisions were held accountable, then we may see progress. This in 2010.
Quote:
 
WASHINGTON — The co-chairs of President Obama’s deficit commission offered a scary forecast of what could happen if Congress ignores their panel’s recommendations and does not act to bring the nation’s deficit and debt under control.

First, financial trouble could come quickly, said former Sen. Alan Simpson, co-chair of the National Commission on Fiscal Responsibility and Reform. “It won’t be the old slippery slope [stuff] that we read about.”

Speaking at a Monitor-sponsored breakfast for reporters on Friday, Mr. Simpson said, “It will be very swift and very dramatic like in Greece or Ireland or Portugal or Spain.” He added, “It won’t take long. It won’t be like a year to prepare – it will be ‘woosh,’ like that.”
http://www.csmonitor.com/USA/Politics/monitor_breakfast/2010/1119/Deficit-commission-co-chairs-warn-of-Greece-like-debt-crisis-in-US
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