Sometimes I think it so easy to forget that asset prices would not be where they are today without Central Bank intervention.
So much debate and arguing happens on here over such 'micro' related matters, which do have an impact on moving property prices either way, however at the end of the day it's the 'macro' economic matters that really count in such an artificial and manipulated environment.
A number of signs are popping up that question the current status quo, and any change in sentiment is sure to have a far greater impact on our property market than most topics discussed, so I thought I'd start this thread. What are your thoughts...
Here are two recent pieces that highlight the issues at hand:
How will it all end? Faith in central banks today is equivalent to faith in the word dot-com in 1999 or faith in the eternal rise of housing prices in 2006. With the support of a powerful narrative—that central banks can support asset prices and effectively backstop financial crises (eliminating tail risk)—sentiment is driving the markets higher in the face of cyclically improving but historically weak and unstable fundamentals (plagued by debt deleveraging and aging demographics).
Ultimately, the stability of the system depends on central banks' credibility, markets'sentiment, and policy responsiveness to prevent minor drawdowns from becoming full-blown crashes. My friend Mohamed El-Erian has written extensively on the importance of the central bank "brand" and warned of the danger of a broken narrative. Markets tend to overshoot in both directions and will most likely fall even farther than fundamentals warrant when and if central banks lose control of popular sentiment. If the narrative of the power of central banks changes, then it is a whole new ballgame for investors. Fundamentals will once again rule. What a concept. You might want to consider raising a little cash in your portfolio or buying some volatility insurance. Just a thought…
Since 2007 the Central Bankers of the world have operated under the belief that they can hold the financial system together by engaging in round after round of Quantitative Easing (QE) without losing control of the bond markets/ interest rates.
They believed this because:
1) We haven’t had a bear market in bonds in 30+ years
2) They believe that they (Central Banks) will never lose credibility with the markets.
A few years ago i had the chance to sit down for a couple of hours and have a very frank discussion with an elderly REA who was an incredibly accomplished auctioneer and dare i say good bloke. (My views on REA's have been made clear in the past but know i respect this man immensely.)
He told me tales of obscenely high interest rates by todays standards and his experience with how they affected the market. The agency where he worked was in a mid to high end suburb of melbourne and he reckons they spent many weeks playing poker and other card games, while taking turns going downstairs every so often to the public phone box to call the agency to make sure their phone was still working.
I asked him for his honest view on where the market was headed and his response was:
"you know something, i honestly have no idea. For years i thought the upswings took place for this or that reason (he went into matters such as unemployment etc). But at the end of the day it ALWAYS boiled down to interest rates. The lowering of rates has been the only constant with rising prices throughout my career. The effect isn't always immediate but the end result is always there"
fwiw he had no reason to lie to me - we also spoke of fine women, his ex wife and how much he hated driving the car he drove each day to keep up appearances for the REA image.
there you go
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
A few years ago i had the chance to sit down for a couple of hours and have a very frank discussion with an elderly REA who was an incredibly accomplished auctioneer and dare i say good bloke. (My views on REA's have been made clear in the past but know i respect this man immensely.)
He told me tales of obscenely high interest rates by todays standards and his experience with how they affected the market. The agency where he worked was in a mid to high end suburb of melbourne and he reckons they spent many weeks playing poker and other card games, while taking turns going downstairs every so often to the public phone box to call the agency to make sure their phone was still working.
I asked him for his honest view on where the market was headed and his response was:
"you know something, i honestly have no idea. For years i thought the upswings took place for this or that reason (he went into matters such as unemployment etc). But at the end of the day it ALWAYS boiled down to interest rates. The lowering of rates has been the only constant with rising prices throughout my career. The effect isn't always immediate but the end result is always there"
fwiw he had no reason to lie to me - we also spoke of fine women, his ex wife and how much he hated driving the car he drove each day to keep up appearances for the REA image.
there you go
The signals in the market place I referred to were rising bond yields.
Australian T-bond market, - where 10-year T-bond yields have been trending higher for the past 13-months, even while the Reserve Bank of Australia (RBA) was engaged in a rate cutting campaign.
I'll say it again, interest rates will rise sooner than the market expects.
The RBA is using it's last bit of ammo to stimulate the economy and at the same time is leading the property sheep to slaughter.
Australian T-bond market, - where 10-year T-bond yields have been trending higher for the past 13-months, even while the Reserve Bank of Australia (RBA) was engaged in a rate cutting campaign.
I'll say it again, interest rates will rise sooner than the market expects.
The RBA is using it's last bit of ammo to stimulate the economy and at the same time is leading the property sheep to slaughter.
It is not unusual for long end interest rates to rise while the CB cuts the short end.
The long end reflects the accumulated expectation of short end rates. So to the extent the "market" thinks the short end (or QE) is stimulatory, it is natural for the long end to increase. In short, there are no bond vigilantes for a Country which issues its own currency like Australia (or the US,UK, NZ, Canada etc).
As for QE has an impact on market prices - well I think that is nonsense. US equity prices are higher because US profits are higher. End of story.
It is not unusual for long end interest rates to rise while the CB cuts the short end.
The long end reflects the accumulated expectation of short end rates. So to the extent the "market" thinks the short end (or QE) is stimulatory, it is natural for the long end to increase. In short, there are no bond vigilantes for a Country which issues its own currency like Australia (or the US,UK, NZ, Canada etc).
As for QE has an impact on market prices - well I think that is nonsense. US equity prices are higher because US profits are higher. End of story.
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
imagesCAXTUB1S.jpg (10.58 KB)
