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Archive through June 18, 2010

Chart Forum » Hilarius' Hall Of Fame » Our Daily Bread » Archive through June 18, 2010

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ody
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Username: ody

Post Number: 5137
Registered: 10-2006

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Wednesday, June 16, 2010 - 04:49 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Housing prices to collapse? A view from a very expert outsider

What is being argued below may sound "too neat", and no doubt some will feel that "we are special" (in the demand area, as there is a considerable inflow of immigrants). But, as Grantham (below) argues, that is usually the very claim that is advanced in defence of a huge housing boom, and one proven wrong again and again. I must say I find the claim that the current level will not be sustainable highly convincing. It simply does not make sense in terms of the huge debts involved, and the risks imposed by them. Excessive debt almost always spells forthcoming losses. Australians have managed their housing debts well - but their size simply seems too large, all the same.

IF our residential market collapses, then we are in very serious trouble, and the consequences will not only be huge in size, but take a long time to overcome. Australians have invested a vast amount of capital in this very market.
-------------------------------------------------------
Housing market a 'time bomb', says investment legend

* Katherine Jimenez
* From: The Australian
* June 16, 2010 12:00AM

THE Australian and British housing markets are the last two bubbles left in the wake of the financial crisis, and it is only a matter of time before they crash, warns legendary US investor and co-founder of global investment management firm GMO, Jeremy Grantham.

Mr Grantham famously reported a year before the global financial crisis: "In five years, I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private equity firms in existence today will have simply ceased to exist".

He said yesterday that Australia had an unmistakable housing bubble and that prices would need to come down by 42 per cent to return to the long-term trend.

"You cannot possibly miss it," he said.

"The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 (times).

"Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be."

GMO is one of the biggest investment management firms in the world, with about $106 billion in funds under management, and is considered to be an authority on asset bubbles.

Mr Grantham, who is in Australia to meet with GMO clients in Sydney and Melbourne this week, said any bubble could be an exception to the rule.

"Bubbles have quite a few things in common but housing bubbles have a spectacular thing in common, and that is every one of them is considered unique and different," he said.

As an example, he cited the British housing market bubble of 1989. At the time, he said people dismissed the bubble because there was no more rezoning, creating a land shortage and as such, they believed prices would rise forever.

"Seven years later, in 1997, they hit the lowest multiple of family income since the record books started in 1945. It's always the same old argument, they are not making any more land."

In Australia's case, Mr Grantham described the housing market as a "time bomb" just waiting for interest rates to increase and become impossible to support.

Since last October, the Reserve Bank of Australia has raised the official cash rate six times. The rate is now 4.5 per cent.

If the Australian housing market did not return to the normal multiple of family income, he said "it will be the first time in history."

"Sooner or later, the rates will go up and the game is over."
-------------------------
I would add that the RBA IS concerned about this very problem, which is a reason why it has a bias in favour of raising interest rates. So the danger of that having to happen, and pressure arising for home "owners" who often have colossal mortgages, is very real.


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rederob
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Username: rederob

Post Number: 2428
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Wednesday, June 16, 2010 - 06:31 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)




ody wrote on Wednesday, June 16, 2010 - 04:11 am:

I would challenge you or anyone to show how the huge fall - which it had not embarked on until 3 May, and which proceeded from there on until the 20th - was NOT related to the RSPT announcement.


The charts for many other currencies against the USD show a very close pattern, and I instanced the GBP earlier.
If the RSPT was supposed to be the "trigger" for the fall then it could have been reflected when the media began reporting it - much earlier than May - or it should have been a consistent immediate fall after the announcement.
As it stands, the fact that other currencies trended similarly in the period suggests to me that the RSPT was not the culprit.







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market_mad
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Post Number: 379
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Wednesday, June 16, 2010 - 09:23 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hey Rudy,

Whats your views at these levels? 4620 seems to be pretty critical on the ASX200. My feeling is that if we close above this level then we are heading back up to 5000.

What are your thoughts?

Cheers
MM


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rdumas
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Post Number: 3522
Registered: 11-2006

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Wednesday, June 16, 2010 - 09:42 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi MM,

Unfortunately the email address that you provided for the weekend market wrap email list for some reason bounces all the time so I have not been able to send you a copy.

In the market wrap I indicated that both the S&P500 and XJO were in corrective waves that indicated that for the short term the market should head south sometime this week however there were 'lines in the sand' drawn for both indices that would change that view to a bullish short term view. The lines in the sand for the S&P500 were 1102.5~1103.5 and the equivalent for the XJO were 4500~4550.

Last night the S&P500 breached its line and today the XJO should do the same. For the XJO I would expect the index to easily attain 4650~4800.

I have to stress however that these are only very short term targets and my medium term view is that by August we will see some ugly moves downwards. For the time being the market has chosen to forget that the sovereign debt crisis in Europe has deteriorated but this will not last.

PS: Message for Jaded. It is easy for me to accept an apology from a friend. I understood the motivation behind your comment and knew that any negative feelings against us that you may have felt would have been momentary. Friends are allowed to think differently.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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jaded
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Post Number: 215
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Wednesday, June 16, 2010 - 10:16 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



I just wish there'd been a bit of balance regarding Canada.

I've only heard of the Canadian Market anecdotally but if you think sandgropers and cane toads [WA and Qld]have white shoe spivs operating in the Materials sector?well seems you've never been done by a Mountie!!

I think they have a Two Tier "Exchange".One for Mining nowhere near as Regulated.Pump'n'Dump and every 'trick' is du rigeur over there.
Mainly what do they excel in materials wise?What's their main export?like ours is Iron Ore and Coal,say.What's Canada's?I think it's what I called the "Extractives",Nickel/platinium etc.Do they do Open Cut over there or does the Tundra Freeze for 6 months of the year?

All I know is Canada has a new Rightist Government and they're weighing in with We'll take your[Oz] Global Investment away for 'political reasons'.Same goes for blessed Chile.Underground Mines in an Earthquake Zone?that's not sovereign risky?

Anyhow,that's some of what I thought,ready to rob was getting at.The RSPT will 'trim out' marginal mining operations especially those chiefly financed by running On Market Financing/issuing more shares.
Super Funds/the Public lose Million$$$ in these, NOW.

Remember Ody many a Materials Share Price Falls 'despairingly' when the First Shovel is stuck into the Tenement after the "Reserves" have been discovered and run the share price.Remember,Ody?It's an Old Market Maxim about the shovel.

anyhow,off to the Open.
cheers.


" Hear what you Say...
But see what you Do!"

Sir Zelman Cowen c 1970.

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ody
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Username: ody

Post Number: 5138
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Wednesday, June 16, 2010 - 10:33 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Rederob

(1) The January article in The Age which you refer to was obviously not paid any attention to because it was merely one component of Henry's many recommendations, and as such at that point merely theory. Clearly noone seriously thought that the government would be mad enough to embrace this tax, and it is noteworthy that Rudd and Swan hatched the plan, as a policy, in great secrecy, until it was suddenly made public on 2 May. THEN, because it suddenly WAS a policy, people soon did take it seriously - VERY seriously, as all the subsequent mayhem shows.

(2) If you compare currencies and their pattern of behaviour, you need to be very exact in drawing comparisons. For example, there is no doubt that the euro went down quite a distance during much the same period, but for a different reason, predominantly, i.e. the troubles in Europe. I don't think that anyone has argued that those troubles did not also affect our market. Even so, our dollar's deep slide went further than even that of the euro, and it is very sharply correlated with the way money left the country, projects were moved overseas from here or mothballed, etc. after 2 May as a result of the tax. If you really think that that announcement did NOT have much impact on what happened in Australia you would need to explain ALL the evidence of its impact away. I suggest you'd have a major task in doing so. In the area of currencies you'd need to show why the Canadian currency, which is a commodities currency like our own, did not fall nearly as far. The one telling difference between the two countries is that Canada did not face the prospect of the tax.

(3) The impact of the RSPT has been so strong in Australia that Rudd is in danger of losing the next election as a result. To think that, given the negative reaction to this policy, declines in the value of our shares, currency, etc. are unrelated seems to me to defy all common sense. And to ignore the very fact that the strong reaction overseas was explicit among fund managers and others who articulated it is something that smacks of very strange neglect.

A huge selling off occurred in the wake of the news, and this was done by the financial world. The reactions among the Australian community at large were not as swift, but have much increased in intensity over time. You will presumably be aware that it has been particularly intense in electorates where people fear financial harm as a result. Try as hard as you might, I think you'd have great difficulty persuading them that this tax has not, already, been harmful in its effect, and that it would not continue to be so. If such an explanation of the supposed harmlessness of the tax can be provided, it very obviously has not been done so in any effective way by the government and its allies. At all events, whether those who dislike the tax are wrong or not, it seems to me beyond a shadow of doubt that it HAS had a major impact on both our financial situation (already) and on the way it has been received by what is now a majority of voters. The effect of the announcement has obviously not been what Rudd intended.


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market_mad
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Post Number: 380
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Wednesday, June 16, 2010 - 11:11 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Thanks Rudy.

I'm thinking now that a close below 4580 will actually keep the bearish argument going for now. If we close above that then all bets are off and its on the up. It reject the 4580 this morning so will be interesting to see if it holds for the day.

I will send you a message with my new email address - sorry about that.

Interestingly - EW Int had the Dow at 10,444.40 and 1115.05 as the potential stopping points for the US indices before starting wave 3 down - this was written after market close on Monday. Dow closed just 40 points shy of this level and the S&P pretty much bang on.

If it kicks through, then we could see the Dow back at 10,900 pretty quicky in my view.

Cheers
MM


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ody
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Username: ody

Post Number: 5139
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Wednesday, June 16, 2010 - 11:21 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



jaded: sorry for misunderstanding

jaded, Rudy's post draws my attention to something you wrote which I had not understood, viz.
-----------------------------------------
I just wish to state that Im not responsible for any votes.
I wish to apologise to rudy/ody unreservedly.
-----------------------------------------
It only now occurs to me just what you might have meant, and I am sorry I didn't "pick" that before. There really was not need for you to apologise, as far as I could see, for I was not aware, nor was I inclined to think, that you had done anything that required an apology. But thanks, belatedly, for what you said.

I do feel that anyone who repeatedly gives a fellow poster one star, in secrecy and without any explanation, DOES owe one an apology, but I do not expect to get that. That would not be in the nature of an individual like that. As one sees the pattern building up, in its silly onesidedness, one also comes to mind the repetitive gesture less and less.

I have decided not to provide any stars of my own, but I hope that Colin will see how disfiguring and crass those provided are. I hope he will agree that, as an administrator, one is in essence giving free range to a form of graffiti, or "sign language" of a simplistic and nasty intent. The PERSONAL nature of the attack is something which I find particularly objectionable: it is always strongly directed against those whom the author disapproves of, and repeated ad nauseam as though statements coming from those disagreed with should be immediately and totally rejected.

This kind of mentality, to my mind, is the very opposite of what our thread in principle stands for. However, we have survived other such nonsense in the past, too. A reason why I should nevertheless like to see the whole system gone is that it would compel people to SAY what they think, and to provide REASONS for their disapproval - and for that matter approval - of what others say.


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cat_lady
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Wednesday, June 16, 2010 - 11:41 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



COH

what a company! glad I ditched CSL for this one.

cheers
cat lady


Without my morning coffee I might as well be a dog

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ody
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Username: ody

Post Number: 5140
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Wednesday, June 16, 2010 - 11:55 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Robert Gottliebsen [writing in Business Spectator]

The RSPT house-price risk

When world markets turn bullish as they did last night, Australia can sleep well. But all Australians, and particularly those that have borrowed large sums to buy houses, should be aware that we have lost our security blanket. If there are serious global hiccups we are now more vulnerable than we have been for decades. And so is the value of our houses.

The mining industry and the 270 new projects involving investment of about $300 billion were our security blanket. They gave confidence to global institutions to lend to our banks even though Australia’s enormous overseas bank borrowing puts Australian debt into a similar range to Italy and not far behind Spain when related to GDP. In the good times, overseas lenders did not put us in the same basket as Spain and Italy because they were optimistic about Australia.

Overseas institutions view of Australia has changed now that our government has made a serious mistake by incorporating into future budget estimates a tax that makes uneconomic most of those new mining projects and will, therefore, stop bank funding.

Then, realising its mistake, the government is now scrambling around looking to negotiate its way out. Yet the only real way out is to dramatically change its proposed resource super profits tax, including the retrospective nature of it, and, as a result, slash future revenue from the government's coffers.

The fear is now spreading. The big lenders to Australia – China, Japan, and the Middle East and European institutions – are now worried there has been a fundamental change in the sovereign risk of Australia because we have started to do silly things. This is critical because our four major banks borrow overseas to fund about 40 per cent of every housing loan.

If share and commodity markets keep rising and there are no major problems in China then we will ride on the back of global enthusiasm, mining tax or no mining tax. In other words those fears by the lenders to Australia will be covered by good times.

But if something goes wrong in the world – particularly if banks become nervous about lending to each other – then we will no longer have the economic standing to rise above the problems as we did in the global financial crisis.

In simple terms, if there are serious global problems during the next three or four years our banks will not be able to roll over the enormous amounts they have borrowed in the past unless they pay a substantial risk premium. Raising more money could be out of the question. Banks will attempt to cover any overseas shortfall by attracting local term deposits via higher interest rates.

The combination of less money and higher interest rates will bring down the value of houses because it’s the availability of bank finance and its cost as much as dwelling demand and supply that sets the level of house prices.

And so a family wanting to borrow $500,000 might find they can only obtain $400,000 and so they will pay $100,000 less for the dwelling they want.

Treasury is forecasting that the world will trade well in the next few years and in particular China will continue to boom and there will be uninterrupted growth.

If they are right, then home-owners will continue to sleep well and house prices will be maintained or will rise. But if treasury is wrong about global events, then those visiting Spain should have a peep at the Spanish housing market which is down sharply because banks can’t fund the old levels. That’s where we are headed without our security blanket for tough times.

When Kevin Rudd and Wayne Swan, apparently acting alone, decided to go for a mining tax I am sure they had no idea that there were increasing the risk for every Australian with a major investment in a dwelling, particularly if they have borrowed large sums.


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ody
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Wednesday, June 16, 2010 - 12:03 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



COH: cat lady

I think you will be doing well with it at this time because health stocks are back in fashion and have terrific momentum behind them. COH has always tended to benefit from such a situation. It is, also, a very good company, with strong earnings prospects. I do suggest you keep a close eye on the price, though, in that the PEG is now above 4, which is extremely high (1 is "normal"!). The risk, therefore, is that people might be "pushing it", at such a price level, and if for some reason the market turned against health stocks, or COH in particular, it would be vulnerable to a price slump. For the moment, however, that would not seem to matter. The market is fairly bullish anyway, at this juncture, and you are in a good sector, for the times. But do make sure to lock in your profits, unless this is meant to be a buy-and-hold proposition and you are prepared to sit through what could be a fall in the share price at any time when people might exit.


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ody
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Wednesday, June 16, 2010 - 12:28 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Current market strength

The market has very much gone into "attack" mode today, with Discretionary Retail up a whopping 2.3% (one of the sectors which for much of the time people have of late been scared of), metals and mining 1.8%, and small ordinaries 1.4%. All these are usually seen as "aggressive". Whether the market will continue to support what today seem to be preferred aggressive stocks remains to be seen. In general much sentiment even in the rally that has been occurring has tended to be directed towards defensives, but we now appear to see a new, more decidedly bullish direction.

The sentiment is that of a "relief rally". The market for the moment appears to have persuaded itself that most of the bad news is "out", that we don't have to worry greatly about Europe because Germany etc will be prepared to buy the debt of unsound European economies, and so on.

Fundamentally, there isn't actually a good case for this bullishness, but it is very much in evidence, and those who are prepared to be in this market may well have very good momentum to support them. The rally cannot fail to run into trouble at some point, however.

Memo to cat lady: what I said about COH I still believe to be true, even though health is not strongly up today (it is judged "defensive"). One would have to envisage VERY strong bullishness for health stocks actually to turn down (but we do know they can do so). Just at the moment the bulls are particularly looking for what they see as "neglected" sectors: discretionary retail is therefore from their point of view a logical choice.

The more aggression the bulls come to display in their choice of stocks, and the further they push them up, the more unsound and dangerous this rally would become. Those long should remember that the rally is very much of a speculative nature. Of course one could argue that all share investment is, but there are degrees, and different kinds of risks at different times.

But, for the moment at least I believe "the bulls have it", and it looks as they might well have a play for quite a while yet.


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ody
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Wednesday, June 16, 2010 - 01:44 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Interesting to see that the "defensive" gold and health sectors are both down just now. Well ... they will get their time in the son again.


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rederob
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Wednesday, June 16, 2010 - 02:36 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)




ody wrote on Wednesday, June 16, 2010 - 10:33 am:

(2) If you compare currencies and their pattern of behaviour, you need to be very exact in drawing comparisons. For example, there is no doubt that the euro went down quite a distance during much the same period, but for a different reason...



Ody
I checked the past 3 months chart for 30 currencies. Extremely close correlations exist with the Brazilian Real, Vanuatu Vatu, Mexican Dollar, and Fijian Dollar; apart from the British Pound which I mentioned earlier.
If the RSPT was the catalyst for our dollar's demise what was happening in these other nations at almost exactly the same time?
We now also can see that our dollar has sharply risen off its lows. I am not aware that Rudd has changed his mind about the quantum of the tax, although Ferguson today conceded that coal seam methane needs some tuning.
I have no doubt that the RSPT may have accelerated our dollar's recent fall, and it may have fallen further than other currencies on average.
But why should our dollar recover so well if the RSPT is still very much in play?


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colin_twiggs
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Wednesday, June 16, 2010 - 02:45 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Rederob wrote asking me to confirm that it he is not the one posting stars on the thread. We can do this by scanning the forum logs but it does waste time. I am prepared to take his word for it. Does anyone disagree?

Regards,
Colin


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market_mad
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Wednesday, June 16, 2010 - 02:57 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Colin/Rederob,

I'll apologise to rederob regarding my comment before about the stars - Rederob, I am sorry for wrongly pointing the finger at you.

I'll take his word on it and end of the matter as far as I'm concerned.

Cheers
MM


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gdd3
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Wednesday, June 16, 2010 - 03:45 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Cat-Lady...re:...COH

Yes it has been a wonderful stock and for a long time! However, to supply some sort of T/A's 'support' to ODY's concerns(PEG now at 4, etc.) a look at both the weekly and daily charts do provide initial 'technical reasons' for some evidence of profit taking today and warning signals.

Today's high($79.11) is only 78c less than the all time high($79.79 on Sept.28th/07)or merely ~ 1%. In addition, today's intraday's pullback structure seems to suggest a 5 wave down in play and if so I would see $78.10/78.20 will probably limit any rallies over the coming day's as it would appear, at minimum, a lower degree Zig-Zag correction is in play that should see $76.10 min. Now a close below this level in the near-term would confirm a 'false-breakout'(of the pennant pattern shown in blue on the Daily chart) and warn that a possible Double - Top could be in play(as shown on the Weekly) or at minimum a retrace to about $69.50...about $2.00 below the pennant pattern boundaries. And finally, some weekly and daily momentum indicators(eg. Williams%R14) are showing divergent buying exhaustion suggesting any upside price action should be limited for the time being.

Now having said that, at this stage, I see that support between $77.06-76.10 should hold ; my reason is because I see that the 'impulsive' nature of the move from the daily 'tweezer' double bottom(May27/28)is incomplete and supports a 'mini' wave{iv} is under way which should favour another go(wave{v}) at that all time high(or even slightly higher as the yellow uptrend channel limits suggest)....say some time late next week. But if this is to occur that should be it for awhile. Hence my support of the warnings ODY has implied and may be any upside from here should be viewed as a "locking in profits" opportunity!

Just one T/A's 'shared' take on COH at the present!

Cheers
Dolphin

Weekly



Daily





P.S....My 'apologies'(in jest) to most of the other participants(exclusion of Rudy) for posting charts on this thread. I could have just re-opened the ASX Long-term Topic COH thread to post this view but did want to ensure Cat-Lady did get to read it.


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scarrie
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Wednesday, June 16, 2010 - 03:58 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi all,
My 5c worth on the RSPT effect (or 4.25 US cents if you like)
a. Trying to determine if any market move was as a result of the RSPT pre-supposes that markets react rationally, are based on fundamentals and are explainable. I would take a lot of convincing that any of these are the case.
b. If the AUD has been sold off more than other curencies during what has been a sustained period of USD strength, maybe its because the market viewed it as more over valued than the other currencies.
c. If the RSPT announcement is the cause of the AUD falling in higher % terms than other currencies, then logically the % fall in ALL mining stocks in Australia should be the same. Don't know if thats the case.
d. I think calling the AUD fall a "demise" is not quite the right term. Governments and central banks (allthough few of them will admit it) want a weak currency. So do exporters who benefit from a weak currency enormously (exporters like miners for example).

Maybe I'm taking a simplistic view of things but I'm in this game to make money. I make that money by profiting from market moves. Knowing why those moves occur doesn't pay me any more.

Regards
Dave


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rdumas
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Wednesday, June 16, 2010 - 04:22 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi MM,

I've been out all day so could not respond earlier. Do you know why EWI picked those particular levels?

As you know I remain bearish in the medium term regardless of where this rally leg terminates.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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ody
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Wednesday, June 16, 2010 - 04:48 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



(1) gdd3: COH

I am sure, gdd3, that cat lady will be very grateful for your post, and I certainly am, for it is always pleasing to me when someone like yourself, approaching - as does Rudy - the matter from a rather different angle, confirms a particular possibility I have raised for contemplation. I suppose that what we are both suggesting to cat lady that, while it is not necessarily the case that the share price will soon decisively come down, she should probably think at the least of taking "money off the table" unless she is prepared to hold on to the stock even when it goes down.

(2) Rederob: as you know, I for one never doubted that you were NOT the person posting silly stars, as I suggested to MM, and I am glad - and not at all surprised - that MM has moved beyond his initial assumption. Rest assured, he means well.

I in a way quite enjoyed your last post. It appears to that from me that, as we are in many ways both fundamentalists, we are both somewhat taken aback by the market's behaviour. I think that we are now coming much closer to actually communicating about this whole matter. I shall take us into it, if you don't mind that expression, by quoting part of your post:

"We now also can see that our dollar has sharply risen off its lows. I am not aware that Rudd has changed his mind about the quantum of the tax, although Ferguson today conceded that coal seam methane needs some tuning.
I have no doubt that the RSPT may have accelerated our dollar's recent fall, and it may have fallen further than other currencies on average.
But why should our dollar recover so well if the RSPT is still very much in play?"

To get one point "out of the way" at once, I am glad that you say that the RSPT may have accelerated the dollar's fall and have made it worse than that of other currencies. All along, one factor we have to be aware of, I feel, is that although - in a complicated way - it has definitely NOT been just the RSPT which caused falls in Australia's assets and its currency, one cannot disregard, AMONG OTHER FACTORS, the impact of the RSPT. The difficulty - probably ultimately insoluble - would be to assign a particular percentage to it, i.e. "the RSPT is responsible for X [a percentage]". But there are a number of things which, apart from a view resting on common sense, enable one to see that the RSPT WAS a factor, such as the known motives of foreign fund managers, and the difference between the Australian and Canadian dollars.

The real nitty-gritty, I think, comes with your perfectly understandable question: "why should our dollar recover so well if the RSPT is still very much in play?"

I agree with your implication that this appears to be surprising. But that is because - I hope you won't mind my saying - you and I both have a tendency to think that the market will proceed "logically", i.e. bring out what we can see to be logical. Conversely, this tendency also brings with it the possible inclination to think that what the market is doing surely "must rely on some kind of common sense". That is, in this case, our bewilderment is caused by the fact that there is no solid indication that the RSPT is in any important sense "off the table" (as indeed it is not). So, why would the market for anything - shares or the currency - now be more positive?

This is where the share market is indeed a curious "beast". Probably, in a situation like this, there are a variety of people active about moving things up. Some would be people who have all along believed in "recovery", and who are therefore not afraid of investing, as they buy what has gone down in price. These are people by nature - or else at least at this time - bullish in their beliefs. Others simply go along for the ride when they see the market going up, without doing much by way of either fundamental or technical analysis. Others use technical analysis which they hope - often justly - will indicate to them that there has been (or at times: will be) a "mood change" that will take prices up.

In other words, for someone like myself, it is always hard, but very necessary, to see that other people will act in a way that I would not myself. At present the trader in me is not convinced enough of this rally's length to go into it. If I felt the rally had enough momentum for several months, I might join it EVEN THOUGH FUNDAMENTALLY I WOULD THINK THE MARKET IS "WRONG". So, there are times when I would act against my own fundamentalism and common sense as to what the market "should do", and simply act on what it IS doing.
That being the case, I realise that one cannot possibly see the market as at all times guided by common sense.

To take this back to the RSPT, I would suggest that a number of investors of an essentially bullish nature would take the view that when prices are low enough, you go in. They may agree with the RSPT, or not, but they feel that in general there is money to be made, and that actually for the most part global economies are "in recovery mode". So even the odd difficulty here or there does not throw them. Others simply go along for the ride. Yet others may well be cynical about the fundamentals, but they are prepared to grab what they see as a SHORT-TERM opportunity. I think that, particularly today, many investors are actually traders of this type, and they are in many cases very skilled in exploiting the opportunity: but that does not necessarily imply that they approve of the RSPT.

More succinctly: the market will at some point go up enough for the bulls to be in charge, even if there are fundamental events that would keep others out of the market. For myself, I would not go in at this point, though possibly, if prices had gone lower, I might have done so EVEN WITH THE RSPT HANGING OVER OUR HEADS. But I am convinced that, in any case, market sentiment does change, or perhaps one should say that "market participation" changes. Until 25 May, I feel quite certain that the RSPT did form one very important ingredient in sending our shares - and particular our currency - down. Subsequently, though there still has been considerable volatility, sentiment ON MARKETS began to change. Discussion in newspapers, while useful to study, often "lags" markets: in markets the more skillful players try to be ahead in either going into the market or out. Broadly, I think people in principle eager to exploit weakness/lower prices began to move into the market and to support the dollar when they felt that a possible "low" had been reached. They would have done so primarily because they thought that they were buying at a low point.


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market_mad
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Wednesday, June 16, 2010 - 04:51 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Rudy,

Here you are;

The push past the June 3 highs indicates that "the decline from April 26 to May 25 is all one wave of the same degree, Minor wave 1, and the current upward push is correcting this pattern." This means that Minor wave 2 up started on May 25 and is tracing out an upward flat (see, EWP, pp.45-46) in the blue-chip indexes. Both the DJIA and S&P pushed above their respective wave a (circle) highs at 10,315.20 and 1105.67 against diverging NYSE Ticks, lessening upside NYSE a/d's relative to last week and NYSE volume that remains punk. We continue to be struck by the complete lack of interest in the market's advance, with Big Board volume continuing at anemic levels. Volume should increase markedly during Minor wave 3 down. The subdivisions of wave c (circle) of 2 are less than perfect, but the pattern on a daily chart counts well as an upward flat. Prices could extend a bit higher before completing the final subdivisions, but upside breadth, momentum and volume are well-suited to an upward correction that is over. If wave 2 did not end today at 10,328.70 and 1105.91 respectively, the indexes may push toward an open chart gap from May 19 at 10,444.40 in the DJIA and 1115.05 in the S&P before starting wave 3 down.

Cheers
MM


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rdumas
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Wednesday, June 16, 2010 - 05:37 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi MM,

Thanks for that. Sounds a lot like the Flat pattern that I spoke of in my market wrap this weekend. The main difference however is that EWI are seeing the move down from April 26 as minor waves 1 and 2 and I see them as legs A and B of an ABC leg down before the last leg up to complete the March 2009 rally. The Flat in my market wrap relates to the B wave of the ABC corrective move down.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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peterloh
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Wednesday, June 16, 2010 - 05:52 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Rederob,

It is nice to see you posting again. My view of the big sell off in Australian currency and Australian equities is, the market was bearish in May.As bad news came after one another, from the"PIGS" economic woes and in particular Greece, Korean confrontation, US minor set back, Gulf of Mexico and the announcement of the proposed RSPT. It was a reason to get out of growth currencies especially one that involved resources. The RSPT probably made Australia the No 1 to be sold off and certainly Australia was not the favour of the month then. The retrospective tax made it hard to swallow for investors and the small composition of Australia in the world index is easily affected by the sell down.

The improvement in the market now is probably because of better sentiment this month and "we cannot get any worse".
Europe went into GFC later and therefore may get out later.
The change in sentiment and the poll that there is a chance that the RSPT may be water down and "Labour may not get in this time" polling last week of 53/47% against Labour and more recently 74/26% in Western Australia.I do not think tax loss selling will be heavier in June this year as not many loss were realised because of the GFC, thus CGT not that much ahead, unless the investors were not affected by the GFC completely.The capitalisation of our market is low and the constant increase in funds in our superannuation will ultimately push our market higher, especially in the absent of bad news.I also think that our resources and many other sectors are deemed cheap now for investors to get back in again.The lower market price will mean the fund managers are in a position to buy more than they normally do. June is a good time to make the equity performance better to look at, as it is the end of the financial year. They could be other factors, but I do think that the proposed RSPT is a major factor which exaggerate the sell off and equally the recent equally impressive recovery, cause by a change in sentiment, other factors including the big opposition to the RSPT represent a great chance that it may not be introduced, if introduced at a very water down version; and Labour may not have it all their way this time in a general election.

Cheers

Peter


-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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market_mad
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Wednesday, June 16, 2010 - 10:18 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Peterloh,

Very generic summation of why the market will hold or go higher. The amounts that go into super will not hold a market higher. If the European woes continue to spread and the US employment and credit situations don't get better then no amount of super will hold our market up.

As for index fudging - we are the only market that has the end of financial year in June, so if the US/UK and Europe are heading south then so will we.

"The lower market price will mean fund managers are in a position to buy more than they normally do"??? What does that mean? If they have the same amount of dollars they still spend the same amount - yes they get more shares but the dollar amount doesnt change.. Weird statement

It ain't looking cheap at these levels, don't believe all of the financial crap you are fed through fund managers/bdms in your job.

MM


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rederob
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Wednesday, June 16, 2010 - 11:20 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Peterloh
While the markets have trended down in recent months it's interesting to note that LME stock inventories of key industrial metals have consistently weakened.
Indeed, I find the consistency of the trend quite remarkable given some equally remarkable gyrations in global equity markets in the same period.
I expected LME inventories to be fickle during this period, as I expect many others would.
In fact if one looked at these inventories in isolation it would be difficult to conceive that markets were in trouble at all, as a bullish theme is suggested.
The only downside in the data is that stock levels are still historically high in the most part, so there really is not much pressure on metals prices.
Nevertheless, these data imply that despite continuing woes in many parts of the globe industrial demand is steady, if not good.


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peterloh
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Thursday, June 17, 2010 - 12:09 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



MM,

You seemed to speak with authority and implied that I toll the line of fund managers. I look after my own funds and for that I made my own decisions and decide for myself who I should listen to or what I should accept as reliable information.

As you are advising that my source of information is unreliable, you may like to give me your credentials in share trading or investments, so that I can decide whether it is at a level that I should even pay any attention to.I appreciate that there are different views, and that you have taken a different stand from me for which I accept.This is what the market is all about, people trading with different views and taking different stand. However I don't go around telling people that they are wrong.I think I survive long enough to know what I am doing and I am able to pay a few bills with my share trading and I have been share trading even in the days of the "chalkies". I cannot tell what the market is going to do tomorrow or the next day so I buy for the longer term and hopefully I will get more right than wrong.


-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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peterloh
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Thursday, June 17, 2010 - 12:27 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



rederob,

Your observation is probably near to the mark.

I have been travelling around the southern part of China in the last ten years. Despite overbuilding in certain cities which the Chinese government is trying to address, many of the houses in the regions have mud and hay roof, dirt floors and no kitchen sinks. In many areas there were dirt roads. I think the government and the central bank know that demand will be there in the longer term and for many years to come. China is coming off a very low base. Despite having bullet trains and advance technology, China still need a lot of resources to help with its development especially in the country and regional areas. It is a big country.


-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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peterloh
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Thursday, June 17, 2010 - 12:50 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



MM

I do not imply that Australia's fund managers alone will hold up the market, however with improve sentiment it does not take much to push the market up. Fund managers are constrained as they have to operate within certain parameters. If the number of shares are fixed, yes with the same amount of money they are able to buy more shares in the same company.Probably I need to add that part of the recovery is caused by shorts covering besides bargain hunting.Thus we have light volume that pushed the market higher recently. I would suggest, that most of the buying recently were from fund managers besides some retail buying.I have no doubt some fund managers will do some window dressing whenever they can or if they need to however it is difficult to prove the reasons they are buying at that particular time.


-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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market_mad
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Thursday, June 17, 2010 - 08:18 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Peterloh,

Of course window dressing goes on. That there is no doubt.

I wasn't implying that you "were wrong" but simply giving my point of view. As for my credentials, well I don't listen to fund managers or brokers who only have their own vested interests at heart - in fact I'm almost inclined to do the opposite of what they say - the same ones who were selling at the bottom in March last year and then buying after the rally was almost 40% over. I wonder how all those broker forecasts that they made in January this year of 6000-6500 by calendar year end are looking now?

I too make my own decisions based on a mix of technical and fundamental analysis. I believe that the buy and hold (or should I say hope) strategy over the longer term is dead. In this market wirth the volatility you have to be nimble, quick and act without emotion. I also believe this market will be extremely volatile over the next couple of years with the trend being down. There will be money to be made but to buy and hope is not a strategy that I will be partaking in.

Be careful of rallies on light volume - that is never a good sign - shows no conviction at all.

Cheers
MM


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market_mad
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Thursday, June 17, 2010 - 08:58 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Peterloh,

You said;

"that most of the buying recently were from fund managers besides some retail buying"

Who else would normally do the buying? Retail investors make up bugger all of share buying on the indices. The markets are followers of the futures markets - that's where the real money is. If buyers/sellers come in there, then the trades are automated on the index by the instos.

Buying shares on the market doesn't push the futures market up - it's the other way around. Buying futures will push the market up.

But you, in your authority, should know that

(Message edited by market_mad on June 17, 2010)


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ody
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The GFC continues ... and there will be further negative news to come, which will increasingly damage sentiment towards equities. To think that developments like these will not affect Australia would completely miss the point of how matters are interlinked in today's global economy. Sundry rallies will continue to burst forth here and there, but the grinding weight of everything that is going wrong will continue to guide people towards the realisation that share markets are getting harder and harder for most people to invest in. This was published in Business Spectator.
-------------------------------------------------------

Oliver Marc Hartwich

Nothing can save Spain

Before the 2010 FIFA World Cup, Spain was the clear favourite to win the tournament. At Betdaq, the betting exchange, the odds for a Spanish victory were 4/1.In another field, the bets are also on Spain, albeit in a less flattering way.

There are growing concerns that the Spaniards will be the next casualties of the economic crisis.The widening spread between Spanish securities and German bunds as well as the increasing costs of credit default swaps on Spain’s savings banks both point in the same direction. Markets are betting against Spain and its financial institutions.

In comparison, and to stay with the soccer analogy, the troubles in Greece were just a warm-up friendly for Europe. The next challenge is far more daunting: to avoid financial meltdown in Spain.

"Greece is not Spain", has been how European politicians have been trying to reassure the markets. Once analysts had a closer look at the Spanish figures they concluded that this was indeed true – Spain’s troubles are much worse.

It is not that the Spanish had committed the same mistakes as their Greek companions in misfortune. They had not cooked their books to report manipulated data to the European authorities. They had not created a bloated public sector. They had not failed to enforce their tax laws.

In fact, before the crisis struck the Spanish were seen as Europe’s model citizens. Public debt was low, the economy grew rapidly, and in 2007 the government could still report a healthy budget surplus of 1.9 per cent of GDP. There was no sign of grave economic mismanagement, let alone on a scale comparable to the Greek basket case.

So what turned the Spanish miracle into an economy on the abyss? How can a country be regarded as a role model one day and almost a failed state the next?

The answer to both questions lies in Spain’s membership of the European monetary union. Just like Greece, Spain enjoyed much lower interest rates under the euro than under its old national currency. But whereas in Greece the lower interest rates were taken as an opportunity to incur greater public deficits, in Spain it was the private sector which accepted the invitation to go deeper into debt.

One sector in particular benefited from this injection of cheap cash thanks to the euro: real estate. For many years, Spanish house prices only knew one way, and that was up. Between 1998 and 2007, property prices increased by about 10 per cent per year on average.

When the global financial crisis struck, the bubble burst. Since 2008, Spanish house prices have declined 15 per cent and there is no end in sight to the correction. Some real estate experts are predicting further falls of up to 35 per cent.

Suddenly, the weak foundations of Spain’s economy are exposed, especially its over-reliance on debt coupled with low productivity. The slump in construction has contributed to a jump in unemployment with one in five Spaniards out of work. Spain’s public finances have turned deep into the red. Even more worryingly, Spain’s financial system now faces massive write-downs.

It is estimated that the building sector alone owes Spanish banks some €300 billion. The banks also had to buy more than 1.5 million dwellings, although it is very unlikely they are ever going to recover the purchasing costs. Earlier this year, the Bank of Spain told lenders to write down the value of their property related assets by 20 percent.

It was only a question of time until the first Spanish bank would collapse under the mountain of bad loans. That happened when Cajasur, a small savings bank, had to be taken over by Spain’s central bank. Given the amount of debt, it is likely that others will follow. Besides, a government subsidised a wave of mergers is working its way through Spain’s financial sector.

The situation is only going to get worse. According to Standard & Poor’s, Spain’s total private debt stands at 178 per cent of GDP. Morgan Stanley believes that the country’s savings banks could have to write down between €87 billion and €131 billion.

For policymakers in Europe, Spain presents a dilemma. The austerity measures they are forcing on the country could help restore fiscal balance. However, they could also undermine Spain’s economic recovery and destabilise it both economically and politically. In any case, these policies are unable to deal with the real challenge, the deflation of the debt-fuelled bubble. "There is no means of avoiding the final collapse of a boom brought about by credit expansion", Austrian economist Ludwig von Mises warned more than 60 years ago.It sounds as if he had written about Spain today.

In all likelihood, Spain’s banks will need to be recapitalised out of the trillion dollar fund the EU agreed on in May. This would only confirm what many observers had suspected from the beginning – the EU measure is first and foremost a bank bailout, not a vehicle to save the euro.

Whether this enormous amount of capital will be sufficient is questionable. Last week, EU president Herman van Rompuy indicated that the initial stabilisation package may need to be extended – before the first euros out of this package have actually been paid.

In this dire situation, the best option for Spain is not even on the table. Outside the eurozone, Spain could have devalued its currency. Just as the Bank of England responded to Britain’s very similar woes by debasing sterling, this would have been a viable path to support Spain’s painful recalibration, too. Instead Spain – like Greece – remains trapped in a monetary union with countries it can no longer compete with.

There is one vital difference to Greece, though – Spain is too big to be saved.

And there is, of course, another difference as well. Unlike Greece, Spain still has a working chance to win the soccer world cup. That’s better than nothing.

Dr Oliver Marc Hartwich is a Research Fellow at the Centre for Independent Studies.


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ody
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Thursday, June 17, 2010 - 03:16 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Keen on the housing bubble

The word-play is deliberate. Steve Keen has always sounded somewhat as though he WANTED house prices to come down. But in truth, to say that is to be guilty of false criticism. On that basis, one would have to conclude that ALL people who forecast doom enjoy the prospect. That's probably not true.

Anyway, with Jeremy Grantham, no less, as a firm and prestigious analyst who has, like him, predicted a price fall in Australian residential real estate of about 40%, it is not surprising to find Keen returning to his theme. And it has to be said, these days, with prices for housing having escalated more and more in recent years, that Australian prices do seem increasingly overstretched. Thus, while not that long ago one could still perhaps contradict that fact by saying Australians were more careful with their money, that argument is beginning to wear thin. At some point, no matter the careful calculations, prices simply come to look "wrong". In relation to per capita income our prices are by far the highest in the world, without sufficiently good reasons to match that fact. The world is, in general, set for suffering further discomfort as a result of the GFC: that fact can not be avoided, try as hard as we might to think that China somehow will provide a miracle that will suspend the laws of gravity. Crises based on sky-high debt resulting on the too ready availability of easy credit, such as the current crisis, are always serious, and it would take more than anything China can do to avoid the consequences, of which so far we have only seen part, particularly as a result of the obfuscation of reality which is caused by stimulus packages, printing money, etc.

Below I produce Keen's latest piece (unless there is yet another. somewhere, since!), from Business Spectator. Alas, I cannot reproduce his charts, so the version here does not contain them.
----------------------------------------------
Steve Keen

Our housing bubble is far from 'unique'

GMO boss Jeremy Grantham pricked, if not the housing bubble itself, then at least the bubble that property market spruikers live in, with the quip that:

"Bubbles have quite a few things in common but housing bubbles have a spectacular thing in common – and that is that every one of them is considered unique and different." (Housing market a 'time bomb', says investment legend, June 16, 2010)

How true that is. Before Japan's bubble burst in 1990, we heard that Japan was different: the 'Rising Sun' was eclipsing the US and house prices reflected this growing wealth (and – didn't you know? – there was a land shortage in Tokyo!). Before the US housing bubble burst, there were land shortages in all the states with price bubbles – especially California. There were probably even tulip shortages in Amsterdam four centuries ago.

Those other bubbles duly burst, despite their 'unique' characteristics, under the weight of the same force: too much debt was taken on by speculators seduced by the groupthink that house prices always rise. When the rise in house prices made the entry costs for new players prohibitive, debt stopped growing and house prices collapsed.

This is the other thing that all housing bubbles (and share price bubbles, for that matter) have in common: they are all driven by borrowed money, and they can only be sustained so long as rate of growth of debt outpaces incomes. Once that stops, the engine of unearned income that enticed speculators to enter the market breaks down – since the only way that we can all appear rich without working is if we spend borrowed money.

Of course, we all know that spending borrowed money is a sure-fire route to ultimate poverty. The great tragedy of an asset bubble, however, is that it's someone else's increase in debt that makes you appear wealthier when your house sells for more than you paid for it. In effect, the housing market "launders" the debt money, making it appear real.

Any doubt that borrowed money is what has driven house prices into the stratosphere in Australia is dispelled by the data: despite all the hooey about Australian lenders being more responsible than those in the US, mortgage debt in Australia rose three times faster since 1990. Having started with a mortgage debt to GDP ratio that was just 40 per cent of America's, we now have a higher ratio than the US – and ours is still increasing while theirs is clearly falling.

Notice however that our ratio was still lower than the US's – and was falling too – before the government brought in the 'first home vendors boost' (my name for the 'first home buyers grants'). As it has always done, that government intervention in the market set off a price bubble – the government in this sense is as responsible for the house price bubble as the banks are.

The government pulls this trick because it makes it look good for a while: the bubble pulls in yet more private sector borrowing, and the spending makes the economy boom. But when the grant ends and the borrowing slows down, things don't look so rosy.

That's one way to describe the housing market right now. The boost caused the number of buyers to explode last year, and now the number is fizzing: there were just 46,000 home loans taken out by owner occupiers in April, a cool 25 per cent down on the same month in 2009. Actual demand (and that's people with cash in their hands to buy now, not the hypothetical future demand concepts touted by the property spruikers) is therefore falling below actual supply.

As the stock of unsold houses mounts, it is only a matter of time before the bubble bursts.


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rdumas
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Thursday, June 17, 2010 - 03:31 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Ody,

In keeping with the concept of a bubble in Australian house prices the chart below is a possible EW count on the longer term Australian house pricing. If I remember correctly the chart was current as of somewhere in 2009. What we can see is that we were in the final 5th wave of the bull market in real estate prices for the Australian market at the time.


The chart is a 'rough as guts' ball park type chart but does indicate that we are getting in the final stages of the bull market in real estate prices. The 40% drop in your articles probably corresponds to the typical 38.2% re-tracements in corrective waves following a 5 wave impulse wave.







I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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peterloh
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Thursday, June 17, 2010 - 04:24 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Ody/Rudy

You have been very informative with your posts.
It is interesting to note that even in the property market they are opposing thoughts.Shane Oliver had in the last 2 years commenting how high the property market was and it was a bubble waiting to burst.

From my observation, some of the banks valuer were actually valuing residential properties as low as 30% off the sales contract.Datas relating to residential properties could also be obtained from RP datas and realestate.com.

In reality things seemed to be going in a different direction.
A little suburb called Wentworthville, near Parramatta in Sydney is going through a boom. I have friends living in the area, a working class suburb. The median houses were being valued at about $400,000 2 years ago. Recently I have known people looking for houses unable to secure anything less than $600,000 in this suburb. Another apartment contracted to be sold for $400,000 in Parramatta was knocked back by a bank, because it was valued at $385,000 a 3 bedroom unit in Parramatta with double garages.It was immediately sold to the next person at $438,000.The latest auction in Wentworthville confirmed that that there is still pend up demand in this suburb. I have known people who have been looking for houses and apartments in the Sydney area who are despondent, not able to secured a place to live in at a reasonable price.

Just from observation and talking to some real estate dealers, there is just not enough properties on the market.
Many have to be induced to be sold as there is not enough stock around.

The influx of new arrivals seemed to be concentrated in Sydney and in particular certain areas, probably because of friends living in the area, an explanation for a certain sharp increase in price in the particular suburb.Apparently demand to supply ratio appears to be 2:1 in these areas.Prices in expensive areas could have come down a bit, however the pressure on demand for apartments and houses in Sydney are still there.Supply is hardly catching up with demand as they are not building enough.The state government is trying to stimulate supply through relaxing for seniors downgrading in NSW.So on one end we hear of bubble bursting, on the other hand real estate dealers have no houses or units to sell but plenty of buyers on hand. Statistics and reality is at odds here.

Cheers

Peter


-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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ody
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Rudy: house prices

(NB: I had already written this when I saw Peter Loh's post just now. I am aware that pressure is experienced as very real in some areas, but I also think that many Australians use property as their favourite investment class, and if they get into difficulty the supply situation would inevitably change. The difficulty could be caused by interest rates, but also factors which might affect their cashflow, such as higher taxes, rises in basic living costs, unemployment, etc. Keen reports that the figures for April of this year compared with those for April last year support his case, and certainly in Adelaide prices are now in the process of going down.)

What you say and show, Rudy (even though the chart is a bit out of date) makes excellent sense to me, and I would myself see it as confirmation of - or even a pointer to! - what appears to be the case on fundamental grounds as well as what is known about the past formation of such bubbles as this one. Much housing in this country actually went up until quite recently, though there had been some variation en route. There are now signs of the rally stalling, and it could well be that we are indeed in the process of seeing the end of a wave.

It matters greatly to anyone interested in the share market, of course. Importantly, if anything like a 40% - or even a 20-25% - crash occurred, the flow-on effects would be enormous, and history shows that housing crashes are usually in fact more harmful to economies than those in share markets. That would be particularly the case in a situation like the current Australian one, where so much has been staked on housing by so many, that being seen as invulnerable to loss by many inhabitants of this country. There is no way, of course, that people would/could see the share market as a safe option if the value of their property (or, not infrequently, propertIES) comes to grief, and at the very least they would be deprived of using properties to the same extent as before when they want to borrow. Most seriously, several would be greatly impoverished.

The likelihood is that even if they have carefully calculated matters in relation to what they do know, at least a number of property owners would not have built in to a sufficient extent a change in circumstances which could readily turn against them, and which in several cases would leave them with no option other than to sell in order to meet their borrowings, or being compelled to do so by those from whom they have borrowed when they fail to pay.

The key reason for trouble, as I see it, is most likely to be that IN FACT, without massive borrowings, many Australians cannot possibly afford what they have taken on. If anything threatens those borrowings, they will be in difficulty.

(Message edited by Ody on June 17, 2010)


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breaker_1
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Yeppoon,Rockhampton,Makay,Clermont anywhere up the coast you will need 500k for anything half way decent if you can find anything


When one door closes another door opens; but we so often look so long and so regretfully upon the closed door, that we do not see the ones which open for us.

Alexander Graham Bell





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cat_lady
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coh

hi dolphin & ody, belated thanks for your comments - been flat out and only just catching up. shed some COH yesterday (before I saw your comments), mostly preserving capital invested and will let the rest run.

cheers
cat lady


Without my morning coffee I might as well be a dog

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ody
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Peter Loh, breaker 1: house prices

There is no doubt that there is still pressure, and that in a number of places prices are rising, right NOW. However, in other cases they have begun to fall, and overall there is thus apparently an incipient decline. One cannot properly judge that, as a trend, until there have been figures for the country as a whole, and for a few months.

Adelaide had until recently been very strong, but the overall situation is now definitely less robust. Even so, there is a huge difference between areas. In some, people are perhaps quite as justified in their belief that prices are still going up as others are in other areas that prices there are going down. Anecdotal evidence about what happens in certain suburbs at certain times is not enough to judge what is happening to the market as a whole.

The key point, though, is that overall the market has been VERY strong, and if history is anything to go by - as it probably is - then the market has been too strong for too long. Markets almost always overshoot, and tend to become over-confident in the end: we may well be seeing that, still, in the Australian real estate market today. If the market continues to head up, then there can be no doubt at all that at SOME point it will crash: for it is physically impossible for the process to continue, given that people are already paying far more than they have historically done, in relation to their income.


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ody
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Thursday, June 17, 2010 - 05:38 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



cat lady: COH

Good! Sounds right to me. Isn't it interesting that you had already yourself decided anyway that you'd shed some, and that at much the same time Dolphin and I - all three of us judging independently and in various ways - had arrived at the conclusion that there might be point in doing this? WE may all be wrong, of course, but I would think that at the leas there must have been "a good case". That's the thing to go by, I feel, and only history can tell how good it was.

By the way: I simply and only call it the way I see it, and was, of course, not trying to interfere, as I am sure you'll be aware.


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ody
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From the Sydney Morning Herald
--------------------------------------
Property investors on top of the world
JONATHAN CHANCELLOR
June 18, 2010

AUSTRALIA is the fourth-fastest-growing property market in the world after a 20 per cent price jump in the past year.

But China overtook Hong Kong as the world's hottest housing market with a 68 per cent annual price rise, according to a survey of 47 countries by the international estate agent Knight Frank.

''The top four positions in our rankings are all occupied by Asia-Pacific locations, whilst Europe dominates the bottom half of the table,'' said Liam Bailey, the head of residential research. As house price declines slowed in most depressed markets, 25 of the countries registered rises.

Most of the countries where home prices fell were in Europe. Prices rose 8.8 per cent in Britain and 2.3 per cent in the US. But Dubai, which had been the best performer, became the worst, falling 8 per cent.

Asian investors, attracted by a weak British pound and rising rents, were strong in London.

The report says that while housing markets are polarised, each quarter provided new evidence of recovery: ''It remains to be seen if this is another period of sustained growth or the middle peak in a double-dip recession.

''With interest rates now rising, the government withdrawing stimulus and the supply response picking up - albeit modestly - we expect house price growth to slow over the next six to nine months," said the Australia research director, Matt Whitby.

But Knight Frank said 4.8 per cent of Australia's growth was in the March quarter, which the agency believes might have overstated growth.


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breaker_1
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Friday, June 18, 2010 - 07:39 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



RSPT for small business payed parental leave


When one door closes another door opens; but we so often look so long and so regretfully upon the closed door, that we do not see the ones which open for us.

Alexander Graham Bell





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jaded
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Friday, June 18, 2010 - 07:42 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Ody,
IF house prices are going to fall by 25-40%,what are we suppose to do about it?
Sell/Not Buy an Investment Property?Sell our own homes?ReOrganise our Estate Planning anticipating that this Asset[house] will not contribute as much as we hoped?

Such a fall in house prices would wreck any Gearing that's been gained by using house equity for small business or new cars/holidays overseas[you deserve it!]

I'm just concerned that your 'prediction'/reading is giving no practical suggestions of what we could do before this happens.
Personally I just see an extended period of flat lining until the long term trend 'catches up'.See Rudy's chart of the 80/90's period.
Such Flat Lining causes problems enough.Interest Payments are "Dead Money" not providing time for increasing equity,for one.
As well the slightest fall [10%ish] can wreck one's credit,equity borrowing for good or ill reasons.

but Ody,if like you and me,the house is owned outright with No Mortgage at all?What's it really matter?

That's why I prefer shares over property.One knows instantly exactly what they can be sold for,one can sell 'bits' off for cash flow.
It's not like the Share Market has anymore sharks and tricks than Real Estate.It's just that the Media gets more Advertising Revenue from Property than Shares and can play the tune-There's No Place like Home-emotion.

regards.


" Hear what you Say...
But see what you Do!"

Sir Zelman Cowen c 1970.

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rdumas
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Friday, June 18, 2010 - 08:06 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Jaded,

Good question and I'm sure that Ody has his own thoughts on the matter. Before getting involved in the share market I had all of my investment money in 3 residential rental properties. I am not sure what the yield is these days but during those days the yield was pathetic on the rents however what made it worth the investment was the capital gain. It in some way it partially compensated for the negatives of investing in rental properties such as a having such a large proportion of my money tied up in such a small number of properties in other words reduced diversity hence elevated risk, diminished liquidity, etc.

If I truly believed in the concept of there being a sustained period in future of diminishing capital gains, there is just no way that I would invest in rental properties in future.

In terms of home ownership I suppose that if you were certain of the timing (which I'm not) you would sell out at the peak and start renting and then buy back into the market once it did its thing. You would have to go through the actuarial exercise (which I haven't) of determining whether the rent payments would be less than the loss of capital. What would make that calculation very difficult once again is that you really have no idea of the timing of the cycle.

So summarising, from the perspective of investment it's probably an easier decision but from the perspective of home ownership its much more complicated.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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market_mad
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Friday, June 18, 2010 - 09:20 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Rudy/Jaded/Ody,

Yes, I agree with Rudy. If you have investment properties then you have decisions to make. But if you own your own home then the timing, costs associated with selling etc etc mounts up.

I don't own my home outright, but am darned as near to - I'm not going to stress about trying to pick tops and bottoms in housing - yes, I think it will fall, but at the end of the day if you don't owe anything on it - what does it matter? I couldn't go to renting... just couldn't do it.

IF I had investment properties I would definately be looking to sell them. At best this property market will be flat, at worst, well....Everyone thought back in 2007 that there was no chance the share market would fall 50%.

At the end of the day, the only thing that has pushed up property prices is the increase in debt taken out of them. If wages don't go up then this is unsustainable - pure and simple.

As of March 2010 residential loans by banks stood at $935.2 billion compared with $634 billion in October 2007 (source RBA website).

In other words, household debt obligations have increased by about 50% over the last two-and-a-half years. Now it hasn't exactly been boom times over this period for the economy has it?? Scary sobering facts indeed. Of course first home owners grants etc has contributed to this but at the end of the day, debt levels to buy houses have exploded in recent years and this simply cannot last.

Cheers
MM


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eblode
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Friday, June 18, 2010 - 11:07 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Will Rogers said "Buy land cause they aren't making it anymore"

Quite frankly I have made more money, more easily and with bigger profits in buying and selling real estate than I ever made in the share market. To be able to buy a run down property and renovate it or simply buy a block of land and build is far more rewarding in the long run. That has been my experience Sure there are times when the real estate market is flat but there is always a buyer lurking around who for some personal reason has to buy. I sold one house because the buyer goes to Church every morning and I was in the street of that Church. If I was 30 years younger I would be in real estate. It never goes out of style and people have to have a place to live.
You won't have the action of the market but in the long run it is a great field to invest in.

Eugenio


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bridog
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KGL
I mentioned KGL the other day and immediately the share price fell over on the next opening, so I kinda wished I hadn't mentioned it!

However it has redeemed itself today, being up 40% atm.

KGL is developing a gold mine in Kyrgizstan(spellng?). Fortunately it is in the north of the country well away from the troubles occurring in the south. Of course there is still sovereign risk.

KGL plan to mine 70k oz gold pa at a cash costs of $US29 including royalties, after copper credits. Gold sales due to commence in about 2 years.

There must be an analyst report or other news causing todays rush of blood, but it hasn't come to me.

Cheers


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market_mad
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Friday, June 18, 2010 - 11:19 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



And here it is...

Rudd to offer miners new deal
ANDREW PROBYN FEDERAL POLITICAL EDITOR, The West Australian June 18, 2010, 2:35 am
Miners are to be offered fast-tracked recovery of project costs under a Rudd Government plan to win support for a vastly reworked tax on miners' so-called "super" profits.
The West Australian understands key components of Treasury boss Ken Henry's resources super profits tax will be dumped, with the Government privately conceding there are significant flaws in the design.
While the Government is intent on keeping a 40 per cent tax rate and applying it to existing projects, it is poised to axe the idea of underwriting losses in failed mining ventures.
Treasury had thought this element would have secured support for the tax from exploration companies and junior miners, but this proved to be a gross miscalculation after the Association of Mining and Exploration Companies condemned it.
It is believed that the Government is planning to lift the threshold at which the 40 per cent tax kicks in significantly. Under the current proposal it is set at profits above the bond rate, or about 6 per cent.
The Government is also considering whether the threshold, but not the 40 per cent rate, could vary according to the mineral, in response to miners' concerns that expenditure and investment profiles differ according to the resource being extracted.
And in a major concession to miners' concerns that the proposed tax would make some projects unviable and unattractive to investors, the Government would allow mining companies to write-off capital expenditure before it applied.
In some cases, companies would be able to recoup the entire capital costs of their project before being subjected to the tax, as already happens with offshore oil and gas projects subject to the petroleum resource rent tax.
Finance Minister Lindsay Tanner hinted at the Government's new strategy yesterday.
"The question of how we treat existing mines and the way they are, in effect, depreciated or written off for the purposes of liability for the proposed resources super profits tax is one of the things that's always been up for negotiation," he said.
Prime Minister Kevin Rudd told the 7.30 Report last night: "We are negotiating with individual companies around the country, many of whose circumstances are quite different depending on where they are, what mineral they are mining and what the nature of their process is."
The chairman of WA nickel miner Minara, industry veteran Peter Coates, told _The West Australian _the resources sector had long been prepared to consider a profits-based tax, but that a one-size-fits-all approach was simply wrong. Mr Coates said that while Minara had generated $3.7 billion in revenue over the past 15 years, it was yet to recoup the $4.5 billion cost of building the project.
WA's Swan Gold Mining yesterday said it had shelved its plans because of the proposed tax.
Michael Kiernan, managing director of Swan Gold's parent company Stirling Resources, said a decision to delay mining at its Mt Ida and Carnegie projects was a "direct result from the knock-on effect of the RSPT debacle". The two projects would have created 150 jobs.


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ody
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Some further thoughts on residential property

Thanks, all, guys, for a number of very worthwhile posts on this matter.

My main concern was really with the prospect of a general decline in the residential property market and the effect this would inevitably have on the Australian economy and on us as investors in SHARES. (I always bear the share market in mind, given the purpose of this thread.)

In terms of what one might do as a property owner, or investor, I did not mean to imply any action for individuals, because any such action is a very personal matter, and would depend on both the individual's circumstances and inclinations. But I do have thoughts on the matter, for sure.

I take very seriously Eugenio's thoughts on the matter of property as something that one should - if one thinks on investment outside the family home - be prepared to TRADE. In this respect, my own attitude to houses would be the same as to shares. With neither do I see any point in sitting on something long-term if the asset goes through significant down-periods (or even long periods of price-stagnancy).

So, if I owned an investment house now (or possibly several), I would sell out, if I had not already done so, as personally I do not think the price can go up any further, or, if it does, it will be set for a very big fall indeed.

As with shares, it is not easy to pick such swings PERFECTLY, but the basic strategy, in my view, is to get out of an asset class if that is likely to collapse (as I did with shares in 2007), and to move in when prices are lower, and particularly if they begin to improve. Again, the moment of purchase may not be timed with absolute exactitude, but it is usually not difficult to get points of entry and exit more or less right, if one takes an active interest in investment and what causes people to invest, or indeed to divest (willingly or otherwise).

So I see absolutely nothing wrong with an investment in a property outside the family home, so long as one is prepared to trade. What I think is foolish is a buy-and-hold policy where one quite unnecessarily sees one's profit plunge instead of locking it in at a good time.

So, if I were an investor in property right now, I WOULD PROBABLY ALREADY HAVE SOLD OUT, BUT WOULD CERTAINLY DO IT RIGHT NOW IF I HADN'T AS YET. (Personally I am usually too early, both with buying and selling, but I don't mind this, as I try to make profits, and to avoid losses.)

Of course, if we own our own family home, that is a different matter. You CAN, very successfully, use your family home as an investment in the same way, if you are prepared to move in and out of houses all the time. If you sell, there is no capital gains tax whatever to pay - a beautiful way of making a great capital gain. But, as we all agree, one needs to live somewhere, and the question would be (a) whether the next house is going to be a better investment than the one one already lives in, and (b) whether one wants to move all the time.

Personally I am greatly attached to our home, and as it is in a reasonable suburb and over time has considerably appreciated in price, while now we are septuagenarians, I don't think we shall greatly harm our kids or ourselves by staying put. There has been no mortgage on this house for a very long time. (Indeed, we don't owe ANY debt, in any form.)

If I had no attachment to any place I live in, and was much younger, I would probably actively try to trade the "family home" as an investment. My reason for that would be that at certain times some areas (it is always above else the AREA that one should aim for) are very obviously set for much better growth than others, and the art of exploiting this would be to get out of an area that has gone up greatly in recent years and thus would be at considerable risk of price loss, but to get into an area that is clearly set for a rise. I think this can be done realistically, though it is easier to do this as an investor in OTHER houses than one moving from one house to another all the time.

I ADD HERE THAT I WOULD BE *ENTIRELY* OUT OF THIS MARKET, AS OUT OF OTHERS, DURING PERIODS WHEN THE MARKET AS A WHOLE IS WEAK. I happily move from one asset class to another, and think, on the basis of my own long-standing experience, that the thought that one cannot at all reasonably identify when to go in and out is nonsense - produced mostly by those with vested interests in selling a particular asset, or else by people who are fantasising and/or incompetents.

My earlier posts on the subject of residential real estate were really intended to draw attention to what I think is likely to be a development with major implications for the economy and thus also for investors in shares. But, if one faces the matter of what practical actions individuals might/should engage in, as investors, these would be my thoughts.

Typically, they are those of what one might loosely call a "swing trader". In retrospect, if I looked at collectibles in the same way, I would have bought and sold more frequently in my life. But my wife and I collect what we like, and don't do so for investment. However, in that market, too - and I am speaking as a long-time participant and observer - swings are greatly influential, and quite pronounced. It is a complete mistake, for example, to think that automatically anything old will go up in value. For example, if one had bought very ornate Victorian furniture at peak prices, and kept it until now, one would have fared very badly, as an investor: the market has strongly turned against it, and, because of changes in both taste and - more importantly - lifestyle, it is not soon likely to go up again. I would therefore regard it, still, as very probably a bad investment, even on a contrarian basis - though more because of the impact of lifestyle than merely aesthetic considerations.

Having now been conscious of changes in markets since around 1965, personally, I am firmly convinced that the best way for someone to build up wealth is not to sit on an asset thoughtlessly for decades on end, nor - unless one is exceptionally good at that - to engage in very short-term trading all the time, but to think in terms of PERIODS OF STRENGTH AND WEAKNESS. Obviously, one needs to have some "nous" to assess in which area houses at a particular time are likely to go up and down, in order to exploit such patterns. And one needs to know how the property market in general is likely to fare.

But the thing to do, I feel, is to move in if - often after a long period of stagnancy - house prices in an area are for all sorts of reasons likely to move up, and in particular to act when others have already been providing some evidence of incipient eagerness. One then holds for what will often be some years during which prices often greatly climb, and one sells out when one determines that prices have gone up a lot and are unlikely to be able to rise much further - particularly if one can see good reasons why they must fall, and even more so if they have shown first signs of falling after a significant accumulative rise of some real duration.

Much the same applies to shares and collectibles. Often rises over a fairly substantial period (but I am talking years, not decades) are the best. For example, the share market was recently at its best from early 2003 to late 2007: that was a time to be in the market. In the share market, one can often play shorter rallies as well, like the one we had in 2009 and beyond: with houses this would probably be harder.


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rdumas
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Friday, June 18, 2010 - 02:18 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Ody/Eugenio,

Your experience of making significant profits on real estate is valid based on your personal situation of investing in this area over perhaps the last 60 years or so. As you can see from the chart that I posted before (and I post again to save people the trouble of looking at my previous post), there has been a bull market 5 wave impulse pattern since 1926 (ie around 84 years).






That is the problem of not personally experiencing a full cycle of both a bull market and corrective bear market. Whilst your experience covers a significant period, it is only during a multi-decade bull market. You have yet to experience a major corrective period of the same degree of the bull market in question.

For that reason, your logic that these bullish conditions will last for a similar period into the future is not soundly based. If you and I are through some miracle able to live another 30 years or so we may see a complete cycle of 5 waves up and 3 waves down. It is then and only then that we would be able to be more definitive about any future move.

It is not too different from the fallacy of buy and hold strategies in the share market continuing to be as sensible over the next 30 years as it was in the last 80 years.







I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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eblode
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Friday, June 18, 2010 - 02:40 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



RUDY,
My experience in real estate has shown me that it depends a great deal upon emotion. Show the housewife a fancy kitchen with all the gadgets and she "falls in love" with the house. Put in a neat workshop in the garage and the man of the house "falls in love" with the place. That's the reason I was successful in good times and bad. Grab an old weatherboard, paint the entire house, put in a modern bathroom, wall to wall carpets in the bedrooms and voila....you sold it! Give me two good tradesmen, two house painters and a silver tongued estate agent and I guarantee you big bucks. Dozens of guys are doing it today and doing very well.

Eugenio

 
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