EZFKA Outlook Ahead

Must be about due for a predictions thread in lieu of no weekend links.

The housing bears are starting to lick there lips as the usual real estate forums light up with excited chatter. You’d think that house prices had already fallen 50% the way some people are posting. FHB thinking they are going to swoop in and buy a 4 bedder in inner Sydney for a bargain price.

Meanwhile US inflation is out and higher than expected at 8.6%. Making it more likely the RBA will hike and probably more than people are expecting… Maybe 0.75 or 0.65?

What’s your prediction from here? Will we see the government and banks swoop in to save housing? Or will we finally see the bubble burst that MB has promised for the last 12 years?

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Aussie Soy Boy

Let’s say they drop 25% in the next 18 months™ they go back to pre-pandemic levels, which the MB crew thought it was too expensive then with lower interest rates.

It will never drop enough for the bears. They all want prices to stay stagnant while they save up.

I can see no reason why interest rates won’t continually increase.

Fact is as well, most people don’t have a mortgage or sufficiently ahead with their mortgage they can wait out 5 years of high interest rates.

Those FHBs that borrowed too much will be in deep shit but some people need to learn the hard way. Sucker born every minute.

Agent 47

IP’s will be dumped on the market first. Id say the regional areas where people bought will take a hit due to the holiday home quietly up for sale.

Ramjet

No, holiday homes are the first to be dumped onto the market. At least IPs earn some money. However, some will be dumped once the more marginal investors can’t afford to continue their losses.

Gouda

It’s definitely an area to watch, but got a feeling that being able to rent out holiday homes via AirBnB or other short term leases will allow them to hang on for quite some time.

Coming

Groundhog day

I think we had a thread several months ago where people made their predictions.
Think Freddy and Peachy refused to commit to anything
I believe I called down 5-10%

Obviously we are going lower than that

How much of a % fall would it require to get back to pre-pandemic levels?

Coming

yeah close enough

https://www.abc.net.au/news/2022-03-24/six-ways-pandemic-reshaped-australias-housing-market-corelogic/100933182

so it was about 25% up from March 2020 to January 2022
Add another 5% after january
So maybe it was 30% trough to peak?

I think we go back to that level

If we overshoot more than that I think RBA/AHPRA/ALP will start to panic

A fly in your ointment

EmBee mob claim plandemic increase was 35% so >25% retrace is requited to wipe out the ill-gotten capital gains..
at this stage RE has to drop min 60% to have some tiny connection to the Earth.
not sure in which universe this happens.

Ramjet

Absolutely they will panic. KRudd did during the GFC and he changed the foreign ownership rules. Nothing stopping them from doing it again.

stagmal

that was me

i will get round to it one day

Coming

Take a day off from dole bludging and do it

Freddy

I also called for 5-10% based on FOMOs having already purchased.

I now think the predictions of 15-20% by CBA etc will happen a lot faster. I will put is as a separate comment for discussion.

Freddy

A general thought. A few property bulls have now turned bear including the likes of CBA predicting 15-20% falls over two years.

I believe those falls will happen faster, and if they happen faster may go deeper. I base this belief on a simple question: If you are a prospective buyer hearing from “respected” sources that house prices will fall 20% over the next two years, would you buy now or wait two years?

Last edited 25 days ago by Freddy
Coming

doesn’t the reverse apply also?

If punters hear it was to be a 20% drop, and its dropped 20% they will buy the dip

especially as psychologically it feels cheap to them (guy in the apartment downstairs paid 100k more for the same place!)

Think there are many people who are just itching for the opportunity to “have a go, and get a go” so dips will be bought
It just depends on if they can keep their job/get access to adequate credit, and that will depend on APRA and the ALP

unless this is the big one/controlled demolition, and the RBA/govt have given the nod to unwind the whole thing, I think that the property religion is unshakeable in Australia

got to say in my own experience there is a weekender that has just come on the market that I have had my eye on (or similar adjacent properties) for a long time
Agent has quoted a price that would be a bullish-to-fair price for January 2022

If it comes down 30% from there, my wife will have to hide the cheque book

Last edited 25 days ago by Coming
Freddy

There is usually an 18-month (TM) lag between prices and rates. By the time prices have bottomed rates are usually already back on the way down. However, if prices fall fast then rates could still be on the way up. Many buyers will wait for the rate cut signal.

Maybe wishful thinking. We’ll see.

Coming

yes, the WEF stuff is kind of bizarre
Has really been ramping up lately, and getting a lot of publicity (“you will own nothing”)

and makes me think there is a non-zero chance that they are going to pull the plug / great reset etc

Jabcinda, former WEF alumnus, was just visiting blackrock headquarters a week ago, while prices in NZ were crashing

Things that make you go hmmm

Agent 47

Fair number of billionaires have boltholes in the south island esp near Wanaka and Arrowtown.

Agent 47

Thinking this is the big one. End of the currency cycle but I could be wrong. Totally different to GFC in Australia considering levels of debt and inflation but who know what Chalmers and Lowe will throw out.

I called property prices 5% up by end of year but that’s out the window now. Looking more realistically like 15% down or thereabouts on east coast.

FWIW wife and I have been considering pulling trigger and buying last 12 months but am now glad we didn’t and it’s a good time to be on the sidelines. Problem is I have no fuckingidea where to stash our deposit because i don’t trust bailins.

Freddy

Short term government bonds. Think of them like a term deposit that is issued by the government, and you buy via a stock broker.

Bonds – prices (asx.com.au)

Last edited 25 days ago by Freddy
Agent 47

What platform you use for bonds? Mine doesn’t offer bonds.

Freddy

I use Commsec. A complete list here:
Treasury Bonds | AOFM

A few things to note:

  • Market depth and spreads. Choose an expiry with more liquidity. You might not be able to buy them all in one trade. More depth will appear soon after you buy.
  • AOFM will send you a certificate
  • Once you have a certificate you can register a bank account online. This is where they will pay the interest and also return your funds.
  • If you hold the bonds until expiry you effectively only pay half the spread
  • Educate yourself on how bonds are priced and the effective yield. I will give you example below

GSBG23 has an expiry date of April 2023 (10 months) and a coupon of 5.5%. Coupon means they will pay 5.5% pa interest (2.75% twice a year). There are two more interest payments due in October ’22 and April ’23. The current price of $103.56 is implying:

  • Face value $100. That is what is returned to you at expiry
  • $5.5 (total outstanding interest payments) – $3.56 = $1.94. This is the yield. i.e. 1.94% interest over the remaining 10 months = 2.328% pa. Actually expiry date is 21/4/23 so a tad less than that.
Last edited 24 days ago by Freddy
Coming

Can I ask a dumb question ?

if I have known CGT liability that will be due for payment, what is to stop me from buying this bond with the intention of booking the capital loss as an offset ?

im going to be compensated for the capital loss with a higher interest payment , so the CGT offset is an added bonus ?

Freddy

ATO is a step ahead of you. Gains or losses from Treasury Bonds are recorded against income.

Peachy

That’s not the problem – losses on income account are fine against capital gains (in fact, better, because you can have your capital gains discount).

Freddy

I know. The problem is actually the other way. They don’t want you offsetting outstanding capital losses with capital gain on bonds. Either way, you can’t do capital gains/losses shenanigans with bonds

Coming

Losses are recorded against income ?

same result then ?

Peachy

The problem is that the loss you’ll book is on the future.

buy the bsbg23 for $103, and you’ve got a loss of $3 locked in. But that loss will be in 2023.

Too late for your capital gain

Coming

Not if I have something else to sell in that FY

or I could buy a different bond with a shorter expiry and a similar capital loss

Peachy

Still doesn’t really work, because the “loss” on maturity is all first paid back to you as extra income (interest) during the holding period.

so the timing is unfavourable – income, income, income, loss. It’s an acceleration.

what you’d want (but usually can’t get) is a deferral – big loss, income, income, income.

Agent 47

Thanks very helpful. Will investigate this week.

Counterfiat

Freddy you you make this a separate article post.

Freddy

ok. I will knock something up in a day or so.

Agent 47

Next hike to 1.25. US Fed meeting on Tuesday will set the tone.

Otherwise, waiting for the first kitchen sink from Chalmers in the next month or so. I think that should be worth a call – total super withdrawals? 50 year mortgages? Something else?

Coming

Tax deductibility of ppor mortgages has to be on the cards

they already have it in US , up to 750,000

it will be similarly limited in value here to help the battlers

Agent 47

Tax deductions for sure. I’m interested to see what the ALP do with superannuation as the unions will lose their lifeblood and commercial landlords are bleeding. Probably won’t touch it.

Agent 47

They’re trying to steal everyone’s wealth so I don’t think they give a fuck about boomers anymore esp considering they got them to take the jab in huge numbers.

emusplatt

hehehe … someone say tone?
check this🔻…proper savage

https://rudy.substack.com/p/the-fed-will-hike-until-something?s=r

Just read the Kim.com assessment that made me think.
US debt is apparently $90T more than what the whole US is worth lock, stock and barrel which translates to approx $2mil per tax payer. It seems that Alaska may change hands again and any currencies pegged to US$ may be sucked by the vertex of the sinking King. AUD too

Controlled demolition in stages may offer reduced risk to banks if specu-vestors are replaced with FHB’s whom can service interest only. That is probably better named controlling the earthquake.
Converting majority of loans to interest only is the great reset thing as essentially the ownership balance remains unchanged in that period. Expect reverse mortgage for those with some tangible equity, e.g every missed payment is taken from the equity available.

20% dip in RE will do sfa in my view. We need long term pessimistic outlook and .gov failure of several consequtive policies to support the RE. Once there is no more trust that .gov can do something to rescue the only show in town, the carnage is the next step. Until then, everything is ‘transitional’

Hoody

Petersburg International Economics Forum (SPIEF) to hear their ideas preparatory to the forum on where Russia is “now, where we are going and what we need to do to ensure our absolute and unconditional progress, to make it beneficial for the country and everyone involved in this remarkable process” of transforming and changing Russia.
Putin situated this task within Russia’s continuous fight historically to ensure its sovereignty.
In today’s world of rapid “geopolitical, scientific and technological transformations,” Russia, or any country which wishes to exert leadership in any area, must be sovereign, he told them.

“There is no in-between, no intermediate state: either a country is sovereign, or it is a colony, no matter what the colonies are called … if a country or a group of countries is not able to make sovereign decisions, then it is already a colony to a certain extent. But a colony has no historical prospects, no chance for survival” in what he views as centuries of “tough geopolitical struggle.”

Western leaders with any brain left would do well to give some thought to Putin’s discussion of the essential components of sovereignty: military-political, economic, technical and social. He explained that by “social” sovereignty he means “the ability of society to come together to resolve national challenges, to respect history, culture, language, and all the ethnicities that share a single territory. This consolidation of society is one of the core conditions for growth. Without consolidation, things will fall apart.”
These components are interconnected, and of equal importance, “because one cannot exist without the other.” You cannot have external security without technological capability and technological sovereignty, he said, as exemplified in Russia’s development of hypersonic weapons.
Likewise, how could a society come together to resolve national challenges with “a limping, sneezing and coughing economy? … And if there is no consolidation, there will be nothing else, either.” To secure both requires dealing with “basic tasks such as demography which means healthcare, environment, research, education and upbringing.”
Putin emphasized the importance of basic values, of culture. Here, he referenced a discussion he had with the Patriarch some time back about education, in which the Patriarch commented that “even though education was indeed crucial, without proper upbringing, we would not succeed at anything, because you can teach a person something, but the question is how they will use their knowledge.”
Thus, “if we do not rely on the basic values of the national cultures of the peoples of Russia,” Putin said, “we will not consolidate our society. Without consolidation, everything will fall apart. And the fact that we have to sort of defend ourselves and fight for it is obvious.”
It was in that context, then, that he made his remarks about Peter the Great and his Great Northern War which have Western commentators in such a tizzy.

Russia and China will not be bending the knee again…..fool me once, shame on you. Fool me twice, shame on me.

Stewie

Putin’s quote is worth repeating:

“There is no in-between, no intermediate state: either a country is sovereign, or it is a colony, no matter what the colonies are called … if a country or a group of countries is not able to make sovereign decisions, then it is already a colony to a certain extent. But a colony has no historical prospects, no chance for survival” in what he views as centuries of “tough geopolitical struggle.”

The question is who are these nations colonies of? The US or the “Neo” elites that have seized the leadership of that nation within the past 50 years and set about transforming America, and through it the world, into their idea of what we should be?

Counterfiat

Draft legislation submitted in Russia under which “LGBT propaganda” can be fined millions.

https://euroweeklynews.com/2022/06/08/draft-legislation-submitted-in-russia-under-which-lgbt-propaganda-can-be-fined-millions/

Will affect fb meta etc…

Hoody

Conley is seen as one of the leading U.S. experts on Russia. During the administration of President George W. Bush (2001-2009), she was part of the U.S. State Department’s leadership team responsible for Europe. Conley now heads the German Marshall Fund, one of the most important trans-Atlantic think tanks in Washington.

In the Handelsblatt interview, Conley calls on the German government to speed up arms deliveries to Ukraine. “It’s no good if the equipment arrives when the battle is decided,” she says. The war is turning into a battle of attrition in the east of the country, she declared.

“The military situation is reminiscent of Verdun in World War I,” Conley explains. “Little scraps of land are captured sometimes by one side, sometimes by the other, with no one winning.” That’s why, she says, the West must continue to support the Ukrainian army—and do so for the long term.

Beyond that, “We must prepare for the use of tactical nuclear weapons,” she said.

Imagine the outrage if Putin was to say the same thing.

T

@peachy – did you guys change something? I can now access ezfka again. Not sure why?

Peachy

Well, you said you’d free up and be able to do weekend links by June, so we had the site re-opened to you, so you can do your thang.

Stewie

Until yesterday I wasn’t able to connect to EZFKA since the 24th May.

Coming

Sounds like something to do with cookies !

Hoody
Ramjet

On the contrary, they are doing this so government prepares a package to support house prices.

Hoody

Wifey just told me that her sister and her partner just refinance their home (it has gone up by $100,000 in the last 18mths) to buy a Hilux, which has a 12mth waiting list.
They both work full-time on average money and have no buffer.
They are already talking about how they are going to upgrade their house in a few years.

Stewie

They are already talking about how they are going to upgrade their house in a few years”

This is the way. #EZFKA

Ramjet

I always have skepticism when a bank says 70% of customers are ahead on their repayments. To me, the other 30% can make the difference between solvency and insolvency. But I guess the bailins will mean my skepticism is wrong.

Aussie Soy Boy

Only 35% of households are mortgaged and that ranges from people who bought 25 years ago to first home buyers.

Anyone that bought 20 years ago is laughing, anyone that bought 5 years ago will be fine I imagine, it’s really only first home buyers without a cushion who are fucked if they lose a job. Even then they won’t be kicked out onto the streets immediately, and even when they are the banks will might leave the houses vacant until prices recover.

They’ll let people raid their super if they are mortgaged and in financial distress.

Anyone waiting for the day that prices drop by half or more and they’ll come swooping in getting a bargain is dreaming.

Ramjet

When 20%+ of new borrowers have a debt to income of six or more, you have your answer. Soy Boy is right, new borrowers are most exposed.

emusplatt

mmmmm here’s some beer coaster scribblings….2016 Census, there were 8,286,000 households in Australia
x35% = ~2.9m….and say 30%(???) get severe mortgage stress.
so <1m dwellings?
is that enough to interest blackstone/rock or vanguard?
if not, it doesn’t matter. the S.I. Visa class will get cranked up.
probably another opportunity to be long megabank

More seriously… Why TF don’t megabank do their own residential asset management companies for spinning off later?

Last edited 23 days ago by emusplatt
Aussie Soy Boy

For sure a 25% drop is on the cards just because people won’t have the borrowing capacity with rising rates, tough world economy for who knows how long will make people less confident about their future.

That just takes us back to 2019 levels.

Aussie Soy Boy

Hilux is an appreciating asset these days, so maybe not so irresponsible lol. They do hold their value even the ones used by tradies or bashed around in the bush.

It’s crazy what people spend on a device to get you from home to work, home to the shops, drop the kids off somewhere.

Ramjet

I can not see the war in Ukraine ending soon. The West will have sanctions on Russia for a while. This will mean stagflation for the foreseeable future. I think rates will go up until they realise that raising rates is not getting rid of inflation like they hoped. House prices will go down a bit, but rents are rising strongly. So there will be no crash.

stagmal

russia is slowly grinding out a victory by chipping away at ukraines army with never ending artillery blasts as i predicted

i think it has the potential to last into the new year, at this rate itll take a few more months to clear the donbass region entirely, then the fun really begins

A fly in your ointment

when the Rotten West claimed Ukraina will be a war of attrition, they were right but in totally inverted way. The longer the Ruskies are excluded from direct transactions with westworld the longer the pain that Westworld will endure and the major crack are expected if not in autumn, the latest by the mid winter. Some small fatigue with Ukraina is alredy present
Shot in the foot will fatigue westerners to dump the Ukraina in exchange for revert to normal cost of food and fuel. Besides, it may not show up in polls due to fear of cancellation, my take is that Westworld plebs are aware the extreme patience Ruskies had for shitfluckery right at their doorstep, and that this is equivalent to poking the bear just way too much.

Ramjet

By now, you can safely assume that anything that Zelensky is saying, the opposite is happening. In Western MSM, the way you know what is happening is by the number of articles published. When little is published, you know Russia has the upper hand.

Ramjet

The US Military Industrial Complex with their government proxies are the ones that want the war to keep going. If you want to minimise pain and suffering, then you will want peace negotiations as soon as possible.

A fly in your ointment

well, the only peace negotiation offer left now is total pacification, denatsification and deUSification of Uke.
Lügen Imperien will not accept that peacefully and until the last Ukrainian blood pulse.
Moar War, unfortunately

Aussie Soy Boy

I think the US want to turn the western half of Ukraine into their own Kosovo.

Coming

Australian govt bonds getting smashed again

10Y nearly 4%

Peachy

Lucky my order didn’t get filled last week.

will enter at a better price this week.

🥰

Ramjet

Are you still betting that rates won’t increase as much as that assumed by the yield curve?

Peachy

Are you still betting that rates won’t increase as much as that assumed by the yield curve?

ultimately – yes.

either they won’t increase as much or maybe there will be a bit of a bond market rally, where the market will go dovish (priced as increases won’t be coming)

Ramjet

Wouldn’t you be trading long dated bonds? Something about duration from financial mathematics and interest rates.

I guess you are betting that stagflation won’t occur or we’ll look through inflation when raising rates has done nothing for energy price inflation.

Peachy

Wouldn’t you be trading long dated bonds? Something about duration from financial mathematics and interest rates.

long dated bonds will definitely react more to changes in interest rates. But the trouble for me is that:

  • A position in them would take more maintenance/management (not my style)
  • More importantly – something like a 20yr bond is exposed to interest rates out to 7 – 10 – 15 years. I don’t have a strong view on what’s out that far.

whereas a 3-4 year bond represents about the time scale for my outlook and also has the automatic fallback of letting it run to maturity to collect the face value if my view is proven completely wrong.

canuckdownunder

Looking at Sydney my initial prediction was units down 30%, houses 50%. Based on popular sentiment these last few weeks, reading comments on social media, etc. it’s clear I’ve overestimated the intelligence of people and we’re going down ever harder. Minimum 40% units and 60% houses.

Even here people seem to think that Joe Pleb is going to get bailed out. Why would the elites care about him and his ilk? It’s not the rich who are overweight property, they are well positioned for what’s ahead.

No, rates are not coming down next year, and prices falls are not stopping at 10-15% (look at local listings – in my affluent Sydney suburb we’re already down 10%+). Buckle up!

Aussie Soy Boy

Maybe at the top end of the market in a market like Sydney you have huge falls.

I think some of you forget what the average Australian earns, unemployment low, Australia is a commodity country, self sufficient for food, huge energy reserves apart from oil.

Not to mention in a high inflation environment the average Australian full time wage will probably be $150k in 6-7 years.

Coming

The top end is still booming in Sydney

I mean 10m+

these people should surely be in the know

given the 10yr has nearly hit 4%, does it not imply that they know that wage inflation is going to happen

Freddy

I think some of you forget this is not 70s. There is no abundance of wealth sitting in a previously gold backed currency scrambling to buy assets. There is no union power. There is no unemployed house wife prepared to work to counter rising mortgage repayments. It will be very different this time around.

Peachy

I sense that Freddy is right.

the big easy asset price supports, such as second earner entering the workforce, have all been used/spent. Peeps are more stretched now, with multiple jobs & there is little reserve.

the remaining stuff is much harder and more artificial. super access, quadruple grants, stamp duty waivers, incremental demand squeeze through migration. These are all nice, but they are very poor substitutes for a reduced mortgage payment. A reduced mortgage payment is what is really needed.

so the things that would be in play to counteract rising rates, from a financial engineering perspective are:

  • Deductible mortgage interest
  • shared equity schemes, at scale

or – back to “lower teh rates”.

The other alternative is a serious wage breakout (ie way beyond CPI inflation), but I would rate that as a remote probability.

Coming

Lower the rates is the key factor here
PE/rent multiplier

everything else only helps a bit at the margins

and I don’t think we’ve really understood the cause for the inflation

wages haven’t really gotten that far according to official data ?

so how much of inflation was
-“money printing”
and how much of it was
-supply chain / Russia

on the money printing side I feel the jury is out
long bonds didn’t really go anywhere while the fed was doing it’s QE
Only really took off after the Russia stuff

if it was mainly supply chain / Russia then rates depend on a detente

maybe the west concedes and makes nice

maybe Putin dies or is couped and western puppets take over

maybe Xi gets pushed out, the Covid policy gets abandoned

lots of political possibilities in play that would suddenly/dramatically reduce inflation , and rates would suddenly go down and house prices up

Coming
Totes

Isn’t this more of the same?

$900k NSW house buyer, now has $36k (times leverage) more in their pocket going to auction.

Last edited 23 days ago by Totes
Ramjet

Minus a small recurring expense as part of serviceability.

Ramjet

Incremental demand squeeze by migration will have an impact, but initially through rents. Rents have been increasing and this will cushion investors. With rents increasing and little rights, some will buy into the market. Won’t help the top end of the market unless we make the golden visa easier to get.

Freddy

Peachy, I am not totally disagreeing with your sentiment. No doubt some things may be tried at Fed and State to support house prices.

All I want to point out is that RBA is attempting to destroy the possibility large wage rises by killing demand and raising the unemployment rate. Anything that would result in wage rises, or more disposable income (such as deductible mortgage interest) will be met with much higher interest rates.

I also feel that Fed govt knows that the more slaves they rush into the country to undermine wages, the less rate rises. Fed will only do their bit to make life a bit easier for those on minimum wages.

I would not be surprised to see Fed govt mortgage bonds make an appearance as they did briefly during the 90s. Get all the people in mortgage stress on a long dated fixed interest loan at lower rates.

Last edited 23 days ago by Freddy
Aussie Soy Boy

We’re going to get wage inflation, just not like the 70’s where unions tried to maintain wages to cost of living. People will have to get used to buying a lot less for their dollar but they will get paid a little bit more.

A Hilux is $70k these days, Landcruiser with all the fruit $140k. Cost of building a house must be up 50% or more in two years.

But a house you can live in (or rent out and earn some money) on land (which they don’t make anymore) in a country a lot of the world sees as a somewhat insulated safe haven, economy that is insulated (and will even benefit) in a world with high food, energy, mineral prices, we’re going to have house prices slashed in half?

Can’t see it happening. Plus to most people home ownership is something to aspire to so you don’t have a property manager going through your shit making sure you did your dishes and made your bed.

emusplatt
Stewie

As I’ve long maintained, the easiest way to fix mass migration is to build a housing commission tower block next to each compound owned by Lowy, Triguboff and any relative of Amanda Vanstone, then fill them with African diversity. Then continue buying and building housing commission tower blocks next to every property any of the above or their relatives move to ever afterwards.

Xxxxx

House prices will be zero because of the imminent collapse of the debt based economic system. I am not a financial expert but a behavioral scientist.They would not be so open about a new economic order if that weren’t so. They don’t care now about what we think or what we want. They are just going to implement CNBC and have total control of our money and our lives – did you even hear what the wef was saying at Davos recently ? The jabs are just the bankers coming for our pound of flesh. All debts will have to be wiped and they don’t think debtors deserve to live about this

Aussie Soy Boy

Calm down houses are not going to zero LOL

will the be “negative”, like the interest rates?
😄

Coming

crypto is tanking right now

btc under $26,000 at the moment

as usual there’s a tether rumour floating around

bjw678

Has any of these tether rumours proved true?

Coming

Well that escalated quickly

how is the ezfka Wealth Peachy fund going ?

Peachy

Looks like Stewie might win his Bitcoin back!

Stewie

Huh?

Peachy

i mean Bitcoin might finally dip below $20k… 😋

Stewie

Yah – it’s just taken longer than I thought. I really can’t see it stopping before it gets below $5k.

Interesting that Celsius (and BlockFi) which mentioned in my last crypto post just before Christmas, looks like it is on the verge of imploding. The fall out from UST and Luna all but guaranteed it.

Everything I’ve been saying will come true, it is just taking longer than I imagined.

Aussie Soy Boy

To build new houses the cost of material and labour has probably increased a minimum of 50% in two years.

Peachy

5%, huh?

that is rather a big number for one day. Should be fun!

Peachy

That was a bit painful to watch. Crazy John is just not a great presenter. Although he is much better than I remember he used to be back in the day.

I couldn’t work out whether he was saying that the Fed would actually

  • sell down bonds and RMBS at $XXb per month; or
  • just let $XXb per month mature without reinvesting the proceeds.

the latter seems more likely to me, but I’m too lazy to check what the Fed actually said. In some sense, I suppose it doesn’t matter all that much in aggregate, if every month they shrink their holding by $XXb.

this video did get me thinking about the idea of whether the cash rate needs to be jacked up above the inflation rate in order to squish inflation. My feels is that even if this was needed in the past, it’s probably no longer the case.

ill do a separate comment on that just below.

Peachy

video did get me thinking about the idea of whether the cash rate needs to be jacked up above the inflation rate in order to squish inflation. My feels is that even if this was needed in the past, it’s probably no longer the case

here are my thoughts:
first – we assume that somehow the current inflation can be squished by interest rates. This is debatable in itself, but it’s not what I want to comment on.

I want to compare the current episode of inflation with the historical ones.

I sense a couple of differences:

  1. historically, total debt value (to gdp) was lower
  2. historically, the big amounts of debt were in businesses; currently, the big amounts of debt are in the households

from point 1, adopting a cashflow view (as ultimately everyone does, both businesses and consumers) I think it follows that lower rates of interest today will have the same braking effect on behaviour as higher rates of interest previously.

from point 2, I think that the mechanism of action of interest rates is now significantly different. Previously there’d have been a significant element of interest rates placing strong pressure on businesses … businesses that were otherwise expanding and offering higher wages to attract and retain staff. Hammering the businesses (sometimes right into the ground) relieved the wage pressure in part by creating unemployment.

presently, interest costs will hit the mortgage borrowers. This will spank demand for everything …and also ultimately create local unemployment.
This effect will be much quicker, because gearing is higher AND consumers are much less resilient than businesses. Businesses have balance sheets that can absorb some pain and have the ability to try to trade through. Consumers have no balance sheet, they are pay check to pay check. They are more pure cashflow machines.

the other thing now is that the wage increases now are measured in bees-dicks.

these are my thoughts. These are behind my feels of why I think now is a decent time to buy some bonds, as there’s a good likelihood that things will break and then the interest rate doves will swoon.

Coming

theres another point of view that states that higher interest rates will INCREASE inflation

First, by discouraging investment into capacity expansion (particularly oil exploration and drilling)

Second, all those reserves/not money printing that the fed created will now earn more reserves in interest (which are also created from nothing)

Did you ever look at that link I sent you

Peachy

Did you ever look at that link I sent you

can you share the link again? I probably read it…..but often I read long pieces a number of days after they are posted and by then it’s too late to go and reply to the comments.

theres another point of view that states that higher interest rates will INCREASE inflation

First, by discouraging investment into capacity expansion (particularly oil exploration and drilling)

Second, all those reserves/not money printing that the fed created will now earn more reserves in interest (which are also created from nothing)

This all goes to my initial assumption that interest rates can do anything to inflation at all, at the moment.

certainly Australian rates won’t do fucking shit to the amount of drilling etc.

Aussie Soy Boy

I think the 500 goes to 3400 if it can’t hold 3800. I bought SDS at $45.23 as a trade. We’ll see how it goes.

Coming

Pjmat

June 14, 2022 at 3:29 am

bcn here

When I said a year ago Aust 10 year would go to 3% when it was 1%, I was laughed at

Look how quick it’s moved up to 4%

We are near the top now but they’ll print more money because they have nothing else

We are going to have a serious recession & downturn, the biggest housing crash but there won’t be much of a bounce back

If you were old enough to see late 1989s mortgage rates were 17%, you are going to see rates keep rising 

My guess is over the next 5 years you’ll see rates higher than 1980s 25% this time, going to see inflation well above 20% maybe 30%

You’ll never get a buyer for many houses

Prices will fall min 60 to 90%

You are going to see a commodity super price boom beyond imagine

Petrol $10 per litre, 3x the cost to build compared with pre pandemic

How does the maths work 

You can borrow 75% less but building costs 3x

Say good bye to the big 4, they won’t be here this time next year 

Good luck !!!!!

PS bond yields near the highs for the time being

Don’t get caught up in the hype

The ones that were saying at 1% IR we were going to 0 will now say we have a long way up to go

They always all do the same thing

RBA doesn’t set interest rates the market does,that should be obvious now !!!!!

I tried to tell you how fast rates would rise

Not much more upside.

You haven’t see anything

I think we will get well into 20s, 30s% interest rates 4/5 years out

We have labor in we will see MMT & RBA has no say

The market determines int rates in inflationary periods

All this shxt RBA won’t let it happen, bond market dictates

What I got wrong, I didn’t know the 1,2,3 year bond would go as high, I kept saying 10 year & 4 or 5 year fixed rates 

I just can’t possibly see how the banks can’t raise the variable up 1% here without RBA 

All variable rates should be min 3.5% to 4% & fixed will have a 6 handle soon 

4 & 5 year fixed rates will start falling first, from 6s down, they’ll have to 

My first job out of uni was a bond money market dealer in late 1980s

I saw companies paying 23 to 25% just before 1990 recession

You’ll see a 30 handle this time but 4/5 years out

Big hike in fixed rates coming 

You’ll see a 6 handle soon. Don’t think we will get to 7% on fixed rates just at the moment 

RBA has no say, bank funding costs are skyrocketing get ready for big out of cycle hikes

But it’ll be labor bailing out the banks similar to Rudd

My concern on bail in bail out was who was in government

Think they’ll protect everyone to $250k here like FDIC $250k

Above that is at serious risk

They’ll close the banks to restructure, take away offsets & can’t see them protecting people with $1M etc

Let’s see who knows what idiotic plan they come up with

Labor will do MMT Job keeper helicopter money etc

Won’t be hyperinflation like Zimbabwe we but will we see 20/30 plus % inflation

Will be very hard to borrow money in the future

Not sure what solution they’ll come up with, merged national entity

RBA will do unlimited QE to try & save the financial system & keep people employed but we are going to be fcked with out of control inflation 

Need to own gold our currency will be worthless = you can’t even use for toilet paper

Really like BTC & Ethereum both great value, might have to wear some more volatility but pretty good we’ve fallen 70% 

IMO I think crypto is good value here

The sun king returned to MB in triumph this morning !

seems like he changed his username , did they really ban him (again) ?!
Skin is paper thin over there

anyway what does everyone make of this ?

a bit incoherent , but I think he’s saying that rates won’t get much further before there is some kind of credit crisis , then we will get more QE/money printing, and the whole system will collapse into hyperinflation ?

it suffers from the MB effect in that it’s not quite internally consistent

Freddy

BCN is a good story teller. A bond trader would understand why rates were so high. In the late 80s wages were rising 10-15% pa. House prices doubled between 1987-89. This is the period that Boomers went for gold having already paid off their mortgages early due to persistent wage inflation, then accumulating their portfolio of IPs.

To get rates at 25% it is implying wage growth of 15-20%+ pa. I suspect union bosses would be in prison before they had the chance to get that kind of wage growth. In any case, I don’t know how house prices can fall 90% vs that kind of wage growth. Maybe in real terms. Nominally, they might briefly fall hard before taking off like a rocket as soon as wages catch up to repayments.

Peachy

case, I don’t know how house prices can fall 90% vs that kind of wage growth. Maybe in real terms. Nominally, they might briefly fall hard before taking off like a rocket as soon as wages catch up to repayments

yeh, for sure. If we see 10%++ wage growth (or even 7%, say, for a number of years), then a $1.5m house is going to look cheap pretty quickly.

and unless lending is restrained (which perhaps it might be, but that’s not where the trend has been) nominal prices will be supported as the wages catch up.

Coming

yes, that’s why its not internally consistent
(like the MB thesis of zero rates and a house price crash)

what doesn’t make sense to me is the theory that higher prices lead to wage inflation as workers demand more money to compensate

smells bullshit to me in the same way that the housing bull theory of higher interest rates lead to higher rents does

Workers will always try to get the highest wages possible, and landlords the highest rent possible, regardless of prices and interest rates
Then it comes down to supply and demand surely

I don’t really think we have seen any major wage growth yet, and not really sure there is much on the horizon though it would be the best way to escape from the current doom loop

Freddy

the theory that higher prices lead to wage inflation as workers demand more money to compensate

There is a link there which is why the RBA would be panicking. Unions pushing for inflation linked wage increase at Federal and State government.

the government argued the wages should not go backwards, following the consumer price index rising to 5.1 per cent”

Labor Anthony Albanese back 5.1% minimum wage rise Fair Work Commission Australia | Daily Mail Online

PSA general secretary Stewart Little says government worker wages should rise in line with inflation”

NSW public sector employees strike for 24 hours over 3 per cent wage increase offer – ABC News

Peachy

There is a link there which is why the RBA would be panicking. Unions pushing for inflation linked wage increase at Federal and State government.

yeah, there’s an abstract link

but the practical link, these days, seems rather tenuous.

in the old days when stuff was manufactured locally, the higher prices could feed into higher wages. And higher wages into higher prices.

now when stuff is predominantly imported (set aside food, which is produced here*)

so where are those wage rises going to come out of? Possibly profit margins? In itself that may be a positive distributional effect, but it ain’t the same mechanism as in yesteryear.

*
in food there is a separate disconnect between prices and wages: wholesale prices are held low by the duopoly; wages are low paid to imported coolies

Freddy

I agree. The wage/price inflation spiral is not what it used to be. I doubt RBA’s models are that sophisticated.

Coming

why would they not have striked for a bigger share when profits were booming?
Now they’re getting crunched by falling demand and higher material costs

It doesn’t really make any sense, but I guess unions and workers aren’t rational either

Peachy

why would they not have striked for a bigger share when profits were booming?

Because they were at all relevant times (even when profits were booming) in a precarious position, effectively expendable.

Coming

Seems like there’s never been a more precarious time than now to lose your job when a lettuce costs $12

Hoody

So true.

FVJsTN7WIAE4lYs.jpg
Peachy

Lol 🤣

A fly in your ointment

👌

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