Max Keiser interviewed me for his 4th Keiser Report when I was in Paris earlier in December. I come in at about the 13 minute mark after Max’s banter with Stacy:
It was a great interview–Max had about ten questions prepared, but only asked about 3 of them because the conversation flowed so well.
We also recorded a program on what 2010 may bring for markets and economies for BBC Radio 5 Live Breakfast; the program will go to air on New Year’s Eve at 10PM London time.
December 20th, 2009 at 1:51 pm
[...] This post was mentioned on Twitter by greychampion, John Hacking. John Hacking said: Max Keiser Interviews: Max Keiser interviewed me for his 4th Keiser Report when I was in Paris earlier in Decem.. http://bit.ly/55XHUp [...]
December 20th, 2009 at 3:46 pm
Dear Dr. Keen, So, you are saying that asset inflation is caused, completely, by bank lending becomes too loose, for one reason or another. So it is up to the banks and their borrowers, cumulatively, as to whether we get asset inflation in a particular asset class – houses, or commercial real estate, or stocks or even commodities (all that is required is that banks, cumulatively, are willing to over-lend in that asset class, and people, cumulatively, are willing to over-borrow). Which of course is due to over confidence on the part of both parties based on the events of the recent past.
But what about price inflation? Is that the banks over-lending again? For consumption loans, to buy cars, and run up credit card debt, etc, leading to to much manufacturing production etc? I guess a housing or commercial real estate bubble would also spill over into price inflation, too, if the banks were willing to give lots and lots of construction loans to builders.
So that’s it, all inflation of all kinds is caused by bank over-lending and borrowers over-borrowing based on excess optimism?
What about foreign exchange? How does that fit in? If the dollar depreciates a lot vs the Euro, (or, excuse me, the GULFO
) would that cause domestic price inflation because of a big jump in the price of oil?
December 20th, 2009 at 4:49 pm
[...] genuinely puzzled by Steve Keen. He correctly, brilliantly, diagnoses the problem – unsustainable growth of [...]
December 20th, 2009 at 4:54 pm
The physical economy brings in other issues dlr,
Specifically money wages, labour productivity, and the markup firms put on their products. Rising labour productivity is deflationary, and the other two normally balance it in the other direction. But in the abnormal circumstances of a debt-deflation, firms’ attempts to secure some cash flow to service their debts can lead to a general trend to reduce markups, while high unemployment can lead to low wage rises or even wage cuts.
Certainly during the bubble phase, bank lending plays a role in financing both money wages and high markups; but during the deflation it’s powerless to do either.
December 20th, 2009 at 6:24 pm
Hi all (newbie so go easy),
Apparently we have a housing shortage (I’m sure there’s folk on this site that would dispute this).
There are new apartments in my neighbourhood (clearly not Sydney) which are priced at approximately 3.6 x average income (before tax). Does anyone know if the long term average house price of 3 times income is calculated on the before or after tax income?
What then could be the problem with financing the production of a new home at this level of debt? It is inevitable that Australia’s population will grow. My (limited) experience with traveling overseas is that Australia is quite sparsely populated and undeveloped. With our proximity to Asia, clean environment, high living standards, and respected legal system it would seem natural that the population density will increase (perversely to the detriment of those things).
I guess my point is that perhaps the financing of new homes at reasonable prices will lead to people downsizing to smaller more affordable properties. We do have big block sizes compared to most of the world (especially Asia). Are our houses too expensive, or are they just plain too big? Maybe it’s both.
Tross
December 20th, 2009 at 10:01 pm
“Up And Away” – good observation (sorry meant to post here)
I think the Vic Teachers Credit Union is great, which is why I bank with them.
And they have a thing called “real service” as opposed to ‘telstra type’ service.
December 20th, 2009 at 11:45 pm
Karmaisking,
I don’t know why Steve is not an Austrian. I can write why I am not a follower of Austrian School of Economics despite having some sympathy to liberal thinking.
Free market reforms which resulted in the recent rapid growth of GDP in Poland were inspired to some extent by the Austrian economics. Prof Balcerowicz who implemented them is one of these mainstream politicians and economists who are the closest to the Austrian school:
http://blogs.ft.com/capitalismblog/2009/05/14/this-has-not-been-a-pure-failure-of-markets/
The following graph shows that prof Balcerowicz achieved a spectacular success. Despite the recession the economy remains strong even in 2009.
http://www.indexmundi.com/poland/gdp_real_growth_rate.html
However the price paid by some members of the society for the rapid growth of GDP is described in the following article:
http://news.smh.com.au/breaking-news-world/freezing-weather-kills-15-in-poland-20091220-l7kb.html
Frost is not unusual in that part of Europe but homeless people have a little chance to survive when they sleep outdoors at -20C.
December 21st, 2009 at 12:22 am
Obviously the de-industrialisation Steve refers (in the interview) applies to Australia as well. Even key resource projects (eg Gorgan) are being supplied and engineered from elsewhere.
I wonder how much “globalisation” has contributed to the current situation in the western world?
I have never understood how Australia preaches and pursues “free trade” in every commodity except labor. Not sure where to start with the interactions between currency values, living standards, environmental rules, political freedom and union representation, tax rules, education etc vs production location. However, something doesn’t smell right to me.
December 21st, 2009 at 3:47 am
@Steve Keen,
What I think dlr is talking about are two observable trends. This is different depending on which country we are talking about. One is deflation in assets bubbles. Real Estate, Bonds, Debt, Shares. The other is inflation in food and necessaries. For Australian rents are rising. For American rents are decreasing or staying level but those who loose there unemployment insurance become destitute.
@Tross,
In Australia about 8 percent of houses are unoccupied. I would presume that over 20 percent are under occupied. Australia faces a crisis in rental properties due to the investment in the Australian Housing bubble. This forces those on lower incomes into a tighter market of cheap rentals. Look at the waiting list for a Department of Housing houses. 11 years.
@Wagas,
“I wonder how much “globalisation” has contributed to the current situation in the western world?”
Globalization has allowed the price of manufactured goods to rise in price by a much slower rate as First World nations de-industrialized. Example, China.
Globalization has also allowed the rise in price of services to rise in price by a much slower rate due to outsourcing. Example, India.
Globalization is the name they gave it when the power of monopolies became grotesque. Globalization seems more unifying than Multinationalism (sic). The real function of globalization is to allow the transfer of wealth to a smaller pool of the very rich.
December 21st, 2009 at 3:51 am
China has it own real estate bubble.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aqiNuxetDZbg&pos=15
“China’s asset markets are a Ponzi scheme,” said Xie, now a Shanghai-based independent economist. “Property is heading for one huge bust that will take a year and a half to unfold.”
“China risks a “similar asset bubble” to that in 1980s Japan unless lending is reined in, Erwin Sanft, head of China and Hong Kong equities research at BNP Paribas, said Nov. 23.”
December 21st, 2009 at 6:47 am
“I don’t know why Steve is not an Austrian.”
Steve is definitely AustrALian. It’s a common mistake. Australia is a bit south of Austria, is warmer and wins more Olympic medals.
December 21st, 2009 at 7:18 am
Ah! Bonzer mate! At last someone has twigged!
D’ya think I could start a new school of economics called Austrine economics? -:)
December 21st, 2009 at 7:47 am
Hi Alan,
Isn’t what you describe just a simple supply and demand problem. If properties are unoccupied and people can’t afford to rent places to live, then isn’t the solution that landlords will be forced to lower their expectations of rental return in times of desperation?
Tross
December 21st, 2009 at 8:02 am
Dear Dr. Keen, Thanks for your reply. If I could ask, to clarify this in my mind, what do you think caused the ‘inflation’ part of stag-flation of the 1970′s? One side says, “it was due to the sharp increases in the price of oil. The price of oil being such an important component in the price of most goods, it’s price increase then rippled down the supply chain, and caused increases in the prices of most other goods which led to workers striking for higher wages, and that kicked off a wage price spiral.” The other side says, “there is no way the increase in price of a single item -even something as crucial as oil – could cause general wage inflation. An increase in the price of one set of commodities would result in a decrease in purchasing of many other items, leading to a decrease in the price of those items. Some things would become more expensive, other things would become less expensive, but the general price level wouldn’t change. The only way for the general price level to change is an expansion in the total amount of money (and debt of course, as you have pointed out). ”
Which side do you agree with? Or do you think they are both wrong?
Thank you for helping to clarify this.
December 21st, 2009 at 8:33 am
They’re both wrong dlr. To understand it, you have to put it within a context of endogenous money–as Basil Moore did back in 1979. The money supply expands in response to changes in the financial demands of firms–or it does except during a debt-deflation, which is where we’ve got ourselves to now.
The early 1970s were a high point in both employment and economic activity–since then we’ve been on a Ponzi path. At that time, unemployment was extremely low and demands for increases in money wages very high. Ditto the demand for oil and the bargaining power that gave to OPEC. Those demands were both met by an endogenous expansion of credit, and then passed on via an increase in prices. So the causal cycle goes from prime costs of production–both wages and the essential non-produced means of production that oil is–to demands for credit and then prices. That was the inflationary part.
The stagflation was due to the bursting of the first major debt bubble of the post War period–or actually the second if you include the Penn State crisis in 1966. So we had the combination of a debt crisis and high inflation giving us low investment but quickly rising prices that reduced the debt burden. This is most apparent in the Australian data with the debt bubble in 1972-74 that, had it continued, would have given Australia a debt to GDP ratio of over 100, versus the 1.65 ratio we peaked at in 2008. That was the “stag” part: the bursting of a debt-financed partly speculative and partly real production boom.
If you make up a “truth table” with Debt on one axis (High/Low) and inflation (High/Low) on the other, this event fell into the High Debt/High Inflation box; high inflation to some extent counters the impact of high debt (and deleveraging from it it).
We are now in the High Debt/Low Inflation box–a far more dangerous location.
December 21st, 2009 at 9:50 am
Tross,
The main issue with housing bubbles is that people chase the areas which they believe will provide the greatest chance of capital returns.
The situation you have described where you have homes/apartments at 3.5x income is that these areas may not be seen as highly desirable either due to poor location or poor underlying economic opportunities (sorry!!) and because of this the speculative money stays away.
With regards to rentals, some speculative investors would rather sit back and accept the chance of 10%+ growth each year and forgo the pittance received in weeky rental thereby reducing the ongoing costs and risks of having some unknown quantity renting a 2 bedroom apartment they have just paid $500K for.
December 21st, 2009 at 10:17 am
Tross,
Spot on.
I simply can not buy the argument we have excess supply while rents continue to rise in real terms in almost every capital city. While I’m sure there are examples of oversupply in certain locations, in places where there are diversified work opportunities,and access to infrastructure (choice of schools, hospitals, nursing homes, public transport, etc) there is very strong evidence of under supply – check out the link below.
http://www.housing.nsw.gov.au/NR/rdonlyres/E0860E81-0637-425B-9CEA-5B0E32DE8F00/0/Rent_Report89_09q3.xls
DebtJunkies
In the past one could make the argument that speculators deliberately refuse to lease their property but claim tax deductibility on interest and maintenance & just accept the capital gain. However this argument is getting hard to sustain. With new the new tax laws (which came in in 2006 from memory), investors are highly incentivised to place properties on the market to lease.
December 21st, 2009 at 10:40 am
Supply and demand is important but the debt servicing requirements trump market forces so rents will be reflective of the out lay which is not what something is ‘worth’, just what has been extracted (what a great self feeding cycle – lots of ‘positive’ feed back).
Although a little ‘dark’ the below overview by VK at The Automatic Earth had me ticking a lot of boxes about next year.
Moz
http://theautomaticearth.blogspot.com/
December 21st, 2009 at 10:49 am
Tross & bb
This is a good area with excellent schools ie Rossmoyne, All Saints and Willetton SHS. You would have thought that it is a near zero vacancies.. but try this link and you will see how many houses are available..
http://www.realestate.com.au/cgi-bin/rsearch?snf=rbs&searchFormSource=advanced%20search&a=s&chk=0&pme=any&tb=BULL%20CREEK,bateman,brentwood,WILLETTON,ROSSMOYNE,SHELLEY,RIVERTON&u=RIVERTON&cu=fn-rea&pxe=any&t=ren&s=wa&p=10&o=p
That resolves the vacancies augument!!
2) The price near the Canning river is high but it’s the location. You can still find the circa $400ish mark to rent.
In support of DJK’s argument, there is no vacancies problems. If there is, come and invest here. My crummy 35 yo huose has just gone up by $100k(within 9 mths), thanks to the FHVG not the FHOG. Trust me, against my own interest, the whole thing is a ponzy scheme…. especially with the Gorgon project coming up!!
December 21st, 2009 at 10:54 am
Moz,
Can not agree.
Rents will rise to the point where cost of production is justified. This occures when PV (present value) rents = cost of production. In my view, we are at this point now.
This is supported by the fact that builders and developers have been generating very poor returns depsite the so called “bubble”.
Price and rent growth have now encouraged greater supply. See link.
http://www.abs.gov.au/AUSSTATS/abs@.nsf/mediareleasesbyReleaseDate/8F919D91E9992461CA2568A9001362B8?OpenDocument
December 21st, 2009 at 10:54 am
Oh just forgot to mention, that link above exclude what DJK said about empty houses. There are plenty here and the landlord just can’t be arse to rent it out due to the problems relating to renting..
The Ponzies are winning at the mo.. but for how long???
December 21st, 2009 at 11:02 am
Debt2death,
Thanks for the link, but to be honest it does not tell me anything.
I can not talk about this Rossmoyne, but you will find most houses listed for lease are not immediately available. Around +90% of all lease listings are for properties already leased, with expiries due anytime over the next six-ten weeks. Hence a link like this provides no real evidence of vancancy.
If there is such huge over supply, why are rents increasing? Is there a Ponzi Scheme in the rental market too?
December 21st, 2009 at 11:10 am
There you go, put your money where your mouth is.. come and buy here!! Or at least tell your mates to come and buy here if you think that there is a vacancy problem..
I use to produce figures for governments.. lol.., pick a figure in the air that pleases the boss and than work backwards.. So much for my believe, good luck to yours.. Like I said before, free country, believe what you like!!
December 21st, 2009 at 11:16 am
Debt2death,
Like I said, I can not talk about Rossmoyne – I simply do not know the area.
But I do put my money where my mouth is. I am an owner occupier & have a mortgage.
It sound like you own your home too. Can I ask why don’t you sell and rent? If you are right you stand to make a significant gain.
December 21st, 2009 at 11:17 am
debt2death
Don’t you only have to look at the rental vacancy rates to see that there is a housing shortage? Melbourne’s vacancy rate is at historic lows – less than 1% in many suburbs – so how can there not be a shortage? Or am I missing something?
December 21st, 2009 at 11:51 am
Come on guys,
Surely vacancy, under/over supply will jump around for different areas. Renters and landlords are subject to the same herding pressures as owner occupiers.
In the short term, rents and house prices can rise in lockstep. I have also observed times when they have diverged. Simply using the idea that supply and demand determines price, doesn’t explain how the correlations can change.
If the renter herd fears missing out, they will pay more for rent and prices will rise. If this herd feels that the tide is turning their way, they will offer less or hold out for a better deal. The same is true for the landlords. If they feel that the market is hot they will ask more and hold out for more. I strongly believe these divergences and seeming correlations are much better defined by how the market players feel as opposed to the perfect information that they supposedly possess.
All players in the market have different theories, information/lack of, needs, desires and underlying beliefs.
I have heard quite a few people mention lately that they have sold investment properties as they wanted to reduce debt. Yet I have observed many owner occupiers compete over crappy product and pay IMO ripped off prices using huge sums of borrowed money.
This process is call distribution. Swapping from strong to week hands. This process signals a top IMO. But maybe that’s just what I want to see.
December 21st, 2009 at 11:53 am
bb, you ask,
“1) Can I ask why don’t you sell and rent?
2) If you are right you stand to make a significant gain.”
Answer to
1)I have kids in Rossmoyne SHS that is doing very well. If I sell, she’ll be kick out of the school(very long waiting list for out of catchment). That means a load of hastle for a net $60 k (ie after legal, agency and moving cost). I’ve kids at Curtin Uni(stone throw away) which is also doing very well.
1.1)If I sell, I will have to rent, although there are plenty of vacancies, I don’t wished to ask permission to put a nail in the wall.. get what I mean!! I like my own independence.
2) I don’t think that owner-occupiers are ponzies, owning your own home is a human-right ie a roof over you head. Buying extra houses for spectulation purposes is ponzing!! The last person that holds the worthless title is the ‘bag that got scummed’
If you are like me(taking the liberty to assume), than you are not ponzing as such.. you just want your little castle, somewhere you call home, renting or owning. That’s the big difference.
Yo
Like DJK just said, it depends on the areas you want to be in. It differs from areas to areas, plus the rate of change of ponzi investors coming into you area at a certain point in time. Gorgon project seems to attract ‘flies’ to Perth. Their first choice is locations, than good schools. I don’t live in Melbourne, so imho I’m ignorant of the truth surrounding your area.
People wants to see what they want to see and believe in their own self-perpetuated illusions… that’s all I can say. Think dynamics.. and ‘look before you leapt’ is my advice.
December 21st, 2009 at 12:18 pm
Hi bb,
I don’t think we will get far by debating because we seem to be starting from two very different points. In terms of developers being your measure of a bubble or not. I think that this measure did signal the end of the boom. But the end was not where you are looking.
The following information is anecdotal and has been gathered from industry sources and my own observations. So choose to reject it if you desire.
In regional NSW most medium sized developers that started projects after 2003 have lost money and many of those remaining are in trouble. This could possibly signal that the strongest part of the boom ended in 2003. In Sydney many projects that started after 2003 had difficulty. Success was patchy. Some previous bubble areas were very bad and some of the luxury areas continued their winning ways up until spring 2007. Most markets have had a bounce back in 2009, but many of the leveraged developers have gone under or are heading that way as sales have taken too long to materialize. Also the high rates of ’07 through to late ’08 chewed up most of their potential profit. The main reason developers have struggled is because land prices were booming hard into 2003 and they all over paid for sites that they couldn’t realise on.
I am not as familiar with the following markets, but I am informed that Queensland’s boom continued until 2007 and even early 2008. Also Perth’s boom continued well into 2008. I am now informed that there are some very big skeletons in those two markets.
The take away from this is that in NSW most of the developers have been working off their inventory and reducing risk or going broke since 2003. As such it is very unlikely that this sector will cause a property crash. QLD and Perth may be different though.
What has been happening since this time is a ponzi game centred around existing housing. Private debt levels have been rising and people have been willing to compete with each other over the existing houses.
If the buyers and owners get nervous or fear that their debt levels are too high. Prices will fall regardless of their being new stock coming on or not.
1. Ability to pay (being able to raise enough debt) and
2. Desire to buy
Are much stronger determinants of price than supply which takes 3 or 4 years to come on stream.
Prices clearly fell in NSW in late 2007 through to early 2009. This was because of the above two factors I mentioned. The falls had nothing to do with new supply which had been dwindling for 3 or 4 years.
It is not unusual to have the strongest part of the boom over well before the final high is made. This occurs in stock markets all the time. The relative strength of a move in either direction is usually strongest in the middle. The final move that makes the extreme is usually on waning volume or diverging behaviour. When all markets are involved and moving in lockstep, it is usually a sign that the trend is solid.
December 21st, 2009 at 12:41 pm
One suburb example
http://realestateview.com.au/propertydata/vic/kew/index.html
http://realestateview.com.au/real_estate/kew/rentals/
abs private rental properties = 2173
REIV ~ Advertised available for rent = 124
Vacancy = 5.7%
Check SQM research and you will find all this “1% vacancy hysteria” is pure fiction ~ a marketing scam and some individual ‘prosecutions’ by the office of fair trading would be a good idea…
Vacancy rates are @ 3.5 – 4% and rising
http://www.sqmresearch.com.au/
http://www.sqmresearch.com.au/graphs/graph_vacancy.php?region=vic%3A%3AInner+East+Melbourne&t=1
December 21st, 2009 at 12:49 pm
Debt2Death,
Thankyou for your post.
I (like you) have a child at the local school, so even if my house was over-valued, I would not sell. At a certain time in life, stability becomes more valuable than returns.
I guess this is why younger people are more likely to question house prices. They are more inclined to move around, go overseas, etc. and therefore look at rents versus buying, and conclude renting is more sensible.
As we get older, the decision becomes more complicated. This is why I do not expect house prices to fall in any material way in well located areas.
December 21st, 2009 at 1:14 pm
Hi BTB,
Thankyou for your post.
For the record, I would never simply reject someones observations (unless I mistrusted the source). I am here to learn. If I disagree, i will say so and point out my reasons. If I am wrong, then I am not dissapointed, since it means I have learned.
I am by no way a housing bull. However, I beleive the housing bears have three very important questions to answer before I am convinced.
1. If there has been a housing bubble over the past ten / twenty years, how can developers be going broke. Surely land returns have been > cost of funds which must be the first rule of a bubble. And why have retuns on capital (ROC) over the long term (10 years) been, at best, average. Note Mirvac ROC has been 10% since 2000. This compares to the average 10 year bond rate of 5.5%
2. If there is a bubble, why no sharp increase in supply like the US in 2005-2007? I do not beleive supply is constrained. It takes 10-15 weeks to build a house on serviced / zoned land and there is plenty of that (I will not bore you with the links).
3. Rents are growing. This is very hard to do when there is excess supply (just ask any commercial landlord – Sydney CBD rents down 20%!)
I’m sure there are lots of anecdotal story’s like yours which can explain these discrepencies, and those story’s will be hard for me to dispute.
However, for me, the Bear case is far from compelling.
December 21st, 2009 at 1:33 pm
Peter_W
Your links to Kew does not tell me much. Dwellings for lease are not necessarily vacant.
I learnt this 10 years ago. I was about to renovate my apartment and needed to move out for 6 months. I looked at domain and realestate.com and saw there were about 100 places to lease in my area. So I waited until the last week to organise a lease.
When I started calling agents I discovered almost all properties were occuplied and were avaiable for lease at some point in the future (some in two weeks, some in three months).
I was caught.
“For Lease” property does not always equal vacant properties.
BTW, I think your last link showed vacancy rates (2.9%) have declined since 2005.
December 21st, 2009 at 1:46 pm
Hi Steve,
Happy Xmas. Nice job on the Max Keiser clip. When’s your next interview on?
December 21st, 2009 at 1:47 pm
bb
If you look at this 2009 report there is a lack of supply in california.
http://www.hcd.ca.gov/HousingNeeds090809.pdf
My question would be why is there so many reports right from 2003 stating california has a serious under supply which ironically also seems to be going through a severe price deflation.
December 21st, 2009 at 1:50 pm
Steve,
Excellent interview!
But my head is still spinning from the psychadellic and hypnotic Keiser backgrounds.
Now where are my anti-nausea drugs …………..
December 21st, 2009 at 1:59 pm
pb
I think the California and Aus markets have possibly had very similar housing affordability issues – tight supply and high prices. The only difference is that California now has a major consumer fear of debt in the face of rising unemployment, and so house prices are dropping. Aus also began to fall at the start of the GFC but were turned around and propped up by the FHB boost and now by a return of consumer confidence.
December 21st, 2009 at 1:59 pm
Citydoc,
Max Keiser broadcasts on the RT network.
http://en.wikipedia.org/wiki/Max_Keiser
http://en.wikipedia.org/wiki/Russia_Today
“RT sets out to present the Russian point of view on events in Russia and its ‘near abroad’ and give the viewers an opportunity to get acquainted with Russian views on world and domestic events.”
You need a quick shot of vodka and everything will be “normalno”.
December 21st, 2009 at 2:13 pm
pb,
Thanks for your thoughts and link. Very interesting.
I tend to agree with the points made by Yo.
I also think the fact there was oversupply in certain markets (ie Sub-prime) created havok in other areas where creating new supply is an ongoing problem. Something we will need to keep an eye on here in Australia.
December 21st, 2009 at 2:16 pm
pb,
I would also add that falling prices may not mean prices are reverting to fair value – they could be moving away from fair value for external reasons (disfunctional credit markets).
But your point is well made.
December 21st, 2009 at 2:35 pm
bb
In reference to an earlier note about only getting 10% gains on investment in poperty, it is facinating that poperty bulls will always talk about poperty being a long term investment and then demand 10% compounding.
What is 10% compounding on anything over 100 years? My powers of Excel could be off but for $500,000 it is $7,579,336,786 . Can someone check this to make sure this is correct and if it is then I am not sure wages are going to keep up
Moz
PS Banks might need to “look” for more funding between now and then.
December 21st, 2009 at 2:50 pm
Moz,
I do not beleive property can deliver 10% per annum.
For the owner occupier, 4% growth per annum is all that is needed to justify buying verus renting. (ie: 4% per annum growth + say 3% saving in rent, less 7% long run cost of funding).
4% growth can be sustained with 2.5% inflation and 1.5% productivity if delivered in the form of higher real wages. If inflation is less, then the cost of funding is lower.
This ignores other aspects like deprecitaion, and owner occupier premium for tax concession etc.
Of course, this makes investing in property close to madness. The very low returns for the owner delivering utility benefit for the renter, so long as the renter can find 7% after tax returns.
December 21st, 2009 at 2:54 pm
ak @37
Um…….errr…..
I was referring to the visual backgrounds in the interview which were spinning.
Perhaps the Russians use the hypnotic spinning effect to help reinforce their point of view on local and international events! :0)
But in all fairness, I admit they have a good national anthem:
http://www.youtube.com/watch?v=Kj-vxHtU4L8&feature=related
P.S I don’t like Vodka (nor any other hard liquor for that matter).
December 21st, 2009 at 2:56 pm
Moz
500k x 10% comp = 6,890,306,169.91
BTW,
1.5% real increase per annum over 100 years = 4.4x improvement in the standard of living by 2109. This compares to the 7.0x improvement in the standard of living during the 20th Century.
December 21st, 2009 at 3:23 pm
bb
Thanks for checking the result:
A Little off but in the end it is a big number.
Property hasn’t always been an avenue for investment (comes and goes through out history), it is at present. Time moves forward and with it might come changes that we all wont like (change can be an uncomfortable thing). The one thing that makes me see property as a bad investment (I don’t even see it as an investment – just one choice of a way to live) is that everybody is onto it. The train has left the station and those that were smart made the money early and got out of town – ahwell.
For the rest of us it is just a matter of everyday life and not getting smacked from silly choices.
Moz
December 21st, 2009 at 3:28 pm
Moz,
I think it is both consumption and investment. A bit like paying upfront for all of your food and clothing for the next 70 years. Very difficult to make such a decision without a view on the future – just like investing.
This is why I like this site so much. Lots of interesting ideas.
December 21st, 2009 at 3:30 pm
Dr. Keen! All your podcasts from last year have disappeared!
December 21st, 2009 at 3:56 pm
While we are on the topic….
Prof Keen gets some airplay in this article
http://www.smh.com.au/business/house-prices-set-to-rise-in-2010-20091221-l9pb.html
December 21st, 2009 at 4:22 pm
Steve,
Why are you still making forecasts?
Now house prices will fall by 5% as interest rates are rising?
You claimed last year that interest rates would be around 2% by the middle of 2010 and house prices woul;d be declining.
Now the interest rates are rising so prices will decline when last year they would fall and house prices would decline?
I do not comment on these matters because i know not much about them so please do not comment on gold and gold related matters as you know nothing about it.Gold is seen jewellery, what a joke my friend.
You can ignore my comments and dismiss them but i will not be going anywhere as i am correct have been proven correct and have the truth on my side and also the greatest financial mind on my side, no one here can match that combination.
Bullturnedbear do not be shy my “silver specialist” friend.Remember my call in September for $1224 gold?You have to admit that was a brilliant call and to the dollar for heavens sake.Not bad hey!!!
Buy Gold.
December 21st, 2009 at 4:23 pm
According to Earthsharing’s report, there is an unoccupied number of properties in the inner-Melbourne suburbs ranging from 4-11%.
I agree with Moz’s attempted calculation. From 1996 to 2009, property prices nation-wide have increased 136% in real terms. I doubt that prices can continue on this path. If this was so, then houses would cost 10-15x wages in a decade or so.
It reminds me of the dot-com bubble, where economists were jubilant about the ‘weightless economy.’ Stock prices of some publicly listed firms rose 8,000-10,000% within a year or two, and because markets are ‘efficient’, by definition there was no bubble.
Right now I am on holiday in Mandurah, which is probably the most expensive region in Australia relative to wages as Homes4Aussies previously mentioned. Mandurah and the surrounding areas are sparsely populated, even though there has been significant population growth. Prices have doubled in under half a decade. Once the bubble bursts, this town will not be a pretty place to visit.
December 21st, 2009 at 4:28 pm
1st Stage USD recovery well underway, as mentioned previously.
Major institutions, funds and private investors are continuing to short the commodities currencies (e.g BRL and AUD) and going long the USD.
Gold was a crowded trade but is now unravelling fast.
Expect major fireworks in the coming days / weeks in favour of the USD.
SELL GOLD
BUY USD
P.S Who the hell is this Elliotwave chap?