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 21st, 2009 at 4:42 pm
Elliotwave,
Welcome back. Now that you are back I am hoping that you can answer the questions that I posed to you over 2 weeks ago.
Since you claim to be an expert in gold and recommend that we all buy gold continuously, I am somewhat baffled by your calls for everyone to be thanking you. Given that you are Australian, as I assume most here are, gold has dropped over 15% in price in the last 9 months (actually considerably greater than a 15% drop since I wrote that). Not a great investment. If it goes up to $1650 US next year as you guarantee, and the $US continues to tank against other currencies as you say it will, then at best, it will only be a breakeven investment for you in that timeframe.
One more question for you. You claim to be only 20. So as a 20 year old Australian, I am curious as to how you have come to be a very CLOSE friend of Jim Sinclair.
Finally, as others have pointed out, you didn’t make the call of $1224, you merely parroted what Jim Sinclair forecast, and have been unable or unwilling to enter any reasoned discussion on these ‘forecasts’.
December 21st, 2009 at 4:42 pm
bb
Just checked the sheet and I had the result for 101 years, $6,890,306,169.91 is for 100 years so thanks for double checking.
Even for a 5% gain on 500K the result is just as out there at $65,750,628.92 (what will a chicken burger be @ $5.95? 100 years later – $782.43 – could be bit stale having sat around for century though!)
I suppose what I am trying to get at in my limited way is that there has to be a point where everything gets dumped on its head so that there is a re start (reset). For this to happen there is deflation and destruction (not good) or else you end up with a $6,890,306,169.91 3 bedroom house in the suburbs with potential harbour views (from on-line) that is surprising quiet (on a highway) with rustic charms (stuffed).
Moz
December 21st, 2009 at 4:54 pm
bb #32
The vacancy rate in Melbourne IS NOT 1%…
http://www.sqmresearch.com.au/graphs/graph_vacancy.php?region=vic%3A%3AEastern+Melbourne&t=1
http://www.sqmresearch.com.au/graphs/graph_vacancy.php?region=vic%3A%3AInner+East+Melbourne&t=1
http://www.sqmresearch.com.au/graphs/graph_vacancy.php?region=vic%3A%3AMelbourne+City&t=1
http://www.sqmresearch.com.au/graphs/graph_vacancy.php?region=vic%3A%3AMelbourne+North&t=1
http://www.sqmresearch.com.au/graphs/graph_vacancy.php?region=vic%3A%3ANorth+West+Melbourne&t=1
http://www.sqmresearch.com.au/graphs/graph_vacancy.php?region=vic%3A%3ASouth+East+Melbourne&t=1
http://www.sqmresearch.com.au/graphs/graph_vacancy.php?region=vic%3A%3ASouth+West+Melbourne&t=1
http://www.sqmresearch.com.au/graphs/graph_vacancy.php?region=vic%3A%3AWestern+Melbourne&t=1
It looks like the FHVG has taken a large number of rental tennants and moved them into owner occupation…
December 21st, 2009 at 5:13 pm
Elliotwave
“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.”
Man, what are you smoking? You need therapy.
December 21st, 2009 at 5:15 pm
bji61,
I believe that i answered your question last time.
I told you to look at the charts of all the major currencies priced in gold and you will have your answer.
Please do not ask personal questions about my relationships as they are my own personal relationships, i am not not being rude to you but instead polite, it is hard to tell ones tone when writing these messages.
The price targets are all based on TA, which is very very accurate, to the dollar actually.
If i can show the people here that my forecasts are correct and credible then an intelligent person would assume that my opinion should not only be considered and respected but also lean towards that point of view.
I am not being disrespectful to Mr Keen, but you have to admit that he has been wrong on all his forecasts and i have been correct so that would make someone stand and notice?
I have always said from day one that these are not my forecasts and have credited my genius friend with all the calls, so please do not mention that silly point again please.
Buy Gold.
December 21st, 2009 at 5:24 pm
Hi All,
I thought I’d throw in my 2c worth into the housing debate.
First point is on measuring whether there is shortage or not. BB correctly points out that the shortage (if there is one) is around places where there is diversified employment opportunity. I live close to the city of Sydney and I have been moving around alot so I’ve looked for a lot of rental properties. There is a very obvious threshold I observed. Say you are looking for a 3 bedroom place. In the same area say there is a price which a 3 bedroom place costs to buy, at the lower end of the market and then calculate the cost of servicing a mortgage plus strata, taxes etc, let’s call this the ongoing cost of buying the place. Now when you look for rental in the same area for the same type of property I find that when rent is below the cost of buying a place there is a mass of applications and it is very hard to get a place. But if you look at the nicer properties, still 3 bedroom, but where the rent is above the cost of buying a 3 bedroom at the lower end of the market, hardly anyone turns up and there is no rental competition. The implication of that is that rental prices tend to gravitate around the direct subtitute of buying with a preference for owning a lower quality property over renting a higher quality property, this is because when you own a property you can improve the quality.
It is hard to tell from that whether there is a shortage of housing but there certainly is plenty of people looking to rent.
It would not surprise me if vacancy rates have gone up because there has been a surge in first home buyers.
Having said that if you accept the situation that rents are increasing at the moment and look to the future I think a good indicator would be to see whether we are actually constructing enough dwellings to deal with our population growth. I have looked at this myself and have seen reports that we are not building enough dwellings by a significant margin to cope with the population increase.
Second point is that the real estate market is stratified in all sorts of ways, geography, demographics, quality to name just a few things. I think it’s really complicated to try and figure out all these dynamics but the dynamics involved would be – demand for borrowing, supply of credit(probably totally demand driven), interplay between rents and prices and then population growth, dwelling growth and add to that the stratification and it becomes and impossible problem.
One can only guess here, but my guess is that demand for borrowing drives the prices, prices have some feedback on demand for borrowing, prices drive rents more than rents drive prices. Demographics, government incentive, EMPLOYMENT drives demand for borrowing. I really think the key figures are changes in employment, interest rates and government incentive. The point is there is many interacting factors and it’s a bit of a subjective call which ones are important because the analysis is very complicated. People who have more time than me to think about it and analyse claim that the fact that we are not building enough dwellings is a major factor in supporting prices.
December 21st, 2009 at 6:06 pm
Damn. I really have to straighten that stuff out. Give me till the first week of January when I’ll try to get podcasting nailed.
December 21st, 2009 at 6:16 pm
Hi to All,
Re: Housing under-supply.
You have probably heard the figure 85,0000 shortfall quoted by many pundits. Have a read of this piece linked below. For your convenience I have included a few extracts.
http://www.dailyreckoning.com.au/property-spruikers-claim-australia-suffers-from-a-chronic-housing-shortage/2009/08/24/
“Both of them provided the link to the research that is the basis for the ‘chronic’ housing shortage argument…..
“The (sic Property) Council estimates that a minimum of around 85,000 dwellings is the gap (unmet need) in the supply of housing in 2008… The Council acknowledges the crudeness of this estimate and also points out that there were some 830,000 vacant dwellings in Australia at the time of the 2006 Census.”
According to the report, the dwelling gap, which is the difference between the demand for housing and the supply is made up of:
Dwellings required to address homelessness – sleeping rough = 9,000
Dwellings required to address homelessness – staying with friends and relatives = 35,000
Dwellings required to house marginal residents of caravan parks = 13,000
Dwellings required to increase rental vacancy rate to 3% = 26,000″
Folks, is this a dubious basis for the 85,000 claimed shortfall?
On another angle David Holmgren of Permaculture fame remarked that we “may have a housing shortage but we don’t have a bedroom shortage”. There are around 1.7 million residential dwellings in greater Sydney with, if memory serves me, an average occupancy of 1.7 persons (BUT it all depends on the raw date and how you interpret it).
FWIW I think this chart below may be a useful comparison. The graph shows that depending on occupant category those with “one or more spare bedrooms range from 50% to 80% across all categories.
http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/4130.0.55.001Main%20Features22005-06?opendocument&tabname=Summary&prodno=4130.0.55.001&issue=2005-06&num=&view=
See 5 Housing Utilisation, Tenure and landlord type, 2005-06
I realise that there are a host of other factors that enter into the debate but IMHO the housing shortfall/ready to boom spruikers are dealing in “science that is NOT settled”.
December 21st, 2009 at 6:23 pm
Hey Elliotwave,
Gold is in a bull market. What is the deepest correction we can expect as the bull charges forward? Will it ever go below $1000?….$950?….what is the lowest price point at which Sinclair would change his forecast to bearish? I’m interested in the risk/reward ratio on the trade….Please help me out.
Cheers
Piotrek
December 21st, 2009 at 6:32 pm
Elliotwave you are entertaining, however some good friendly advice for christmas nearly every successful investor has a stop loss and knows when the market is turning against him.
What price would you get out of gold?
$1000,$900,$800,$700 US an oz.
Or will you hang on to the end?
America dollar is going to be a big surprise in 2010!
December 21st, 2009 at 6:42 pm
Dlr,
Neither of the two things you cited, certainly in my view, caused the ‘flation’ part in stagflation. Most studies have found that oil could at best contributed to 2 percent (a few cents) of the consumer basket (oil excluded), and the wage spiral argument seems dubious empirically (i.e. something we entertain in theory, rather than reality). Furthermore, did you know the biggest monthly rise in inflation happened in the month of August, three full months before the oil crisis, where the monthly CPI index rose by 21 percent?
So what caused the inflation of 80 and 74 (particularly 1973-75 inflation)? There is a more likely candidate; Big Government- the inflation coincided with the biggest increase in transfer payments in American history and the fact personal disposable income rose throughout the recession; transfer payment rose by 200 percent meaning that one in six of every dollar spent was a result of a transfer payment, *i.e. independent of output created*; I think in 1970 transfer payments were something like 75 billion dollars, by 1975 they were like 175 billion dollars, half of the entire U.S. budget! Moreover, while Minsky notices this point, he also overlooks that1 100 000 million new jobs were created in the government sector from 1972-74 period and 500 000 healthcare jobs). The inflation started rising quickly drastically with 1971-2, a period which coincided with Vietnam and Korea War vets receiving transfer payments and the biggest housing boom EVER (i.e. demand for lumber outweighed supply). Of course, that would be inflationary (not to mention the impact transfer payments have in rising the price of workers entering the workforce). Also, in the U.S. oil sector, 350 000 new jobs were created.
The ‘stag’ part of stagflation was a collapse of a real estate boom in the U.S., UK, Australia, Spain, Germany and Japan (in fact, 40 percent of the output during stagflation was in housing and the U.K. in 1973-75 experienced its biggest financial crisis EVER, even to this date- “the Secondary Banking Property Crisis”). But it’s curious to note that when oil prices roses in 1973 1) most of the funds gained/absorbed by the middle eastern oil companies were actually REINVESTED back into real estate in the U.S. AND U.K. by late 1974, despite the financial crisis in both countries- a total of 10 billion pounds , buffering the downfall (!) in property prices (commercial and residential property prices plummeted by 30 percent in real terms in the UK and parts of the U.S; put bluntly, oil saved the U.S. from a economy deflation…indeed, most investors attribute the rebound to all this ‘flood of foreign investment’); 2) when the oil crisis happened again in 1979-1982 and interest rose in Japan, GDP did NOT contract this time, but continued at 3-5% (but it *did have a recession in 1972-73 when the land boom came to an end!*); 3) all the countries had vacancy rates of over 15% (rising from 2-3%).
Tross,
Read up on Harry Hyams- rents can continue to rise because it is not public that there is an oversupply or rather “under-supply” (i.e. land held vacant, waiting to be sold at the top of the market). In fact, get this: Earthsharing found that in one suburb of Melbourne there were 1000 vacant properties (A SUBURB WERE ONE HARDLY HAS HOLIDAY HOUSES) while Melbourne itself has a total of 15 000 vacant houses). Capital decays, labour starves, land appreciates i.e. keeping it idle, it can outlive other factors of production; a war of attrition ensues. It is these ‘speculative vacancies’ that are NOT included in the official statistics, either because they are not counted, ignored or called ‘partially owner occupied’ (then the official vacancy would be around 9-10%).
December 21st, 2009 at 6:55 pm
Elliotwave
From 54:
“If i can show the people here that my forecasts are correct and credible then an intelligent person would assume that my opinion should not only be considered and respected but also lean towards that point of view.”
“I have always said from day one that these are not my forecasts and have credited my genius friend with all the calls, so please do not mention that silly point again please.”
.
.
.
OK, it is now firmly established that you parrot the forecasts of other people. We can not respect your thoughts and opinions as being original because they don’t belong to you. If you were in the research world, it would be called plagiarism. And if caught, you would have no respect, reputation or continued funding as a result.
Also, your precious shiny metal is in the process of nosediving. But keep holding onto it as it (and you) metaphorically fall off the cliff, destroying equity /capital in the process. You seem to have major investment blindspots because you are so TA & gold centric.
And as someone else mentioned, what price does gold have to fall to before you will concede that your parroted beliefs are wrong?
And for others, expect the Aussie dollar to trend lower to USD$0.85 towards Christmas and the New Year, unless another sudden global shock occurs. Should such an event occur, expect the Aussie to be sub USD$0.80.
SELL GOLD
BUY USD
Merry Christmas and/or Happy Holidays to all.
December 21st, 2009 at 7:05 pm
You are correct on the US dollar it will be a massive surprise to the downside and it will cause a huge dislocation in the world, one that not to many people have really thought about or even willing to consider.
The US dollar is finished as the worlds reserve currency and has been overtaken by the oldest and most honest money in the world GOLD.
There is no point when i will turn bearish on gold as it is in a trend that is rock solid and it will once again return into the financial system as it is the only solution to the debt problem.
As i said before gold hit my amazing prediction $1224 to the dollar, if it drops 100 dollars buy it, if it goes to $1000 buy it as it will trade at $1650 US in 2010 guaranteed take it to the bank my friends.
Gold will trade at prices much higher than $1650 and i will give you those targets as required with a time frame, but these are not for trading purposes but only as a guide to buy as insurance for your wealth, if you have any as i am assuming you listen to Mr Keen and BTB, in which case you would not have much wealth.
Buy gold it will not go down and keep rising you will see this happen in frony of your eyes and i will be here to remind you.
Buy gold.
December 21st, 2009 at 7:08 pm
TTINT is right I think.
There can be local shortage and local glut at the same time. Any market collapse may start as a localised event – where people lose income or speculators dump houses. This may or may not lead to the same process which unfolded in the US. We may also experience a plateau in real house prices what may eventually lead to a slow decline experienced by house owners in Japan.
Obviously there is a kind of price ratcheting – once people buy a house to live in they hold on to properties at virtually any price. This may not necessarily be true for investors though – I watched how our former landlord freaked out in 2005.
We also need to keep in mind that demand for housing is highly elastic and depends mostly on lifestyle. Some people who were born in Australia really don’t understand what is considered “normal” in other parts of the world. We can easily squeeze twice as many people as currently live in our houses without even getting close to the density in some European countries:
http://www.ecosmagazine.com/?act=view_file&file_id=EC126p16.pdf
(I do not necessarily endorse all the views of Dr Hamilton)
In Poland the average area of the apartment/house occupied by a family is about 70sqm (2008), 60% of families assess their housing conditions as good.
http://translate.googleusercontent.com/translate_c?hl=en&ie=UTF-8&sl=pl&tl=en&u=http://dom.money.pl/wiadomosci/artykul/polacy%3Bsa%3Bzadowoleni%3Bz%3Bwarunkow%3Bmieszkaniowych,69,0,326725.html&prev=_t&rurl=translate.google.com.au&usg=ALkJrhgBmeALgA_1SEXowV_nc5j9XrVPCg
This is pretty close to the UK I believe (76sqm for new homes)
http://www.smh.com.au/national/home-truths-australia-trumps-us-when-it-comes-to-mcmansions-20091129-jyva.html
The following article is about China:
“China’s average housing area per capita for urban residents has increased from 6.7 square meters in 1978 to more than 21 square meters in 2008, and further upto 27 square meters today. While the average housing area per capita for rural residents had even increased up to 39.4 square meters by 2008, over 30 square meters larger than what Chinese poor farmers enjoyed some 30 years ago.”
http://en.chinagate.cn/features/National_Day/2009-09/25/content_18599856.htm
I would say that 30sqm per person looks more “normal” to me than 100sqm.
So the arguments about severe housing shortages in Australia may look quite funny if you look at them from the Polish / British / Chinese perspective.
December 21st, 2009 at 7:10 pm
Chris Joye
http://www.businessspectator.com.au/bs.nsf/Article/Is-Australian-housing-expensive-pd20091207-YH6XQ?OpenDocument
“It’s a $3.9 trillion part of the economy that few people understand yet is the most important financial commitment most families will make: securing the shelter they need to effectively work and live. Unfortunately, the many myths advanced about the cost of Australian housing undermine both the public debate and ensuing policy.”
Wages are roughly 1/2 of GDP i.e. $60K X 10 million = $600 billion
A house price to gross wages ratio of 6.5
3.9 trillion / 8.5 million dwellings = $460,000 average
December 21st, 2009 at 7:12 pm
Just to add more fuel to the debate:
I can only comment on what I see around me, but there are a lot of young professionals in their early to late 20’s earning good money in safe industries that are waiting for the market to drop to buy.
Sydney property is definitely expensive and in my opinion appears unsustainable on the surface, but having visited some Asian capital cities recently I don’t see why it couldn’t remain so for at least another 5, 10, 20 years – i.e. until the end of the commodities boom. The city is still young, relatively small and a desirable place to live.
As you get further out into regional areas you can still find reasonably priced properties (on massive blocks) close to industries that provide long term employment. These places may be undesirable to live at present, but they won’t always be. Even places like Balmain in Sydney were originally slums.
Debt deflation may be the order of the day, but I think it is going to take years to play out and the severity will hit some areas hard, while others won’t even notice.
Anyway if credit is drying up won’t the builders go broke first? Then there really will be a housing under supply because you can’t argue that Australia’s population is decreasing. Even Krudd has touted 35 million!
Tross
December 21st, 2009 at 7:17 pm
angophera,
I think there is some ambigouity in what people mean by housing shortage. If you google the subject you are more likely to find analysis of how many people are homeless or in need of social housing. This isn’t really going to effect prices.
The other housing shortage story is from an analysis of dwelling commencements, population growth and persons per dwelling, all the data available at ABS. In this analysis it doesn’t matter how many are vacant now, what matters is that clearly rents and prices are going up and it does not look like going forward we are matching population growth with dwelling commencements factoring in people per dwelling for different demographics.
In terms of census data showing vacant property, if I was paranoid and hid under the bed when a very strange person knocked on my door to ask personal questions my dwelling would be considered vacant. Also the census data does not include how long it has been vacant for, part of the logistics of the rental market is that at any one time (example census night) there is some percentage of unoccupied dwellings. So the census data does not really show true vacancies and this would only be a snapshot in time. Think more dynamically
December 21st, 2009 at 7:18 pm
Peter_W
Thanks for the links. I will have a look.
I never suggested vacancy rates in Melbourne are 1% (how would I know – I live in Sydney). I think you have me confused with another post.
All I said was your last link showed a vacancy rate of 2.9%, which had declined since 2005.
December 21st, 2009 at 7:22 pm
sj,
The markets may push USD up in 2010 but I believe the Fed will push it down – otherwise the US is finished as a global power in a few years time. They may only exist as an issuer of foreign reserve currency but this is not enough to dominate the world forever. What is the status of Switzerland?
Unless the Americans impose hefty import duties (what is probably the last thing they want to do) all the industry left there will lose miserably not only competition with China but also with Europe and Japan if USD goes up.
“The Bank of Japan vowed on Friday that it would “not tolerate” deflation, a statement interpreted as a signal from the bank to persuade markets that it would keep interest rates low for an extended period.”
“Economists said any decision by the bank to keep rates low for an extended period would be aimed at weakening the yen and lowering borrowing costs, both measures that would assist Japanese exporters.”
http://www.ft.com/cms/s/0/8debde92-eb94-11de-930c-00144feab49a.html
They have noticed the little niggling problem of unemployment in the US already.
December 21st, 2009 at 7:25 pm
ak,
The article linked below seems to dovetail with the ideas that you have been discussing. I thought Quigley’s phrase “meta-feudalism” has the ring of truth.
MMitchell and others:
“The other force driving this trend is the emergence of learning networks and the diminished effectiveness of mass broadcasting.”
Isn’t this precisely what we are engaged in forming “learning networks”?
http://www.financialsense.com/fsu/editorials/quigley/2009/1218.html
EW,
You are giving us gold bugs a bad (worse?) reputation. How about trying to make a case based on something other than faith and Jim Sinclair (a gent I respect enormously)?
The USD Is Back @ 62
Are you basing your forecast on AUSD weakness or USD strength?
How do you think the USD will perform in the other major pairs in the same timeframe?
Not trying to pick a fight. As I mentioned previously we went into gold to have some money in a vehicle with no counterparty risk. BTW realise there are other risks including geopolitical.
So price only enters into the equation when/if we decide to buy more.
December 21st, 2009 at 7:25 pm
Moz,
Yes, I realised later you used 101 years, not 100.
While some property “experts” talk about 10% per annum growth, IMHO I think it is total rubbish.
However, as per my previous post, Owner Occupiers only need 4% per annum growth to justify buying versus renting (in a pure quantitative analysis).
This is easy to reach if one expects 1.5% per annum real growth in wages. This is equal to 4.4x improvement in the standard of living over the next 100 years and compares to a 7.0x improvement in the standard of living during the 20th century.
Forget the 10% per annum growth number. No-one on this site would expect such madness……(?)
December 21st, 2009 at 7:37 pm
Elliotwave
You remind me of Martin Armstrong and his pi-cycle model. I think you know where his ponzi scheme ended up. Don’t try and start another similar scheme.
The USA is the premier western capitalistic power in the world, with a military to match.
Don’t write off or underestimate the influence of America or the USD, because it will be at your peril.
I can see you collecting gold sea shells as the tide goes out and before the USD tsunami hits.
Go and sell your gold soon, because you’re ain’t prepared for what is going to happen next.
December 21st, 2009 at 7:38 pm
I am not here to fight with people rather i am trying to put my correct point across and because some do not agree with what i am saying it is assumed that i am in the wrong and fighting.
I have no problem with anyone here, so please do not take offence if i point out some facts.
If i am so wrong then please someone pick apart where i have been wrong and correct me, just as i have picked apart Mr Keen and Bullturnedbear for their incorrect calls.
December 21st, 2009 at 7:42 pm
Bullturnedbear,
You are so scared to respond to me that you had to change your name to USD and under the cover of darkness flame away about the toilet paper you call the $USD.
December 21st, 2009 at 7:49 pm
Angophera
From 70:
Q: “Are you basing your forecast on AUSD weakness or USD strength?”
A: Both.
Q: “How do you think the USD will perform in the other major pairs in the same timeframe?”
A: USD will appreciate against all currencies across the board.
Q: “As I mentioned previously we went into gold to have some money in a vehicle with no counterparty risk. BTW realise there are other risks including geopolitical. So price only enters into the equation when/if we decide to buy more.”
A: Dump your gold, buy USD and continue to hang onto the upward ride for the foreseeable future. America ain’t no Zimbabwe or Argentina. Your Aussie got to the low USD$0.60 levels in 2009. Don’t be surprised if you revisit this level or lower in 2010.
December 21st, 2009 at 7:56 pm
Tross,
Good points. Although Sydney housing prices look about right to me.
The bottom line is if house prices collapse, price < cost of production, and supply will stop. With 400k pop growth, prices will not stay depressed for long.
If GDP collapses, then the value of housing will fall with it, but not in a relative sense. That is, the value of housing will still have the same claim to the Country's supply of goods and services as per the boom times. Individuals may get crunched if they have borrowed too heavily.
December 21st, 2009 at 7:57 pm
AK another big surprise will be the FED chairman man of the year in time magazine for 2009, however the FED will be surprise how little power they really have.
Pride before a fall and the FED is ready for a big fall.
America mood is turning negative towards the FED.
December 21st, 2009 at 8:02 pm
“Also the census data does not include how long it has been vacant for, part of the logistics of the rental market is that at any one time (example census night) there is some percentage of unoccupied dwellings. So the census data does not really show true vacancies and this would only be a snapshot in time.”
Hi TITINT,
Thank goodness someone is now actually quoting the ABS census data correctly! Can you now educate the RBA!
December 21st, 2009 at 8:12 pm
In the USA total residential property is @ 125 million X $175,000 average = @ $22 trillion total
USA GDP is @ $14 trillion
Total US residential housing is 1.6 X GDP and you can take out a 30 year fixed rate non-recourse loan at 4.7% to buy it.
In Australia total residential property is $3.9 trillion, GDP is $1.1 trillion so the price is 3.5X GDP and you can take out a 6.75% full-recourse variable rate loan to buy it.
In both counries wages are roughly 1/2 of GDP…
Who has got the residential house price price wrong the 300 million citizens of the USA or the 22 million citizens of Australia?
That’s the several trillion dollar question!
December 21st, 2009 at 8:20 pm
The USD is Back,
Don’t confuse temporary Euro disdain for a new USD uptrend. On a fundamental basis , the US is about to offer Trillions in new debt as well as roll over nearly a third of it’s outstanding debt before end of Q1 2010. With the US trade balance heading towards balance there is a lot less new USD’s finding there way outside the US to be “churned” back into US Treasuries. The US then must face very limited choices in how to fund that debt issuance. Either slash the new debt (ie slash spending, programs, prop up jobs, bailouts etc) OR augment whatever buyers there are overseas with newly minted doallars courtesy of the Fed in order to buy the new debt – MONETIZATION. I think it is safe to say the US has no intention of reducing it’s debt spending leaving the latter option as a main player.
NOBODY knows for sure what direction the USD will take. But I think it is safe to say that the USD is in a terrible predicament here with a Congress spending like drunken sailors and a Fed chief hell bent on creating inflation as an offset to the deflationary forces wrecking their economy.
December 21st, 2009 at 8:21 pm
PETER_W
I was thinking about the assumption you make that total housing/GDP is good for relative comparison. Aside from pretty major data issues let’s believe this assumption because there is an implict underlying assumption here which is interesting to think about.
The underlying assumption here is that the turnover of housing stock is proportional to GDP, remembering that GDP represents a flow of money for a given period of time. Just wanted to point this out as something interesting to think about. I’m 50:50 whether this thinking is right, maybe someone can help.
Reason I think it could be right is say there is no turnover in housing or that there is extreme turnover in housing, in both cases the proportion of GDP spent of housing in any given period is different but the prices could stay the same because turn over is not an indicator of price, right?
December 21st, 2009 at 9:07 pm
#81
Lets assume the total residential housing / GDP data is not quite accurate to the last cent and could be +/- 20% For the purpose of comparison… One nation is still wrong by trillions.
December 21st, 2009 at 9:33 pm
why assume +/-20% and why is it a good comparison in the first place?
It is an interesting comparison to think about why it’s right or why it’s wrong. Why do we want to measure everything against GDP? And if we do so in a relative sense I think it is important to understand all the assumption in making this comparison.
You are also assuming that if one of the countries is wrong about the price then there must exist some right price, right?
Plus multiplying average price by total stock is actually not an assumption but a big mistake. The average price represents the sales in a given period, to get the average price of all the stock you would need actual valuations at the same time for at least a representive sample (I don’t think there is such thing as a representative sample in real estate) of the total stock if you are going to use it to obtain total value of the stock.
December 21st, 2009 at 9:34 pm
can you tell I have an assignment due in 2.5 hours?
December 21st, 2009 at 9:53 pm
The point about the property market is that it only looks good while the ever increasing debt stimulates the economy. When it stops incomes will be reduced and people will have trouble paying rent and mortgages. What I find amazing is that anyone believes that it is possible to have an economy where the flows are increasingly larger in real terms, without eventually the risk that a sudden swing will produce a limit in some part of the system and it will fail. Would our government be able to add another about 8% to the deficit if housing finance stopped increasing competely ? Probably not.
December 21st, 2009 at 9:58 pm
#83
If you check the national accounts of both countries you will find the aggregate residential housing price / GDP data is roughly right.
If you check 149 years of national account history you will find that the present Australian aggregate housing data is a recent (20 year) 100% price aberration.
The nation with the low price / GDP ratio, the USA, is the nation with 10% unemployment, houses that have fallen 30%, has had 150+ bank insolvencies, 50%+ of home lending nationalizsed (FRE & FNM) and has contracting GDP.
Chris Joye… “Australian housing is 3.9 trillion”… FWIW that’s roughly 80% of Australian aggregate household gross assets.
The national comparative total housing price / GDP ratio may not indicate anything but I suspect it tells us more than enough!
December 21st, 2009 at 10:27 pm
Elliotwave,
From #55
I have looked at the gold charts as you suggest. Gold is flat against the AUD in 2009, so is hardly the great investment that you claim it to have been. Gold is also almost 20% down compared to its high for the year. As I mentioned previously, if your ‘forecast’ is that the USD will fall precipitously then USD$1650 in 2010 for gold will remain a very poor investment for anybody investing in AUD.
As others have pointed out, you have not provided any personal insight. You have merely parroted what you have read elsewhere. Whenever anyone asks you to provide some insight into your ‘views’ you merely parrot the ‘buy gold’ mantra.
As to not asking you personal questions, you were the one that boasted about how you had been a very close friend of Jim Sinclair for many years, as if that somehow added weight to your parroting. So I think it is quite fair to ask you how someone who claims to be a 20 year old Australian came to be a close friend of Jim Sinclair from around the time they entered their early teens.
December 21st, 2009 at 10:34 pm
bb
You said: “Forget the 10% per annum growth number. No-one on this site would expect such madness……(?)”.
We bought our house in 1986 for $230K and a recent valuation puts it at $2.5M. That is a compound growth of 10.9% p.a. average over the past 23 years. That’s why I think it is a bubble. You are probably right: 10% p.a. growth is unlikely to be repeated in the next 23 years.
December 21st, 2009 at 10:58 pm
It’s all about the debt! Debt allows people to buy really nice things that make them feel rich and successful. As the debt grows, the levels approach a point where it starts to get very scary. After that time the positive feelings turn to feelings of failure, stupidity and regret.
Australia hasn’t reached the second stage yet. The US and Ireland have. It will be horrible when it comes. I just can’t see how it can be avoided. Time will tell!
December 21st, 2009 at 11:00 pm
Peter_W, want to see a housing bubble check this out
http://www.rodney-bay.com/result.php?action=search&saleType=1&parishID=&propertyTypeIDs=&prID=&bedrooms=&x=72&y=12
http://www.stlucia.gov.lc/docs/NHRPolicy.pdf
so we have average house price = $XCD160,000
number of households = 47,124
total value of houses = $XCD7.5b = $USD2.8b
plus there must be at least 1000 of those $USD600k average mansions owned by foreigners (assumptions are wonderful when trying to prove a point) so that’s a total of $USD3.4b divide by $1b GDP we have 3.4 same as Australia and they are both islands! Could 160,000 St Lucians be wrong?
Sorry Peter_W bit of fun…
December 21st, 2009 at 11:02 pm
In 1860 Melbourne house prices were $208 pounds = $416 dollars, they are now 1000X higher +/- $416,000
That’s 4.745% compound capital gain p.a. over 149 years.
In 1928 the Australian dollar was $2.38 USD, it’s now $0.89 that’s a compound capital loss of 1.2% p.a.
Measured in USD, Australian houses have increased in price roughly 3.55% p.a. over 81 years.
Australian house prices measured in USD will decline ~ 10% p.a. over the next 10 years… Maybe not in absolute nominal AUD price but definately measured in USD.
December 21st, 2009 at 11:04 pm
Lyonwiss,
My point was 10% “prospective” return was madness. Which is why I used the word “expect”.
I have no problem with historic price inflation. It is partially supported by building cost inflation.
http://www.abs.gov.au/ausstats/abs@.nsf/featurearticlesbytitle/BEF19E4062997FEFCA25759A001A1E49?OpenDocument
It is also supported by other factors since 1986 including
1. GST in 2000 on building materials & services (included in the link above)
2. Sharp rise in HOW (Home owners warrety insurance) since the collapse of HIH in 2001
3. In 1985, the principal place of residence became the last CGT free asset in Australia (encouraging home owner upgrades etc)
4. Increased financial competition (lowering margins)
5. Innovative financial products (ie: owners could accelerate payments, slashing tens of thousands off interest payaments. Not available in the 1970′s)
6. Lower real interest rates
7. Local, state and Federal Goverments increasing taxes and charges on new developed properties (around $150k per new 4 bdrm house) passed onto end buyers
I do not expect the events to be repreated in the future. Hence trend capital gains closer to 3-5% per annum. However, it is not a bubble IMHO.
December 21st, 2009 at 11:11 pm
#90
Where is St Lucia?
What is XCD and what would the world economy buy with $1B XCD p.a.?
You are reminding me of a few other bubble economy islands… New Zealand, Singapore… All have fiat currency and bubble real estate prices.
December 21st, 2009 at 11:13 pm
yeah definately and island thing
December 21st, 2009 at 11:25 pm
TITINT,
Great Post @ 90. Show just how silly some of these averages are….
Re the US – these income ratio stats are very misleading IMHO. They ignore taxation, which can add significanlty to the list price of a home in the US. Consider the following.
1. US real estate taxes are significantly higher compared to Australia
2. These taxes are generally perpetual
3. Hence when once buys a property in the US, once must service the mortgage and the taxes.
4. Taxes are levied at the County, regional and state level. They vary between 0.2% to almost 2.0% per annum, indexed to the value of the house and land.
http://articles.moneycentral.msn.com/Taxes/Advice/PropertyTaxesWhereDoesYourStateRank.aspx
5. The average rate (1.25%) in PV terms adds 46% to the listed purchase price assmuning a 4.7% mortgage and 2.0% house price growth.
6. Hence a property priced a a notional 3.0x income is closer to 4.5x income in an Australian context
7. With all statistics it is best to compare like with like. I would compare gateway city to gateway city like Sydney* (8.3x) versus New York (7x)**. Or, after taxes, Sydney (8.7x)*** and New York (10.5x).
* Apologies to all Melbournites….
** Source: Demographia
*** After stamp duty
December 21st, 2009 at 11:28 pm
I should clarify my tax point above.
Aussies pay their taxes up front in the purchase price as part of the cost of production (used in price / income ratios).
Yanks pay ongoing taxes after the puchase price (ignored in price / income ratios).
December 21st, 2009 at 11:34 pm
I think the property debate has again taken a tangent from the original post.
My comment on the Keiser report is that we are probably one of the first few generations who live in a world where you can openly critise the establishment without any consequences. 500 years ago people were impaled people for speaking out like that.
Freedom of speech is a necessary condition for real change.
December 21st, 2009 at 11:44 pm
#90
Several trillon of Australian ‘average sillyness’…
$3.9 trillion Australian housing ~ 80% of household assets on the national balance sheet.
I hope the Australian 2 X USA’s aggregate house price / GDP ratio is totally irrelevent, and that you’re right and the USA household assets national balance sheet is totally wrong!
December 21st, 2009 at 11:56 pm
If you were attempting to get RELATIVELY rich, surely you would want to buy twice the price / income ratio for each dollar spent, AND YET 70% of Australian households obviously believe the maths is untrue?
I guess Australian households prefer to get RELATIVELY poor vs USA Households!
December 22nd, 2009 at 12:29 am
TITINT,
Fair point. I accept some of the blame regarding the tangent.
A few thoughts on the interview
1. I almost switched off after the first 30 seconds when Kaiser linked 160k very brave men/women sent to Afganistan with bonuses at Goldman Sachs. If it was meant to be funny, it wasn’t. If it was meant to be factual / informative, it failed to provide the evidence. I was disappointed Prof Keen was happy to be associated with a program where politics seemed more important than debate. Nevertheless, I stayed tuned to hear Prof. Keen’s thoughts.
2. As I have posted earlier, I think Prof Keen overstates the debt problem by including financial debt in the analysis ($43 Trillion). FI’s grossly distort the data, and there is a massive amount of double counting with interbank loans
3. IMHO, the key is consumer leverage. If the consumer is OK, Banks will receive their interest. Then the interbank market is OK. For anyone interested in an alternative perspective on this issue, please see following link. As always, happy to be corrected on this point.
http://www.businessinsider.com/2009/2/us-debt-levels-are-fine-debt-to-gdp-chart-is-wrong-and-meaningless
4. To let the banks fail would have been madness. I think there is some confusion here between liquidity and solvency. There were plenty of Banks with prudent lending practices who would have collapsed without liquidity measures. This would have made no economic sense. Insolvent Banks have not been saved….ask the shareholders of Citi, Lehman, Bear Stears, Freddy, Fanny etc.
I think Prof Keens insights are brilliant. However I suspect the starting point is wrong. Perhaps we are decades away from “debt deflation”.