Sur­vey on Aus­tralian House Prices

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I have been asked to post a sur­vey to gauge inter­est in a poten­tial finan­cial prod­uct related to Aus­tralian house prices. If you are inter­ested in such a prod­uct, please click here to take this sur­vey.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Jack Spax

    # Re Alan Green­spin * Lyon­wiss

    Tend to agree, there is a line where two wrongs dont make a right, I get uncom­fort­able with the fact that some­one devel­ops a prod­uct sim­i­lar to what Gold­man Sachs did to bet agaisnt the banks, lever­ages it up, and then takes a pin to bub­ble or maybe a blow torch to the bub­ble.

    Make peo­ple aware of the bull­shit and spin and the likes of Joye, Swan, Howard and the bank­ing sys­tem etc re inflat­ing the bub­ble but care needs to be taken not to be pro­mot­ing a finan­cial prod­uct that that could actu­ally be desta­bil­is­ing in its own right.

    Apart from that I still enjoy the site, and it has helped develop and inter­est re eco­nom­ics.

    I could see a huge mar­ket for this sort of prod­uct, though within peo­ples super­an­nu­a­tion, par­tic­u­larly if it became a retail invest­ment and as a counter for all those peo­ple that have 3 or 4 homes in their SMSF.

    Its all a bit spec­u­la­tive though and does it really develop or pro­tect real wealth ?

  • RickW

    I do not con­sider a finan­cial prod­uct that hedges bets on the hous­ing mar­ket to be con­sis­tent with the obvi­ous need for delever­ag­ing in that mar­ket. If any­thing it will encour­age more spec­u­la­tion. So to me it appears in con­flict with the objec­tive of the blog.

    The only cer­tain win­ner in this game is the bro­ker of the prod­uct. Peo­ple with lit­tle debt on hous­ing do not need it. 

    These “prod­ucts” are the stuff that the likes of Gold­man Sachs and AIG dream up to suck the lifeblood out of economies and make them­selves rich:
    http://www.guardian.co.uk/business/richard-adams-blog/2011/jan/19/goldman-sachs-bonuses-earnings-live
    No risk- gear up, buy a house. All we want is a small mar­gin on the inter­est for the money you bor­row and a small pre­mium for the pro­tec­tion against falling house prices. 

    We will have eco­nomic sta­bil­ity when money is sta­ble and peo­ple live within their means. Stay out of the get-rich-quick casino, cut spend­ing and save more.

    The only way to pre­vent future blood suck­ers like Joseph Cas­sano from becom­ing wealthy is to NOT play their game — avoid highly geared debt on unpro­duc­tive assets like hous­ing:
    http://en.wikipedia.org/wiki/Joseph_Cassano

  • Bald Archy Art Prize win­ner (again) by Artist Xavier Ghazi (French) — Model Aus­tralian

    It is good. 😉

  • Anti­Moral­Haz­ard

    # RickyW

    I do not con­sider a finan­cial prod­uct that hedges bets on the hous­ing mar­ket to be con­sis­tent with the obvi­ous need for delever­ag­ing in that mar­ket. If any­thing it will encour­age more spec­u­la­tion. So to me it appears in con­flict with the objec­tive of the blog.”

    I dis­agree with that. If hedg­ing is evil, then we should all ban all finan­cial deriv­a­tives, includ­ing options, swaps, futures and for­wards.

    The truth is, these deriv­a­tives have legit­i­mate use as hedges. With­out hedges, the finan­cial mar­ket will become more volatile. Just look at China’s volatile stock mar­ket.

    Fire is a good ser­vant but a bad mas­ter. The same goes for deriv­a­tives and other use­ful things in life. They can be abused to be used for spec­u­la­tion instead of hedg­ing. But these things them­selves do not encour­age spec­u­la­tion.

    So, a lot goes to the design of the finan­cial prod­ucts. It has to be well-designed so that it is extremely dif­fi­cult to be abused. With­out know­ing the details of how it works, how can we cat­e­gor­i­cally say that such a prod­uct is evil?

  • Lyon­wiss

    peter­jbolton April 19, 2011 at 12:27 pm

    On home lend­ing, here is a rare report by the reg­u­la­tor:

    http://www.apra.gov.au/Insight/upload/ADI-housing-lending.pdf

    APRA is funded by levies from the reg­u­lated insti­tu­tions and it is con­strained by a Secrecy Act. Hence APRA has to be very care­ful about what it pub­lishes.

  • sir­ius

    I dis­agree with that. If hedg­ing is evil, then we should all ban all finan­cial deriv­a­tives, includ­ing options, swaps, futures and for­wards.”

    I believe that is what is referred to as a “straw­man” ?

  • sir­ius

    I dis­agree with that. If hedg­ing is evil, then we should all ban all finan­cial deriv­a­tives, includ­ing options, swaps, futures and for­wards.”

    Are you talk­ing about these things in the con­text of a vir­tual world or the cur­rent phys­i­cal world we live in ?

    I leave you with some­thing another poster said .…

    “Some­times, folks won’t admit that **** stinks until they smell it. One can’t tell them and they believe it. So, one has to let them smell for them­selves.
    As Brookl­s­ley Born told Greenspan that CDS should be reg­u­lated and they will cause havoc. Not only did they not believe her, they ran her out of town. Now here we sit. I am sure Greenspan wants that episode buried and for­got­ten.””

    http://market-ticker.org/akcs-www?post=184151#discuss

    The Fraud is longer than you can count and still we play this “game”

    And so it the never end­ing un-cus­sion goes on (Sigh).

  • sir­ius

    Every tree has roots. With­out under­stand­ing and appre­ci­at­ing where those roots begin and how they form the result­ing tree we are “lost”. There is much to con­sider ?

    http://www.youtube.com/watch?v=fy3KDYE5KQE

  • sir­ius
  • @ Lyon­wisse April 19, 2011 at 7:48 pm | #

    APRA is funded by levies from the reg­u­lated insti­tu­tions and it is con­strained by a Secrecy Act. Hence APRA has to be very care­ful about what it pub­lishes.”

    Oh aye, and thank you for tak­ing the trou­ble to d/l the link.

    One must won­der where recently that it has been reported by Kris Kayce in Money Morn­ing that more than a few of our strong and TBTF banks had secretly taken bailout monies from the FedRes and despite the reg­u­la­tions these hand­outs were not reported to the ASX or in fact — any­one else — for that mat­ter and even now, as far as I am aware, nei­ther APRA (con­strained by the Secrecy Act, cough, cough) not RBA, ASX not the MSM have even mur­mured a word about same, ever? (please cor­rect me if I have missed some­thing).

    One won­ders how play­ers ie investors such as pen­sion funds, trusts, ser­vice unions, indi­vid­u­als, cor­po­ra­tions, bro­kers, banks etc., etc., are sup­posed to invest pro­fes­sion­ally or make seri­ous deci­sions if sub­stan­tial infor­ma­tion is not mak­ing it to the pub­lic notice due to … er, The Secrecy Act and or National Secu­rity… or what­ever… ? maybe just col­lab­o­ra­tive incon­ve­nience?

    As I have said ear­lier, this isn’t eco­nom­ics, it is applied Moral Haz­ard cum pol­i­tics, ie gam­bling — where the Bank makes up the rules as it goes along as I remem­ber well my ear­lier days of youth­ful adven­tures in places like Macao and Rio, Vladi­vos­tok, and such like, when those like me who ques­tioned the Author­ity / bank, or won too much, where found float­ing along the Posada the next morn­ing.

    Ref­er­ence mate­ri­als: Bureau­cracy by v. Mises

  • Anti­Moral­Haz­ard

    #sir­ius

    How is that con­sid­ered a straw­man? From my under­stand­ing of RickyW, he con­sid­ered all forms of hedges as evil because they are all abused by Gold­man Sachs and used for spec­u­la­tion and manip­u­la­tion. This is guilty by asso­ci­a­tion.

    But for me, I think hedg­ing is a good idea. It becomes a bad idea when the instru­ments used for hedg­ing is badly designed and becomes a tool for spec­u­la­tors and that the deriv­a­tive itself influ­ences and dis­tort prices in the real econ­omy. The evil is spec­u­la­tion, not the hedge itself.

    Deriv­a­tives have been with us for cen­turies. The Japan­ese were the first to invent the futures con­tract hun­dreds of years ago. They play legit­i­mate role in hedg­ing back then.

    If you believe that Australia’s econ­omy is going to hell because of the hous­ing bub­ble, then the abil­ity to hedge is a mercy out­let.

  • Lyon­wiss

    peter­jbolton April 19, 2011 at 8:55 pm

    Ah yes. “Bureau­cracy” is a clas­sic by von Mises, who said: “Gov­ern­ment jobs offer no oppor­tu­nity for the dis­play of per­sonal tal­ents and gifts”. This explains why gov­ern­ments stuffs things up all the time, because only the scum floats to the top.

    Reg­u­la­tion is a device to hide infor­ma­tion from mar­ket par­tic­i­pants, so that the mar­kets fail due to infor­ma­tion asym­me­try. Remem­ber the revolv­ing door of US (and Aus­tralian) reg­u­la­tors. You are most vul­ner­a­ble when you think you are pro­tected.

  • RickW

    The hedge will only be a mercy out­let for those who are overex­tended in the hous­ing mar­ket or heav­ily geared into “invest­ment” prop­er­ties. The best way is to aggres­sively pay down the debt, not hedge against a price col­lapse.

    Hedges do make sense in their native form as the basis for sta­bil­ity in phys­i­cal mar­kets but the con­vo­luted gam­ing and spec­u­la­tion with these so-called “finan­cial prod­ucts” just opens doors for the blood suck­ers that skim a mar­gin on every trans­ac­tion.

    Gold­man Sachs are the mas­ter play­ers and have cre­ated so much per­sonal income that their influ­ence, through bribes, is per­va­sive:
    http://www.globalresearch.ca/index.php?context=va&aid=13440
    They are the US gov­ern­ment. They con­trol the money sup­ply for their own ends and cause the insta­bil­ity in finan­cial mar­kets. The best way to avoid get­ting trapped into play­ing the game is to min­imise debt on non-pro­duc­tive assets like hous­ing — the basis for this blog.

  • Anti­Moral­Haz­ard

    #RickyW

    The hedge will only be a mercy out­let for those who are overex­tended in the hous­ing mar­ket or heav­ily geared into “invest­ment” prop­er­ties.”

    Do you think a mas­sive hous­ing crash will only affect those who are over­in­vested in ‘invest­ment’ prop­er­ties?

    If you think a mas­sive hous­ing crash will bring down the entire econ­omy and screw every Aus­tralian, wouldn’t ban­ning hedg­ing be cruel?

  • Anti­Moral­Haz­ard

    Hedges do make sense in their native form as the basis for sta­bil­ity in phys­i­cal mar­kets but the con­vo­luted gam­ing and spec­u­la­tion with these so-called “finan­cial prod­ucts” just opens doors for the blood suck­ers that skim a mar­gin on every trans­ac­tion. ”

    With­out know­ing the details of that finan­cial prod­uct and how it works, isn’t it too early to put it in the same box as Gold­man Sachs?

  • @ Lyon­wiss April 19, 2011 at 10:06 pm | #
    “This explains why gov­ern­ments stuffs things up all the time, because only the scum floats to the top.”

    As I have stated many time before: gov­ern­ment or bet­ter “lead­er­ship” sic, inhibits growth, a pri­ori, due to the fact that the polit­i­cal game of “democ­racy” in action, is , by strict def­i­n­i­tion, a “Recur­sive” ie, a ” Prof­i­teer­ing Play by Pol­icy” (RPPP)

    http://verbewarp.blogspot.com/2011/02/recursive-game-is-policy.html

    Pol­i­tics is all about cov­et­ing by stealth and deceit; like a wet-blan­ket empow­ered by duplic­ity and hypocrisy; guilt, fear and pro­jec­tion thereof. 

    We who com­pre­hend, must lift the veils for all to see. But the, most do not wish to see but pre­fer to believe — in any­thing; hence the para­dox.

    Below: Truth appar­ent but not obvi­ous

  • RickW

    This blog is based on the premise of explod­ing debt and the finan­cial insta­bil­ity it begets. The way to avoid that insta­bil­ity is to not get overex­tended and don’t get wound into a game where the scam­mers can get at you both ways. They cream a lit­tle on the inter­est pay­ments and then they cream a lit­tle from you by offer­ing pro­tec­tion after you were encour­aged to overex­tend. You are play­ing their rigged game. It does not mat­ter if they are Gold­man Sachs or a scam­mer of another name. Despite any good inten­tions they are always work­ing on new ways to get another mar­gin.

    I have no inten­tion of sell­ing my house and have no inter­est in what some­one might pay for it. It pro­vides me value in the shel­ter and util­ity it offers but I have no illu­sion about it being an “invest­ment”. I own it so I have no need to hedge against its price falling.

    My issue here is that I was sur­prised to see a blog that makes great sense regard­ing the insta­bil­ity that debt causes, pro­mot­ing “prod­ucts” that give peo­ple some com­fort if they are overex­tended. The first phase of the GFC came about by peo­ple feel­ing com­fort­able with truck loads of debt. I am con­vinced the next phase is yet to come and Aus­tralia has been lucky so far. The safest way for­ward for indi­vid­u­als is to aggres­sively reduce debt. The sav­ings can be put to bet­ter use to develop pro­duc­tive assets that will help the coun­try improve its net for­eign invest­ment posi­tion rather than hav­ing prof­its and inter­est pay­ments going off­shore to smarter investors. One day China will stop buy­ing our dirt for pre­mium prices.

  • DrBob127

    RickW

    ” I was sur­prised to see [this] blog … pro­mot­ing “prod­ucts” that give peo­ple some com­fort if they are overex­tended”

    I think that you are over­re­act­ing a bit. 

    The Prof wasn’t pro­mot­ing any­thing, this blog is read by many prop­erty bears and all that was being sought was the level of inter­est in mak­ing some real money based on what [the per­son who invests] thinks may hap­pen to the prop­erty mar­ket.

    A chance to per­haps put our money where our mouths are?

    That’s all.

    I was also inter­ested enough to start fill­ing out the sur­vey until I was asked for my info.

    As for the hedge, my under­stand­ing is that it is a valid way to reduce risk. By hedg­ing your invest­ment you reduce risk to reduce the size of poten­tial losses at the cost of reduc­ing poten­tial prof­its. I agree with Anti­Moral­Haz­ard “deriv­a­tives have legit­i­mate use as hedges. With­out hedges, the finan­cial mar­ket will become more volatile”

  • Anti­Moral­Haz­ard

    RickyW

    The way to avoid that insta­bil­ity is to not get overex­tended and don’t get wound into a game where the scam­mers can get at you both ways. ”

    Unfor­tu­nately, it is already too late. Aus­tralia is already in a posi­tion where it is going to be unsta­ble. No amount of aggres­sive debt repay­ment is going to avoid the sh*t that is going to hap­pen soon. If you say this 10 years ago, that might make sense.

    I know peo­ple who label ALL lawyers as crooks. But are you doing the same by labelling busi­nesses like BNN as crooks like Gold­man Sachs?

    My issue here is that I was sur­prised to see a blog that makes great sense regard­ing the insta­bil­ity that debt causes, pro­mot­ing “prod­ucts” that give peo­ple some com­fort if they are overex­tended.”

    This prod­uct is not for peo­ple who are overex­tended in debt. It is for every­one. Because if/when the sh*t hits the fan, even good guys like you are going to be screwed big time as well.

    Also you think those who are overex­tended have the incli­na­tion to use such a prod­uct? Imag­ine your­self hav­ing a gigan­tic debt, with neg­a­tive gear­ing and dozens of IP. Will you be in a state of mind of pay­ing even more money to get that finan­cial prod­uct to ‘hedge’? Hell no. Because if you’re think­ing of get­ting that prod­uct in the first place, that means you are scared sh*t that a crash will hap­pen. If you scared sh*t, you will be sell­ing your IP first before the thought of get­ting that prod­uct comes to your mind.

  • @ RickW April 19, 2011 at 11:43 pm | #

    This blog is based on the premise of explod­ing debt and the finan­cial insta­bil­ity it begets. I have no inten­tion of sell­ing my house I own it… so I have no need to hedge against its price falling.” 

    I have edited your prose…

    Think again please: 1. Home: is where you live and raise your fam­ily 2. House: is a bet, a gam­ble, an invest­ment, a spec­u­la­tion, etc., etc.

    A hedge is an act of sen­tience that attempts to pro­tect your inter­ests, you hope — this hope being due to an uncer­tain World full of risk, “Caveat Emp­tor, crooks, swindlers and bureau­crats; not to men­tion “lead­er­ship”.

    Okay: You own your home- good start — but please do not go to sleep — because some­one wants it: Coun­cils will raise rates, change bi-laws, and basi­cally, if they or some­one really wants your home, they will fix the sys­tem until they get what they want, if you are not sen­tient.

    You must always hedge what is obvi­ous to human nature and let me tell you — human nature ain’t that nice! This is the prob­lem that eco­nom­ics has — but refuses to deal with, but is the norm in socio-eco­nom­ics.

    So, to say that you own it and don’t have to hedge, maybe okay for you, but I sug­gest that you stay alert and hedge that which you believe is “cer­tainty: — because it isn’t — and I say that you should be ready to hedge!.

    Keep your eyes on the bounc­ing ball and trust nobody.

    Go well… I wish you and your naivety, good luck.

  • sir­ius

    Results of the USA ver­sion of FHOG

    http://market-ticker.org/akcs-www?post=184512

  • tony­fer­reira

    Hey Steve, I just thought that I would let you know, that this morn­ing, in the good U.S.A. we came out with our monthly hous­ing starts and per­mit data, and due to huge revi­sions upward to February’s data, it now appears that we are not head­ing back into reces­sion any­time soon. We are hav­ing a dou­ble dip in hous­ing prices, but not in con­struc­tion, which has just been going side­ways for months.

    Like you, I have learned my les­son. While you need a sec­ond cup of cof­fee before you respond to any blog or e-mail, I need to wait at least for the first revi­sion of data, before push­ing the panic but­ton.

    Your weary Den­ver cam­era oper­a­tor.

  • sir­ius

    Jail ‘em

    Hotspots With Max Keiser (Dire­land)

    http://market-ticker.org/akcs-www?post=184537

  • TruthIs­ThereIs­NoTruth

    there is prob­a­bly a fair amount of over reac­tion here, there is noth­ing wrong with hedg­ing. If you are loaded up with a prop­erty port­fo­lio and want to have pro­tec­tion on the down­side and are will­ing to front up some cap­i­tal the sug­gested prod­uct might be the thing for you.

    Purely as an aca­d­e­mic exer­cise I would be curi­ous about the assump­tions that go into hedg­ing a prop­erty port­fo­lio.

  • I have to agree with TININT here. Some of the com­ments here are rem­i­nis­cent of the attack in the USA on “shorts” for caus­ing the finan­cial cri­sis.

    They didn’t cause it: the cri­sis was caused by the debt-financed long posi­tions on assets that cre­ated the bub­bles in the first place. The shorts were sim­ply exploit­ing the debt-financed col­lec­tive mad­ness of the mass of the mar­ket. The mar­ket would have plunged any­way once debt lev­els stopped grow­ing, as I have argued here many a time.

    As it stands, many, many over­seas hedge funds have taken posi­tions on the expec­ta­tion that Aus­tralian house prices will fall, and that this will impact on Aus­tralian bank shares. This firm’s mooted prod­uct would allow Aus­tralian whole­sale investors (those with more than A$250K to spec­u­late with) to at least cap­i­tal guar­an­tee their expo­sure to bank shares, and pos­si­bly gain from a sub­stan­tial fall in bank share prices.

    The sums Aus­tralian spec­u­la­tors will put into such a prod­uct will pale in sig­nif­i­cance com­pared to the over­seas bets that have been placed, and the fall that I expect will occur in bank share prices won’t be caused by them or the o/s shorts, but by the over­ex­posed and overindebted posi­tion the banks have got them­selves into as they have funded this Ponzi Scheme.

    There is an irony in my deci­sion to assist this firm com­mu­ni­cate its prod­uct that I think is being missed by some posters here: a pro­por­tion (small, but still non-zero) of the funds raised by this spec­u­la­tion will help fund a research cen­tre ded­i­cated to get­ting rid of finan­cial spec­u­la­tion.

    I’d rather enjoy the irony in that posi­tion than stand aside and watch the spec­ta­cle unfold any­way, with no ben­e­fit to future attempts to rein in finan­cial spec­u­la­tion than mere schaden­freude.