Why it Won’t Take a Shock to Knock House Prices for Six

Jessica actually said “Most of the population is concentrated in a few capital cities with often marvellous water views.”

So in the world according to Jessica, at minimum of 25% of the population of Australia has fabulous water views!

There you go, how on earth could you have a bubble with so many fab water views?

Its impossible I scream……gagging on my psych meds!

There is a lot of talk about the Residential market however few comment on the Commercial market. The Commercial market (here in SE QLD) is cold and on a slab with a tag on its toe. For me that means new jobs aren’t being created, the jobs contribute to GDP and pay for the credit cards, mobile phones, cars and residential mortgages not to mention the commercial investors of the commercial properties (and possibly some super funds) are, or going to be, taking losses.
I’ll take a punt and say most homeowner/investors probably don’t know what it’s like to take a SIGNIFICANT capital loss so for them it’s like trying to convince them 3weeks ago that a giant tsunami would take out japan, creating a potential nuclear disaster.
My take… the higher the property market rises the further they have to fall –simple. If, When, Why… seriously –doesn’t matter. Remember, unlike other forms of ‘investment’, you can’t put a stop-loss on a house, and it’s extremely difficult to write a short on your position.

Abby – I think your BS detector needs a tune up. Still you have become more civil lately, that’s a blessing.

Delusions and Illusions
Jan 2011.
There is a strange idea that seems to have afflicted even normally sound thinking citizens of our two isolated countries in the Sth Pacific, namely Australia and New Zealand. Australians in particular seems to have decided they are independent of the rest of the world, because their country is blessed with enormous natural wealth that will keep them living in comfort, while a large chunk of the rest of the developed world, is being forced to face up to the reality of an emerging new world. In particular the current Labor Govt and its predecessors namely Hawke, Keating etc; bask in royalties and taxes from its mining sector, and the wealth that’s works its way through the economy in so many different ways, were/are masters of illusion. Economic theory, what there is, which isn’t much; is based on Keynes teaching that swept the capitalistic world for many years, but is largely discredited by conservative present day thinkers.
The view from England; was from the birth of its various colonies, one of arrogance towards its most distant colonies, which in retrospect seems quite normal. This was particularly on display during WW1 and the 1929 depression. Then came WW11, and the very difficult times being experienced in Britain, from German bombing during the ‘Battle of Britain’. The English (Churchill) attitude was largely predicated by the Australian fear of occupation by the, at the time, rampant J@panese military as they initially carved out a new Empire in the Sth. Pacific. It was during this time 1939-41 that the conservative Australian PM; Menzies had the grand illusion that he could with various smart moves replace Winston Churchill, and become the PM of Great Britain.
After the defeat of Menzies at the polls, the Australian Labor PM Curtin and NZ Labor PM; Fraser both had differing attitudes to the looming threat, of the J@panese conquering military successes, which loomed ever larger. The NZ approach was far more sanguine than Australia, but they were just as aware of the perilous position both countries were in. Perhaps the Australian attitude was also partially because of its all white Australia policy, the occupation by a nation of yellow skinned people, would have shattered the illusion of white superiority so carefully nurtured. Actually the J@panese had already shattered that image of white superiority with its recent defeat of Russia, this was real not an illusion?
By comparison in NZ that illusion was first shattered by the Treaty of Waitangi, which had been forced on the whites by the Maori wars. The English had found it too difficult to subjugate the Maoris with war, far better the illusion of a treaty they didn’t honor anyhow. The resurgence of its indigenous peoples, after the initial decimation by the wars and the imported diseases, and the great rate of attrition through grog and disease was no illusion. What did it matter to have a treaty with a people that would be exterminated eventually without war, the Maoris turned that into an illusion, and now we have the strong browning of NZ? (Inter racial marriage)
NZ also differed from Australia, where the indigenous peoples had been so badly treated. The illusion of racial superiority in NZ had been dented, but not entirely shattered. The exploits of the J@panese in China was also an eye opening knowledge, forced on both countries populations, by the images on movie screens depicting J@panese brutality. The sudden understanding of the Asian mans possible potential was difficult for Australians, and frightening? Fear of the future at that time was real not an illusion, but that tendency towards illusions seems to be a natural characteristic, not a temporary aberration of the character, that persists to this day.
Perhaps the perception freely acknowledged from Whitehall in the UK, that Australia was merely a huge island that they had settled with convicts, and dissident Irish laborers, was of little consequence. On the other hand NZ had been settled by free settlers dominated by immigrants from Great Britain, this was well known in Australia, and had some legitimacy in the UK. Perhaps this was the basis for the animosity between the two govts; Australia and the UK. Whatever the reasons the Australian instinct for illusion seems to have grown steadily during this WW11 period, and has greatly expanded ever since?
What I choose to call the grand Australian illusion was first Menzies personal ambition, but then the dream by the labor govt in Australia to take over after the war, countries that had been colonies of great European colonizing countries. Among them Indonesia, Papua New Guinea, Borneo and all of the surrounding small islands of the Sth Pacific, and possibly up to Malaya, Singapore and the Philippines. So these countries were to have local white skinned supremists instead of bigoted English, Dutch, French and Yanks or yellow skinned Japs?
The illusion was that Australia with NZ; the only white countries in the Sth Pacific area, would have a large population under their control, but NZ was to be rather passive in the partnership just a rubber stamp really. Australia’s grand illusion was that it could see itself aligned with the passive help of NZ; at the head of a large trading group, with control of these Asian peoples, who would in the future be the front line defense against future Chinese and/or J@panese ambitions. At the time the population of Australia was a mere seven-eight million and NZ not much more than one-one and a half million including a resurging Maori population?
Herein are my instinctive comments of our continuing illusions, including the first financial ride on the sheep’s back for ANZ, and now the mining industry for Australia? The period is from and during WW11!
The current NZ approach is more pragmatic because it has to be, the Kiwis don’t have so many illusions because of their exposure to multiple recessions over the last three decades, that haven’t affected Australia to the same extent. It is surprising however just how often one speaks to a Kiwi who has a blinkered view of the future, and many are quite sure their future is with Asia, or more specifically China. The illusion is that they believe in that future as being as one of equals! That’s a grand ANZ illusion, the Yellow man looking after the White man some hope, rather it would be something like the Chinese are doing in West Africa right now. Taking everything and giving little, but in ANZ thinking that’s different, because we are basically white dominated countries!
The most memorable illusion was in believing that the mother country (England inter ww1 and ww11) was the one that would nourish us indefinitely, even to her own detriment. Gallipoli should have shattered that illusion but it didn’t? Then the many instances of political subterfuge created by Churchill who was the architect of Gallipoli anyhow, were so many as he initially conned ANZ; to denude their countries of our own prime fighting men, in spite of the danger from J@pan in the South Pacific. Australia in the form of then Prime Minister Robert Menzies; was so infused with dedication to the British, and Empire he forgot or avoided many times the obvious truth. The mother country wasn’t capable of suckling its off spring, and wanted to use our troops in Tobruk, and then on to Crete. The Anzacs were in the front line in the defeat of the Rommel juggernaut and had three companies in the Montgomery’s eighth army that was victorious at Al Alamein. Our military were placed anywhere at Churchill’s behest often without the courtesy of ANZ even being notified. Our men and women, died for England’s salvation not for their home countries?
Menzies and his war cabinet were completely deluded, by Churchill and his love of war, and readiness to sacrifice lives, especially from forces sourced from the dominions. They were totally deluded in their belief in the power of the mother country or what they thought was the case, but was it just an illusion. Peter Fraser the NZ Prime Minister at that time was supportive of Menzies, although a bit tempered by their different political persuasions. Both countries were treated as merely irrelevant distant off spring, and Churchill was the master of illusions as well as a very competent puppet master.
As the successor to Menzies, Curtin the wartime Australian labor leader; discovered Churchill placed ANZ as the lowest priority for succor, and India on a far higher level. The Sth Africa PM General Smuts and the Canadian PM; McKenzie King were able to get assurances their countries, were both accorded a higher relevance than ANZ. Sadly our naiveté in accepting Churchillian illusions seems to have been entrenched; in the thinking of our leaders from the antipodes.
After the war another significant illusion was created when both countries rode high on the sheep’s back, Australia with its Merino wool producing flock and New Zealand with its Nth Island Southdown Cross flock, and its premier lamb meats, but their lower quality annual wool output. WW11 had just ended and the world wanted/needed to buy our products. Huge capital investments had been made (Starting pre-depression) to develop what we comfortably believed was our future, feeding and clothing the world.
Suddenly these two isolated countries were needed as they had never been needed in peace time before, and we thought it would go on forever. What a time it was, we kids used to roam the paddocks, and collect any wool that had been left tangled on barbed wire fences by the sheep while in full fleece, prior to shearing, we earned good pocket money.
In NZ we thought the UK was going to take all of the lamb we could produce forever, and venerable old English companies, like Swifts, Borthwicks etc obviously thought so too. They had huge meat producing works everywhere ie Riverstone in Sydney; the shearing and meat contract gangs were in their own illusions, the aristocrats of the land. After the Cockies (Farmers) of course they were the real aristos!
Contract workers in both the meat and wool industries were earning way in excess of most of their working class mates, only the wharfies with their militant unions had comparable conditions. This was the truth in both countries as the union movement became ever stronger, and our leaders fed us with wonderful illusions of the future.
Periodically some of the old memories come back and one has to smile, as they merge with the differing developments over the years. Suddenly (to us) there were rumors of something that was being referred to as some sort of common market, way over there on the other side of the world. This was being envisaged, and trumpeted loudly by the media, but so what we didn’t care we had the best products in the world at the best prices. Like it or not the rest of the world would dance to our beat because we were the best, well it was a nice illusion at the time.
Then we were informed that France was going to become the major supplier for lamb in the UK as part of the common market rules, “but what about us?” we wailed and then we found that French lamb was much more expensive than ours, it was tragic in the extreme? But that couldn’t happen to the fine wool of the Merino, that was of an unsurpassed quality and none could copy that. We common workers were assured it was just a blip and only a short term hold up; the meat industry would flourish still hmmm. But suddenly it happened there were all sorts of other material created, and our Australian fine wool wasn’t holding the trump cards after all, and those Frenchmen were in the middle of it again, with their fashion etc. Wow is there any wonder we the common worker had bad feelings for those French whingers!
We were in the newspapers and the radio being exhorted to produce more for the hungry Poms, and as a 15 YO in 1950 I left college to answer the call for labor, and went out to a local meat works and asked for a job. “How old are you son”? The boss man asked.
“How old do I need to be to get a man’s job bro?” I asked.
“About 18 YO,” he replied with a grin.
“Yeah well I will be 18 YOA tomorra bro so what about a job?”
“You don’t look like 18 ta me but what the hell we are short staffed, start in the morning son, but you havta join the union ya know this is a union shed, cost ya two bob a week,” pay before ya start in the morning.
Four years later when I really was 19 YO several of us Maoris got offered jobs in Bendigo Victoria, more pay and return fare paid if we stayed for 12 months. For every extra person we took with us we got paid a five quid start up bonus. I had taken 5 with me, but another 6 came a week later, it was a nice bonus for a youth.
When the season was over, three of us went up shearing in NSW at Warialda in the north. The old Cocky who met us said, “Hi fellas Kiwi’s hey? Whats it like over home nowadays I am a Kiwi too, but been here forty five years?”
“Yeah well it’s been a bit dry, haven’t had any rain at home for over a week, but it is raining now,” one of us said sorrowfully.
“Well we haven’t had any rain for 7 years so it’s a bit dry here too, and the biddy bids are real bad this year,” The old guy said with a laugh.
“So whats a biddy bid, do they snag up the blades?” I asked.
Well it’s time for the first run, and an ugly great flock (dirty and biddy bid infested) of Merino’s rams were first up, and in my pen there were five of those monsters, struth those things were bigger than me. I looked at them and they eyed me off, I didn’t like them, but the feeling was mutual. Anyhow I grabbed one, and the damn thing was infested with those plurry biddy bids orright, I let out a yell, “These smelly brutes are full of spikes?” and that was no illusion it was real.
The old guy just stood there and laughed all he said was, “Welcome to Aussie young fella, these are real sheep not those funny little cross bred things we have over home, can’t you do the job?”
“Obviously you have never been down in Southland, Otago especially their Border Leicester cross are giants, or Canterbury with their Down cross bred’s, but they get washed regular these things have probably never felt a decent rain. That’s why there is so much fly bow (maggots in the rear end up into the anus) and muelsing (caused by crutching and de-tailing the rear ends to clear away the shit) problems, for sure what is big over here is the flies, and they are like dive bombers compared to fighter planes back in NZ? That’s for sure; still you have to pay us double rates for this stuff, so what the hell in the long run it makes no difference to me?” I said with a cheeky grin.
I had nothing more to say, even though when I put in the opening belly cut of that first ram the shears (hand piece) just bounced back, but I said nothing and battled on. I was no gun (expert) shearer, but at home I could put out my 180 a day. Suddenly in Australia me and my mates were struggling to do 80 a day, it was damned humiliating, to hear the Aussie shearers having a great laugh at our expense. But we got our own back within two months we were the ones laughing, as the Aussies couldn’t match our tallies for the day.
We had started out in response to the call for labor and it was great then,
but suddenly we had the illusion that we were indispensable. Looking back though it was true enough at the time, but now I know it was an illusion of the times? But I never forgot such a wonderful time in my then young life!
Anyhow that was forty two years ago and I am still here in NSW, and it’s been great I am still a Kiwi at heart, but I love this country. I have travelled all over the world and there is nowhere like ANZ. This great country (Australia) is what it is in spite of the dills we have had for politicians, not because of them. The natural wealth is great, but can it last or is it like being on the sheep’s back, when we may fall off again, is it just another illusion?
The politicians (and their illusions) carry on about how we are part of Asia, and how the Chinese are going to keep us all wealthy and look after us, yeah sure just like the Poms did until they didn’t need us. I went back to the old NZ meat works, (owned by CWS in England) I had worked at five years ago after a 35 year absence, and it was a desolated wreck, not only that one, but so were at least half of the others that were once processing each over 1,000,000 lambs and sheep per year, plus beef. Where the Cockies once grew lambs there are now pine plantations, it takes less than one year to bring a lamb to market, but over ten years for the first cut, out of a well run pine plantation, and 23-25 years to reach full maturity and clear fall milling. NZ has suffered, and it is hardly surprising!
Even with the Chinese in the market here in Australia the wool clip has been in and out of trouble, but the old days are gone Australia and New Zealand fell of the sheep’s back. And the French Cockies still clamor for better money for their products, how does this new world work? We once produced the best products at the most competitive prices, but the Poms are now paying those French Cockies top dollar while our works are desolated, and the sheep country infested with radiata pine plantations. We understand the reasons for why this happened, what I am asking is why the supposed global village concept throws up so many such anomalies. In other words this global village concept still depends on the large countries and their alignments, and they will feed us little twerp’s (English attitudes) illusions as ever.
Old Winston Churchill didn’t give a damn about us when the chips were down, our men were kept fighting in North Africa to help save the Poms, and he (through his war office) refused to send them home, at Curtin’s persistent requests. Churchill was the great master of spin and illusion! Worse still the Brits; were well aware when they had conned Menzie’s-Curtin, and the Australian officials in London, the danger of war with J@pan especially for Australia was very real. They fed us with illusions that they (Brits) could and would protect us, but in truth that was like the impregnability of Singapore, and was at best an illusion of the once mighty British Empire. If it hadn’t been for the Americans we would have been in real trouble, but that was the start of the end, of the ANZ unquestioned loyalty to the mother country we finally had to grow up, and in a big hurry?
For a simple ex colonial like me when one reads the record of WW1 & 11 of English performance during both periods, he asks was the so called mighty English Empire just an illusion. It’s similar to a large grazier who has 100,000 head Merino flock, but only has the feed for 90,000 end result the entire flock starves during a prolonged drought, and sheep die because of their owner’s illusion?
There is an obvious financial realignment happening in the developed world as the cost structures are a changing, and it’s all downward. Like it or not as built home values drop within the working middle class level, the cost of the new homes will drop also. As the home values drop the material and labor costs in new homes must drop too, and as this happens mineral values must drop as well, so careful Australia, as mineral values drop so the insular dream may be shattered, and eventually we will fall in line with the rest of the developed world. This doesn’t mean a loss of market, but what it does mean is lower prices for our minerals, and greater competition from countries like Brazil. It’s true our big miners have mines etc all over the world, but that doesn’t allow for royalties being earned for Australians. But it’s a great opportunity for profit shifting if these mammoth companies were so inclined, off course they wouldn’t do that just ask them they are always truth-full just like our politicians?
One doesn’t have to be an honors economist graduate to work that out, even an old contract meat/shearer like me can see that, so why don’t we just cut out all of the spin. Vested interests try to talk up the market with the same old spin that bought the developed world to its knees, are we so stupid that we will still listen to all of that once again??? Yes we are/can and we will, just you watch us!
Over the years Labor historically has created work etc by boosting the construction industry when they win govt, and the conservatives have done the opposite, there have been no new formulas it’s the same old spin that had been served up ever since the Yank military went home, and in many cases left all of their new families behind. In years gone by it was accepted that the roll-over period from boom and bust; in the construction industry was 7-9 years.
Even as Europe and America struggle with their housing and financial problems, here in Australia we are pushing ahead with the same old techniques. Fractional banking is still thriving as did the govt first used first home buyer bait (cash contributions) to kick start the home building industry. This starts all of the same spin over again, but that’s fine we in Australia are immune and our banks are so sound just ask them. Even better the govt; via the media has told us the facts, and they have confirmed how strong our banks are, not like some of those weak pussy cat banks overseas ie; Ireland.
If our banks are so sound why did two of our major banks have to borrow extensively off the American Fed recently; is it really true how strong our banks are? What is hidden in the bank fixed assets? Are there lots of exposures to the bond market, how is fractional banking working for our banks, and why did the govt; have to guarantee the bank loans just as the Irish have done? Are our banks sitting on lots of toxic bonds that they weren’t able to sell off to the Yankee big boys during their prime? The banks in Australia also own and control the banks in the New Zealand system, in the main, and that’s not an illusion.
But don’t worry fellas the Chinese are going to keep us living high on the hog, and will keep on infinitum doing that, go on ask them they will say yes. Make no mistake the Chinese have even less concern for our welfare than Winston Churchill ever had, we are on the bulldozers back, but the damned thing might fall apart at any time, made in China and cost half the price of those produced by or for ‘Caterpillar, the Yankee company’. Also now made in China!
I have no problem with the Chinese at my age why should I care? Well sadly I do because I care for Australians and New Zealander’s all of them rich or poor… All we oldies want is for sanity to prevail, just remember all of the Asian nations in the Pacific Rim fear and hate the Chinese, and they sure hate and fear the Japanese, study the history a bit people and it’s easy to see why. For example the Vietnamese were overwhelmed by the Chinese over two millennia ago; the only country that could and did defy China, in their sphere of influence was J@pan. They successfully defied the Mongol Emperors (Occupiers) of China the only country in the area that ever did escape the Mongol embrace. (Military defeat) The Asians live in a world of reality not illusions, they know they can’t spend illusions only the peoples of the developed world can do that? Most of the Chinese peasants still bank their savings in a bottle under the bed.
America has always claimed not to have territorial ambitions, their constitution (read it to provoke interesting thoughts) works against colonialism, but they sure have world financial dominance, especially now. In a silly way perhaps I see America as like a huge company that owes the bank lots of money, as soon as their Federal Reserve can print up money the govt borrows it and guarantees the payment plus interest. It’s an interesting concept, interest on pretty paper. (Fiat money) We are consistently told of the huge American Foreign debt, but what is the sum net total after setting off the consolidated assets, if business and mercantile equity worldwide was to be factored in? Try reading just the liability side of a balance sheet and that business will look very sick!
In the start up of modern developed economies, the English had cheap child labor the Americas black slave labor, and then it was the French and Italians that had an abundance of cheap peasant labor. After them it was the J@panese and the Germans, who corralled all of the American investment, and provided cheap labor for their mercantile machines. But who really owns that machine? Then we had the AArabs and black gold, money which was invested in great chunks in US Treasury Bonds, this money helps fund the American war machine, therefore much of that money has finished up with the USA. AArab money to fight the AArabs that’s real smart that is, only in America could that happen?
But the big question where are we the diggers from down under heading, are we safe on the bulldozers, or can we fall off like we fell off the sheep’s back? We sure can and be sure when and if we do we will be right in it (bullspin), up to our necks, but that’s fine our banks are guaranteed by the govt; just like the Irish banks and then the spin will really hit the fan? For interesting reading just check out Ireland’s economy, and how it fell to their banker’s bullspin!
It’s an interesting world, but the perks that were around when I was a boy are all gone, and Capitalism is under threat just as are all of the isms of the near past/now. What I wonder happens if we could ever got back to feudalism, ruralism etc that would be a grand delusion to have nightmares about?
One final illusion from my time as a boy.
It was smoko time on the kill floor and the company had our cups of tea ready with the usual two women dispensing to us 100 meat contractors, as we filed in.
This was a service only for the contractors, not the laborers, but here’s a funny anecdote from the past. In NZ of the contract teams over 70% were Maoris in either the shearing or meat gangs, but for the laborers or low paid workers the ratio was reversed 80% were whites and Maori share was less than 10%, the rest was made up of new comers to NZ; all colored. In other words it was the Maoris who were earning the big weekly payments!
We were all seated and eating when suddenly the delegate (white) stood and said, “This tea they have given us is only warm; we cannot work after drinking this slop so it’s no work for the rest of the day, have a shower and go home boys”
I was only a fifteen YO so had no idea what he was on about, but I had never been shy to speak up, so I stood and asked, “Whats wrong wiz the tea Bro I have drunk mine and I feel ok?”
“That’s ok sonny you don’t count the rest of us can’t work though, so just sit down and shut up,” our venerable old delegate said with a demeaning sneer.
“Yeah well if I don’t count give me back the two bob union fees I have to pay every week, and I will never say another word,” then I sat down.
“I have already said sit down and shut up,” said the delegate now with the stern voice of authority,
Sounded just like the science teacher to me when we stuffed up at college, that’s why I had left for goodness sake now here was a silly-wit telling me to shut up, maybe I orta go back to school, better than this spin anyhoo!
Suddenly one of the men stood and said, “The kid is right he pays his dues same as all of us, so we want a vote not you telling us what to do?”
There was a cheer from every man in the rec room, and we duly went back to work, and that delegate never spoke to me again. But who cared he was suffering from illusions of self grandeur, but it was just a lot of adult bullspin to me, still is!!!
That delegate had illusions of his power over the company, and how he loved to use it to bash the bosses over the head has never left my memory; I have never had any illusions of self aggrandizement. But like any other human being we have the many weaknesses of man, we all have much of that we need always be aware, what is and whats not an illusion?
Mentally unbalanced people suffer from frequent illusions; first they are diagnosed as crazy, then they are given white pills to swallow, and the illusions vanish, I know because I am one who is so disadvantaged. I respectfully suggest all politicians be given a full diet of those pills, because unless they regain their senses, we are going to fall of the Asian mans back. But only then will we recover from the perpetual dose of illusions the politicians feed, we the people on.
Written by.
‘Vincent Havelund’.

Let do the rational financial valuation.

Nett inflation adjusted return on asset 4%.
How does it compare to the inflation adjusted bond ?

The answer will tell you if the asset is in bubble or not ?