Is this a good time to buy property? The genius of simplicity Your Valentine’s Day required reading
By Selva Freigedo in Albert Park As I scrolled down my Facebook feed yesterday, a video ad popped up. Before you judge, yep, I still have a Facebook account. I’m not very active in it though. I mainly use it for finding workshops and events around me. Anyway, I stopped scrolling to watch the ad. The video caught my attention because it had the completely opposite view that I have on what property will do next. And, it’s always good to listen to points of view that are different to yours. The gist of the ad was that 2019 could be a big year for the property market in Melbourne, precisely because, according to the ad, property has turned into a buyer’s market. It could mean that you can find more opportunities. But, what was most interesting for me about the video was reading the comments. Let me tell you, there were a LOT of comments. And people were very much divided on what to do about property. Some agreed it was a good time to buy…others said it was folly. Why? Because they think property is set to fall more. Is it a good time to buy? Or is it not? ..............................Advertisement.............................. | 2019 Forecast Report ‘This man sees the future…’ Phil Anderson’s long awaited report is one of the most controversial pieces of research we have ever published. It concerns Phil’s beliefs about the direction of both the Australian share AND property markets in 2019 and beyond. If you have money invested in stocks and/or property you need to read this immediately. It will put a startling spin on what the mainstream media is saying about the markets and global financial system right now. You can access it here. | .......................................................................... |
If you are a regular reader of Markets & Money, you'll know that I think that property has more to fall. Obviously, no one can predict the future, I could be completely wrong. But I have some reasoning backing up my argument. After years of increases, property prices in Australia are falling. The fall in prices may be good news for first home buyers that are looking to get into the market but were priced out. Yet in my opinion this that doesn’t mean property is ‘cheap’ now. The thing is, prices haven’t really fallen much compared to the increases we have seen in recent years. As you can see below, Sydney has fallen 9.9% from the peak, and Melbourne 4.1%. Yet prices for Sydney increased by a whopping 110.9%, and Melbourne saw a jump of 95.3% between January 2009 to June 2017, according to Corelogic figures. Meanwhile, salaries have barely increased during that period. My point is, property price increases haven’t kept up with salary growth, which means that people have had to borrow increasingly more to get into property. And, there is only so much you can stretch a stagnant salary to buy property… Another point is home loans are facing more scrutiny. It is becoming harder to access debt to buy a home, and this is showing in home loan figures. In fact, UBS recently issued a warning on this. From news.com.au: ‘Banking giant UBS has warned that Australia’s falling house prices could be about to plummet even lower still. ‘The alarming claim was made following the release of the latest Australian Bureau of Statistics (ABS) home loan figures, which revealed the number of new mortgages taken out across the country plunged by nearly 20 per cent last year — the lowest point since the global financial crisis. ‘That is a big clue that houses are about to get even cheaper, the bank’s economics team said. […] ‘“The accelerating fall in home loans shows tighter credit is playing out. […] ‘UBS also claimed the results would be even more dire for our two biggest cities, Sydney and Melbourne, which could see prices drop almost 20 per cent — more than double the 7 per cent plunge recorded to date. ‘CoreLogic also recently tipped values in Sydney and Melbourne to fall by 18-20 per cent from peak to trough this year.’ If salaries aren't growing, and it’s getting harder to access credit, then this makes it tougher for people to buy a home. If you jump in now, and prices keep falling, then you risk buying a property when prices are still near the top. I saw this in Spain in the aftermath of the property bubble. The people that got burned the most were the ones who bought closer to the peak. Many people that bought near the top saw their home values fall, which meant that, all of a sudden, they owed more than what their home was worth. They had to stay put for years because if they sold, they would lose money. In fact, it even affected divorce rates, couples were staying together longer because they couldn't afford to split. Yes, property prices are falling. Yet stagnant salaries and tighter credit conditions could mean that people have a harder time getting into property. It could mean more price falls. To me, buying now seems a lot riskier than staying put. Best, Selva Freigedo, Editor, Markets & Money ..............................Advertisement.............................. | How you could pocket a royal fortune thanks to ‘Paladin 2.0’ Paladin Energy was one of the greatest ASX success stories of the early 2000s. A well-timed, $500 stake in this Aussie uranium play could have mushroomed into $668,245! Today, a new Paladin-sized uranium play has emerged, and it could mushroom a small stake into a royal fortune. Click here for all the details. |
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The Genius in Simplicity By Vern Gowdie in Gold Coast, Australia ‘The five ascending levels of intellect: Smart, Intelligent, Brilliant, Genius, Simple.’ Albert Einstein If ever there was a time to ‘keep it simple’, it’s now. The market calm of early 2019 is only a temporary lull in the market’s corrective process. Luring the unsuspecting into believing the worst is over. Wrong! Expect to see a return of the volatility we witnessed in late 2018…but with a little more vengeance. Why? Based on historical values, the US share market has to shed at least 50–60% of its value. The ride to this much lower level will not be for the faint-hearted investor. And when the process begins in earnest, those fancy new Exchange Traded Funds (ETFs) loaded up with glamour stocks, high-yield bond funds, leveraged products (private equity funds, hedge funds et al) are going to be subjected to severe market stresses. As prices plummet, redemption requests (from panicked investors) come flooding in, liquidity dries up and the manager imposes a freeze on funds. In the final wash-up, these once-sort-after bull market assets are worth cents on the dollar. It’s a familiar pattern for anyone who’s been around markets for any length of time. If keeping it simple is smart, then, by my reasoning, making things complex is dumb…and that’s certainly what I’ve observed. In 1992, a well-known investment bank launched a ‘Currency Trading Fund’. The fund’s operations were somewhat opaque. The mystery surrounding FOREX (foreign exchange) markets only served to piqued investor interest…even though they knew little about the asset class. The fund was closed ended…meaning that once the capital raising was done, the fund was closed to new money. Thanks to the fall in the Aussie dollar (from the high-US 70 cent level to the mid-US 60 cent level) the fund rewarded initial investors — in a short space of time — with a double digit return. Back in the early 1990s, that sort of performance was extremely hard to come by. By comparison, the share market was lacklustre (the tech boom was still a few years away). And, unlisted property trusts were in a state of deep freeze. On the strength of this past performance, a second currency trading fund was launched. Money flowed in…chasing yesterday winner. The complexity of the product — the fact that no one really understood what it did — was perversely part of its allure. The fund represented an opportunity to participate in the bounties of foreign exchange. Questions that should have been asked, were not. Questions such as… On what criteria was one currency chosen over the other? Could the performance be replicated? Was there any hedging? What were the total operating costs and management fees? What were the downside risks? These details mattered little at the time. In the minds of investors and advisers, the fund was a winner. What could possibly go wrong? The Aussie dollar regained strength. The fund’s currency traders were on the wrong side of the trade…losses mounted up. Money flowed out. The funds closed. Never to be seen again. The rise and fall of the currency funds was yet another lesson (after the ’87 crash and unlisted property trust disaster) in the need for transparency and understanding risks. Something investors, amateur and professional alike, seem to place too little weighting on…until it’s too late. What happened to the currency fund has been repeated many times over. Rise. Fall. Liquidate. Lament. People crave complexity Keeping it simple helps minimise the risk of nasty surprises. Yet, to my ongoing surprise, I found that people don’t want simplicity. Money in the bank…boring. Index fund (tracking the ASX 200)…boring. Buy gold bars…boring. Dinner party talk is far more stimulating when you talk about the stellar returns from your ‘currency trading’ fund. How exotic. It seems that people (consciously or sub-consciously) crave complexity…believing (mistakenly) the more complex an investment, the closer they are to the inner sanctum of the ‘wheelers and dealers’. Over the life of the investment cycle (rotating from rise to fall) complex investments rarely deliver. Why? In my experience, these products tend to be launched during the ‘rise’ phase of the cycle…appealing to investors’ need for greed. And, that’s a very lucrative ‘itch’ that institutions are only too willing to ‘scratch’. The more complex and opaque the fund, the more fees they can charge. That’s the simple formula institutions follow. These products are what I call ‘good time Charlies’. The funds have never been stress-tested during the rigours of the ‘fall’ phase. Over the years I’ve seen complex products come and go from the marketplace. Investors never learn. However, the lesson I’ve learned from more than three decades in this business, is the wisdom of keeping things simple. To quote Einstein again… ‘If you can't explain it to a six year old, you don't understand it yourself.’ And the reverse holds true. If someone cannot explain something to me in lay person terms, the conclusions to draw are… I’m dumb and they’re smart. OR They’re trying to baffle me with bulls**t. To find out which it is, simply ask questions that begin with ‘why’. Soon enough you’ll find out either how much they really know or how much you don’t. Either way, if you (and the operative word is, you) don’t understand it…walk away. Keep your money for another day and another opportunity…one that you do understand. And there’s absolutely no shame in adopting a simple approach. When you have the confidence to say, ‘I don’t understand what you’re talking about’, then you’re on the way to a superior level of intelligence. I didn’t and still don’t understand cryptocurrencies. Not getting caught up in that fad saved me from losing 80% or more of my capital. I don’t understand how a few extra percent of return is worth risking 50, 60 or even 70% of your capital. Makes absolutely no sense to me. What I do understand are the simple principles of … ‘The higher you climb, the harder you fall’. ‘There is no such thing as a free lunch’. ‘The only capital guarantee worth diddly is one offered by a AAA rated Government — backed by its own printing press’. ‘Expansion and contraction, inhale and exhale, yin and yang’. ‘For every action there is an equal and opposite reaction’. ‘Reversion to the mean’. ‘Vested interest trumps your interest’. ‘You buy low and sell high’. ‘Trees do not grow to the sky’. ‘There is no new way to go broke, it is always too much debt’. None of this home spun wisdom is particularly earth shattering or offers any great revelations. It just plain old common sense…a commodity that becomes less common in a boom. What I can tell you — with absolute certainty — is that when the next crisis does hit, the number of hard luck stories you’re going read or hear about (lost fortunes, shattered dreams and the indefinite postponement of retirements) will ALL have one thing in common…ignorance or contempt for one or more of these simple time-proven principles. Please permit me to leave you with… One simple question The investment industry has (repeatedly) stressed the importance of ‘buy and hold’…in the long run shares always go up. Given the market’s sustained recovery since the dark days of 2008/09, investors are willing to embrace the ‘buy and hold’ philosophy. That’s fine, but to find out how committed you are to this philosophy, ask yourself this one question… ‘After the market has wiped out more than 50 percent (or more) of your portfolio, how strong will your impulse be to change your philosophical approach and ‘cut and run’ for the safety of cash?’ Until you’re put under the pressure of a market in freefall, it can be a little difficult to create the emotional response to this hypothetical scenario. But what we do know from the data is that when times get tough, those who were once tough get going…out of the market. The following chart tracks three asset allocation indicators… AAII — American Association of Individual Investors (black line) Fed FOF — US Federal Reserve Flow of Funds report (blue line) ICI Mutual Fund data (red line) Look at the spikes — especially in the red line of managed funds — in 1987, 2000 and 2008. All times of historic collapses in the US market. In times of market upheaval, investors — amateur and professional alike — abandoned their philosophical approach. If your answer to the question is anything less than an unequivocal ‘I will absolutely stay the distance’, then in my opinion, your decision should be a simple one…sell up before the next major crisis hits. Regards, Vern Gowdie, Editor, The Gowdie Letter ..............................Advertisement.............................. | REVEALED: A ‘stealth play’ on Canada’s 2019 pot profit blowout As of 14 September 2018, this company has quietly acquired stakes in 10 recreational weed first-movers. And, starting with Canada’s legalisation on 17 October, these holdings should start generating value, pretty much overnight. In fact, they’re aiming to turn every $1 million invested so far into $2–$3 million by the one-year anniversary of legalisation in Canada. I think they can do it. And that if you pounce on this share now, while it remains out of the limelight — and they expand and reinvest as I predict they will — you could be looking at a similar trajectory to Canopy Group’s recent rise. And they’ve seen a share price gain of over 4,000% since 2015… Click here to learn more… | .......................................................................... |
Your Valentine’s Day Required Reading By Bill Bonner in Paris, France ‘Certainly it was no design of the atoms to place themselves in a particular order, nor did they decide what motions each should have. But atoms were struck with blows in many ways and carried along by their own weight from infinite times up to the present. They have been accustomed to move and to meet in all manner of ways. For this reason, it came to pass that being spread abroad through a vast time and trying every sort of combination and motion, at length those come together that produce great things, like earth and sea and sky and the generation of living creatures.’ Lucretius (De Rerum Natura) ‘Oh, how it troubles my sleep…to think what America would be like if the people read the classics.’ Ezra Pound There has not been much progress — to or fro — in the stock market. Investors seem to be waiting to see what happens next. A government shutdown? A trade deal with China? A wall? Abortion?? Yes, abortion is a hot issue again. Mr Trump put it back in the headlines. He was a Pro-Choice guy for most of his life. But now, if you believe yesterday’s reports, he is passionately against it. God works in mysterious ways, they say. The president’s conversion may be less mysterious, but who knows? Love locks Meanwhile, the world turns…the birds still sing in the trees…and we humans, with hearts full of passion, jealousy, and hate…well, stuff happens. We are de passage, as they say in French…passing through Paris on our way to South America. Yesterday, we walked from our hotel in the 7th arrondissement over to the Opera, taking the ‘pont piéton’ — the footbridge — over the river to the Tuileries Garden. There, children who had not been aborted ran amongst the trees, shouting with glee. Lovers strolled…hand in hand…stopping to take photos of each other. And over the Seine, on the pont, they clasped locks to the bridge itself. The locks record remarkable acts of faith, hope, and delirium. Cal and Beth say they will love each other forever. Ditto Jenny and Eric, Bridget and John, K and R, and thousands of others. None of them knows, of course, what curveball life will send their way. Cal may find he dislikes Beth’s pouty lips; Jenny may discover that Eric is a goofball; R’s latent lesbian tendencies may take over. Stuff happens. Les Belles Lettres Readers with a keen sense of geography will be quick to notice that there must be more to the story. Why are we in Paris? The shortest distance between two points is a straight line. And if you drew a line from the Tidewater of Maryland, where we started the year, to the Pampas of Argentina, it would not come anywhere near Europe. But we’re takin’ care of business. We went to Ireland to check on our new house…our home for the next five years. And now we are in Paris preparing a party. Coming up is the 100th anniversary of our business in Paris, the publishing house, Les Belles Lettres. The president of France is said to be coming. The company, which we acquired almost by accident, was set up shortly after WWI to publish the Greek and Latin classics — in the original. Alas, not many people still read the Iliad in ancient Greek. De Rerum Natura One of the books published by Les Belles Lettres is a work of astounding intuition, De Rerum Natura, by Lucretius — a must-read for Valentine’s Day. The text, which was effectively lost for more than 1,000 years, was so esteemed by Thomas Jefferson that he had five copies of it in his library. What was so important about it? What did Jefferson find in the work of a man who had been dead for nearly 2,000 years that helped him understand the world and lay the groundwork for one the most successful nations in history? Have Nancy Pelosi, Donald Trump, or any of today’s leaders ever heard of it? What are they missing? Ah, Dear Reader, you ask too much. Scholars have been debating what Lucretius meant to say, and why, for hundreds of years. But the basic idea is simple: Stuff happens no matter what we think. Notably, love. ‘We met at a cocktail party,’ said a woman who recently celebrated 50 years of marriage. ‘I don’t know what we were thinking…or if we were thinking at all…. but we were engaged a month later.’ Now, they have five children and 23 grandchildren. Lucretius, channelling the Greek thinker, Democritus, and the philosopher Epicurus, saw all the world as a random collision of atoms (with a little room left for conscious choice and curve balls…which he called ‘the turning aside of a thing,’ known popularly as ‘the swerve.’) Writing before the birth of Christ, he broadly anticipated both atomic theory and the theory of evolution. He also saw the ‘feminising’ effect of civilisation; he opens his epic poem urging Venus to calm down Mars and spare Rome from more war. Diary dictum With all this going on, there’s not much room left for our pathetic cogitations. And for the most important things, it’s probably better not to think at all. We didn’t design atoms…nor do we control evolution…or even (with some allowance for free will…’the swerve’…) our own thoughts. Thinking merely justifies and rationalises our prejudices and instincts. You feel Nancy Pelosi is scum…you want to go to war with Iran…you believe that Donald Trump is a very ‘moral’ man — it doesn’t take your brain long to prove it to you! A Diary Dictum (DD): We come to think what we need to think when we need to think it. And thank God! If not, most of us wouldn’t think at all. And thank God, too, for Jenny, John, K, Cal, Eric, Bridget, R…and all the other unthinking lovers. Without them, the curtain comes down and the show closes forever. 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