Although I’m posting it in the “General Chat” section of this forum, I do realise this is indeed waaaay off topic, but it’s something I feel very important and I feel that sooo many people have no idea of what’s happening, so my apologies for taking the latitude.
At first glance, you might think this is a negative post, but I don’t see it that way; I feel that knowledge and truth (Dharma if you will) is positive, and that ignorance is negative.
On to the subject. I was reading the newspapers this morning and I was stunned at the lack of information that’s being forthcoming. I mean, there are some very important events occurring and we seem to be wearing serious blinkers, perhaps the term ‘forced to wear’ may be more apt.
I found and watched some [current] Bloomberg vids which, although I don’t like Bloomberg’s usual bias approach, were very good. As of this month (July), and after so much floatation of global economies over the past 7-8 months, all of the key indicators are starting to point towards what many have predicted; in avoiding a proper recession the direction is heading toward deflation and then inflation (Hyperinflation for some countries).
I’m not much of an alarmist, however, I am very active in listening to what all the experts have to say, from both camps (the ‘nothing will happen’ camp and the ‘something will happen’ camp) because I have a vested interested to do so.
For those who think that we cannot be affected here in Aust, think again, as every transaction across the globe runs through a UD dollar pipeline, and even though BRIC (as in the BRIC block) are hell-bent on moving toward a new global reserve currency, time has definitely run out, and the Euro is nowhere near strong enough to superceed, and the systems aren’t setup to do that in any case. So whatever happens in the US, will cascade (to a lesser degree) here in Aust.
Two weeks ago I had a meeting with my accountant and broker (commercial mortgage), to discuss what to do over the next 5-10 years. To them, my views and plans to deleverage makes good sense, in that my current view of economics now is vastly different than it was 3 years ago. Before, I was looking at money (both credit and debt) as a way of getting ahead, whereas now I’m looking at how debt can unwind 20 years of hard work while at the same time your credit (assets) can be whittled away through inflation (6% inflation has the capacity to reduce your wealth by half in just 5-7 years). A friend of mine is (was) the second largest micro-lender in Australasia until he deleveraged to the tune of $3-4M, he’s also a forensic accountant, and sees a lot. He thought the bank would be upset, but to his surprise they were astounded and fly him around to guest speak on how to ‘Cut until you bleed’ properly.
So my point is, as the residential and commercial property markets have finally [but temporarily] stabilized from a semi-free-fall (total free-fall in the US), unemployment has stabilized, and credit has freed-up a smidge, if you are a proponent of the ‘something will happen’ camp, now’s the time to talk about deleveraging, especially if you’re playing with seven figure credit/debt amounts, or LVR’s in excess of 50% on $400k+ debt. Just remember, an LVR is a DEBT to VALUE ratio, so if the housing market drops again, your property VALUE decreases so the ratio DEBT increases, so it's [inversely] proportional. This ratio is further compounded with inflation since inflation drives up mortgage rates, so a 50% LVR can rapidly become an 70% in just 12 months in 6% inflation. At this time, more and more properties go on the market which drops property prices even further. Can you see the dog chasing its own tail?? It can easily end up in a giant fire-sale. In extreme instances, banks can force foreclosure on investment or second properties (only the primary is protected by law). This has already started to happen to people who used property equity against shares and when their shares evaporated last September, their LVRs went to the moon (DOH?!).
The only way to avoid this is to reduce debt and increase credit, and since credit is always more difficult an time consuming to create, then debt is the easiest to tackle first...this is deleveraging 101.
Anyway, if people wish to input their opinion, and I hope that people do because this issue is of extreme importance, feel free. I'm sure there are plenty of people who are so confused about what's going on and where they stand that they cannot make informed decisions. Here is a good opportunity to know.
Lastly, something I said at that meeting which has still kept with me for some reason, it was “I would rather be intuitively wrong than intuitively stupid”.
Cheers
Mark
