Forums / Property Investing / General Property / Oil & US Trade Figures – Cause for Concern

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  • Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,729

    Hi,

    Without wanting to unnecessarily alarm, unfolding at the moment might just be the final two straws that break the world economy back.

    First off, the US economy has just reported a trade deficit of $54 billion for the month of August, which makes it the third month in a row where there has been a deficit of >$50b (read more about this).

    In household terms, what’s happening is that the economy is importing (i.e. funds flowing out) more than it is exporting (i.e. funds coming in) to the tune of $54b in a month.

    Such a position is not sustainable, as, when we spend more than we earn then you either have to run down savings or else use debt to fund the difference.

    What does this mean? Well, the most common method used to influence spending (i.e. to reduce the number of cheap imports being purchased) is to raise interest rates. However, the US economy is funded on the back of spending rather than manufacturing productivity, so there may be a nasty side effect of sending the economy back in to recession.

    The second factor to watch is world oil prices. The reason for this is that oil is used in some form in every home every day (i.e. petrol in most cases). As oil prices rise then so does the cost of business, and this extra cost is usually passed on to consumers in the form of higher prices.

    So… higher prices due to oil price increases, and higher interest bills possible due to the possibility of a rate rise in the US (which should, sooner or later, flow on to the Aussie market) all at a time when home loan affordability is at a record low because debt is so high.

    The message is this then… if there is a squeeze, then it will be those who are highly leveraged relative to their earning capacity that will feel it the most. It would be wise to think about your current position and take action as needed to manage the risk while there is still time.

    Steve McKnight

    **********
    Remember that success comes from doing things differently.
    **********

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of SalubriousSalubrious
    Member
    @salubrious
    Join Date: 2004
    Post Count: 252

    Its funny that I fortold this outcome many moons ago but people just laughed me off. Well get ready caus here it comes!

    We are all made from Stars

    Profile photo of techatecha
    Member
    @techa
    Join Date: 2004
    Post Count: 79

    If your heavily geared.

    Stick this on your fridge!!

    It would be wise to think about your current position and take action as needed to manage the risk while there is still time.

    NOW DO SOMETHING.

    Humans are the DUMBEST of creatures.
    They do the same thing day in day out and expect a DIFFERENT result.

    Profile photo of AUSPROPAUSPROP
    Participant
    @ausprop
    Join Date: 2003
    Post Count: 953

    I would argue the surging oil price is a natural brake on the economy, hence indicating lower interest rates are on the way in order to prop up the economy. With a floating exchange rate the trade imbalance can be funded by a devaluation of the $. Then you have to consider the impact of the falling share market – will this creeate another stampede for property? And how does our overheating economy fit into the deteriorating global situation? The skills shortage is sure to drive up inflation to which the RBA must respond, but if rates are falling in the rest of the world and we are hiking ours up, the appreciating currency will have farmers and miners screaming. The bond market isn’t indicating interest rates are on the rise. Too many variables – and no one economist seems able to accurately forecast this stuff, what does one do?? arghhhhh!!



    Extensive list of ‘Off The Plan’ property available for sale in Perth.

    John – 0419 198 856

    Profile photo of MiniMogulMiniMogul
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    @minimogul
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    Used to be a gold standard. Countries had to buy oil in gold.

    In the 80’s I think it changed to a US$ standard, countries have to buy oil in US$. The yanks said so…

    All these bazillions of oil US dollars floating around kept the US currency buoyant.

    Then the Euro launched. The US laughed.

    Then some countries decided ‘bugger the US, we’re going to trade oil direct in Euros with Europe’.
    Those countries included Iraq.

    Result…Euro up, US dollar down.

    Are you following me so far? This is basically the guts of a brilliant article I read in the Age.

    So US panics. They are the most in debt overspending nation etc in debt 18000 US per head of population or something, and if their dollar devalues they are as Steve said likely to collapse. Stuart Wilde predicted this anyway once the oil runs out (he reckoned that would be in 2050 or before)

    OK so just coincidentally (not) there is a war against Iraq for various reasons (i won’t go there unless someone asks me to…hehe) and suddenly oil trading with Euro stops, goes back to the US dollar, dollar goes back up and euro back down and US breathes a sigh of relief. For the short term.

    Long term, yes, they are on shaky ground. I predict one day the dole cheques will bounce, and there will be a country up in arms! !!! Oprah will have a field day! “How could you mismanage things so badly!” And then some states might even break off, saying ‘you guys are a crock, we no longer want to be involved, we will self-govern’. Thus breaking up one of the world super-powers…and then there’s Europe and China.

    I dunno, but it all seems logical. Besides, i’ve read Stuart Wilde….

    It’s a subject that I pondered a lot and read a lot about since sept 11 which is when I first started ‘noticing the discrepancies’ shall we say.

    joy to the world

    Profile photo of AUSPROPAUSPROP
    Participant
    @ausprop
    Join Date: 2003
    Post Count: 953

    this is interesting too:

    “We have also been bullish on oil, even though we had expected the price of oil to pull back to a still high price of US$35 a barrel, and for that to be the new floor for the foreseeable future. Rather the price is still around US$50, with the fall yet to materialise. I believe it will, but the timing is difficult.

    The risk in the year ahead is that the impact of the rising oil price will gradually seep through into various inflationary impacts, and this would be even further aggravated if the US dollar were to fall more significantly than it has already. Then, interest rates would rise even further to bring inflation under control. Should this scenario come to pass at a serious level –and I’d regard US$70 oil for an extended period as serious – then it would cause the next global recession. This is likely due in the later years of this decade or the very early next decade, whatever the cause.

    In a possible US$70 oil madness, Woodside shares might hit $30, and BHP, $20. As interest rates were rising, our broader equity markets would fall, offering far higher dividend yields for counter cyclical investors such as IRIS subscribers. For 90% of recessions are brought on by high “

    I predict that interest rates will remain unchanged, but could quite possibly rise. If not, a decline is likely.



    Extensive list of ‘Off The Plan’ property available for sale in Perth.

    John – 0419 198 856

    Profile photo of Michael RMichael R
    Member
    @michael-r
    Join Date: 2003
    Post Count: 302

    Here in Washington DC I am close to the heart of what makes the US economy tick, and to a lesser extent, global economies.

    The trade deficit compounded by rising energy costs is somewhat of a concern, but these issues can be adequately managed over the medium term given the right economic policies.

    In terms of a global economic recession, or even a US recession, the chances of this happening are minimal at this time.

    An economic “collapse” in the United States simply will not happen in the foreseeable future.

    the US economy is funded on the back of spending rather than manufacturing productivity”

    The above statement is not necessarily accurate. The US economy is influenced by consumer spending to a reasonable degree. But manufacturing is a fundamental component of any economy, specifically the United States. It dictates employment numbers, productivity trends, etc, which determines where the equity markets and interest rates are heading.

    The second factor to watch is world oil prices.

    Correct. But in the not too distant future, the world’s economies will be less reliant upon oil as a primary energy source.

    In the 80’s I think it changed to a US$ standard, countries have to buy oil in US$. The yanks said so…

    Such statements require some validation. You will find the reason oil is traded in USD is quite the opposite.

    Then you have to consider the impact of the falling share market – will this creeate another stampede for property?

    Since the “dot.com crash”, real estate commodities/assets have demonstrated record rates of return in the United States and elsewhere. This reflects a trend toward “bricks and mortar” investment rather than a reliance on forecast assumptions.

    Although the Dow remaining around 10K has a correlation with oil prices and the war in Iraq, this trend is more closely aligned with caution from an equities standpoint and avoiding overinflated valuations.

    There is also a greater tendancy to profit from shorting the market in today’s environment than in the late 90’s when stocks continued to climb with no limit in sight.

    At this time I don’t see a need to raise interest rates at a significant pace to offset inflation in the United States.

    As for the Australian real estate market, and New Zealand for that matter, if myself and other US investors felt there was global economic doom and gloom in sight, we would certainly not be focusing so much on Australasia.

    I dunno, but it all seems logical.

    If it was logical I very much doubt George W. Bush would be in power.

    — Michael

    Profile photo of wayneLwayneL
    Member
    @waynel
    Join Date: 2003
    Post Count: 585

    >>The trade deficit compounded by rising energy costs is somewhat of a concern, but these issues can be adequately managed over the medium term given the right economic policies.

    In terms of a global economic recession, or even a US recession, the chances of this happening are minimal at this time.

    An economic “collapse” in the United States simply will not happen in the foreseeable future.<<

    Very soothing Mike. But there are credible voices, who are also close the heart of what makes the US economy tick, who’s views are diametrically opposed to yours.

    My crystal ball, most ungenerously, will not reveal the future. But given the credibility of the bearish voices and in light of the lessons of history, it would be most unwise not to at least acknowledge the possibility of difficult times ahead.

    Most investors are heavily, and perhaps disasterously geared towards a single scenario…continued strong growth.

    How many have a Plan B?

    Cheers

    Profile photo of wayneLwayneL
    Member
    @waynel
    Join Date: 2003
    Post Count: 585
    Originally posted by Salubrious:

    Its funny that I fortold this outcome many moons ago but people just laughed me off. Well get ready caus here it comes!

    We are all made from Stars

    Hehe, there were in fact a small group of us Sal. I remember well the satirical resposes to our posts.

    Cheers

    Profile photo of techatecha
    Member
    @techa
    Join Date: 2004
    Post Count: 79

    Think what Steve ,myself and others are saying is.

    Simply if your highly geared decrease your exposure while you can.

    No need to then guess or postulate on what “COULD” occur,it wont matter!!

    There will even be other opportunities for those who were astute enough to place themselves in a position to take advantage of them when they occur!

    You know its not a matter of being right or wrong is it!
    Its about placing yourself in a position where you are minimally affected by matters you have very little influence over.

    Its not about CREATING wealth more about KEEPING it.

    tech

    Humans are the DUMBEST of creatures.
    They do the same thing day in day out and expect a DIFFERENT result.

    Profile photo of pelicanpelican
    Member
    @pelican
    Join Date: 2003
    Post Count: 454

    Some very interesting discussion here….

    1) If you are highly leveraged, YES, definitely nowadays you should try to minimise your exposure if possible…

    2) Oil Prices….. – How much has the relative cost changed I wonder…. I mean, the US$ price has gone UP, BUT, the US Currency has devalued substantially against many currencies…. so. really…. just how much has oil really increased…. This always seems to be forgotten…..

    Profile photo of KDTKDT
    Member
    @kdt
    Join Date: 2004
    Post Count: 30

    Hi All
    as an investor about to buy his first property, what does this mean to me?
    And also, if the market was to crash and interest rates went through the roof, wouldn’t this open up investment opportunities as people were unable to buy anymore? would this open up the rental market?

    Regards
    Phil

    Profile photo of richmondrichmond
    Participant
    @richmond
    Join Date: 2003
    Post Count: 831

    FROM THE NEWS WIRES:

    This year’s oil price surge will not be a replay of the oil shocks of the 1970s and 1980s that sent the United States into a series of recessions, Federal Reserve Chairman Alan Greenspan said on Friday.

    Greenspan delivered a generally upbeat assessment of the economy’s ability
    to withstand this year’s spike in oil prices, but he added a significant
    qualifier.

    “Obviously, the risk of more serious negative consequences would
    intensify if oil prices were to move materially higher,” the Fed chairman
    said in his most extensive comments this year on energy.

    Greenspan spoke on a day when crude oil prices climbed further into record
    territory with the price in New York trading hitting 54.88 US dollars, up 12 cents from Thursday’s record close.

    He said that even at the current levels, crude oil prices are still about 40 percent below the all-time highs – in inflation-adjusted terms – of
    February 1981.

    Crude oil futures rallied to 54 US dollars and 90 cents on Friday, a day after a decline in the US inventory of heating oil unsettled a market already on edge over tight supplies, high demand and unrest among key producers.

    The oil markets are already concerned about supply shortages, largely because of the slow recovery of oil production in the Gulf of Mexico following Hurricane Ivan.

    Crude futures have climbed about 10 US dollars a barrel in the last month alone.

    While oil prices are more than 70 percent higher than a year ago, they are still around 25 US dollars below the peak inflation-adjusted price reached in 1981.

    Profile photo of Still in SchoolStill in School
    Member
    @still-in-school
    Join Date: 2003
    Post Count: 1,844

    ah.. you guys worry to much…

    oil is till relatively cheap.. look back in the early 90’s when oil was $70 a barrel, and on top of that we have added inflation in todays figures…

    im loving the oil increase… oil above $50 a barrel, and it dont look like its coming down…. given a little more time, we should see oil prices rally to $60 a barrel, its the end consumers who in the end gets hurt and gets hit hard on the surcharge

    what do you think most these large companies and corporations do, they buy there oil, out months ahead, back when it was $40 dollars a barrel… its just stocking up inventory supply…

    America still has a long way to go… and being a strong country as it is… in the fore go able future there will be recessions with expansion…

    i only see this as a little concern… still, a decrease in gold… was for see able… it was market season change… that occurs almost accurately each year for 22 out of the last 23 years that gold falls usually mid 2nd week of October… and picks up later on again in the year…

    Cheers,
    sis

    Wanna Talk About Stocks

    Profile photo of muppetmuppet
    Member
    @muppet
    Join Date: 2003
    Post Count: 900

    Hi Guys

    I don’t care what is being said, the price I am paying to put petrol in my car keeps going up.
    This means I have less to spend on may be doing renovations to my IPs.

    It also means that my clients(tenants) have less money to spend. I am going to have to closely monitor rent payments.

    And with higher petrol prices the cost of buying things will also go up. This results in inflation and the Reserve Bank in NZ will just keep putting interest rates up in an effort to curb it.

    Regards

    The price in Taumarunui(King Country) today to fill my car was NZ$1.25.9/litre.

    Profile photo of Scotty BScotty B
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    @scotty-b
    Join Date: 2004
    Post Count: 44

    Hi Everyone

    I’m not overly concern myself.

    Yes I’m heavily geared, but I’ve made choices over the pass few months to not only reduce my risk to rate rises but to also increase my capacity to save and buy more IPs.

    I don’t think it’s a situation that people have to panic and become inactive in a hope that inactivity in the property market will save them.

    If you’re a serious investor you should be looking at refining/refocusing your strategies (if you haven’t already). There are always reasons not to continue investing, the key is to have a plan and understand your own financial situation.

    There are little choices I’ve made (no big screen TV or Foxtel) and there are bigger career choices I’ve made. These are choices I’ve made are for my security and my future.

    I enjoy investing in property and as a side effect of this I make a little money.

    So I think the main issue for people is for them to understand themselves and not to be overcome by the “collective fear”.

    I live in Karratha and for a fee find quality cash positive deals there, email me at [email protected] to join our database

    Profile photo of richmondrichmond
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    @richmond
    Join Date: 2003
    Post Count: 831

    Hi Scotty,

    I don’t think anyone here is overcome by a collective fear… I think it’s good to have an idea of what COULD be coming and plan accordingly. All part of being a prudent investor IMHO. It’s a fact that economies move in cycles, and that people win and lose all the time. The key (obviously) is to make the right plans to be on the right side of the coin. If that means treading carefully or waiting a little while, so be it. It’s not a smart thing to be gung ho ALL the time IMHO. From what you wrote it seems you have your head screwed on right, but it’s a fact that a lot of people don’t, and they’re the ones who will suffer a bit.

    SIS, the oil price was so high back then due to the lead up to the Iraq War, when the Yanks invaded back then the price of oil dropped 33% in a day. Also, I think if we look at the figures of the US and their massive deficit, it isn’t a good thing. It comes back to the spending more than you earn I would have thought… it can’t go on forever without something having to give. Then again, I’m not an economic expert, just trying to look at things logically.

    Cheers
    r

    Profile photo of AUSPROPAUSPROP
    Participant
    @ausprop
    Join Date: 2003
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    “Its funny that I fortold this outcome many moons ago but people just laughed me off. Well get ready caus here it comes!

    We are all made from Stars

    Hehe, there were in fact a small group of us Sal. I remember well the satirical resposes to our posts.

    Cheers”

    …lets not start celebating the predictions just yet, it is yet to come true. And if you make enough negative predictions you are bound to get it right one day. Anyone that predicts the sky will fall down will eventually be proved right.



    Extensive list of ‘Off The Plan’ property available for sale in Perth.

    John – 0419 198 856

    Profile photo of MiniMogulMiniMogul
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    @minimogul
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    re: “The second factor to watch is world oil prices.”
    Michael R said: Correct. But in the not too distant future, the world’s economies will be less reliant upon oil as a primary energy source.”

    Michael R –
    I agree with you, but don’t you think the US economy is buoyed by all the bazillions of dollars floating around as the world is on this ‘buy oil in US dollars, or else!’ thing?
    Don’t you think that if oil runs out and we move to other things, that will affect the US and the US dollar??

    Richmond said “it can’t go on forever without something having to give. Then again, I’m not an economic expert, just trying to look at things logically.”

    Well said Richmond. Michael R, that was the thing which was logical to me too.

    You said “If it was logical I very much doubt George W. Bush would be in power.”

    American TV news – 95 percent US content and 5 percent about the world. More, and the yanks will change channels, and we can’t have that, we need to sell advertising. Ok, so it’s not their fault because they only know what’s on TV. So therefore perhaps it is logical that Bush is in. The guy with the biggest campaign who’s on TV the most and diddles the odd vote count is gonna get in, surely? Until the public won’t allow that any more. But that’s up to the media/TV to let them know what is going on so they can react.

    I salute you, Mike Moore

    joy to the world

    Profile photo of Michael RMichael R
    Member
    @michael-r
    Join Date: 2003
    Post Count: 302

    How many have a Plan B?

    If you don’t have a “Plan B” you shouldn’t be undertaking any form of investment.

    — Michael

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