I just spent the week at Mammoth Mountain, CA, snowboarding with my wife’s boss (had to work this in sorry), who happens to be a developer (in California), accumulator (in TampaMiami Florida). Had some interesting discussions with him. He’s actually quite eager to invest in Aus, with us even [blush2] that would be cool. Anyway, he is now buying units by the complex (i.e. >100 at a time) so I respect his opinion. I garnered quite a few interesting tibbits:
a) Developers know the slowdown is coming, anyone who doesn’t believe it, is kidding themselves. N.B. this is CAUS market, hopefully I can sell my house before then.
b) Don’t buy the prime real estate, buy the real estate that will be prime in 10 years. I.e. don’t buy inner city, buy the areas where people will live when they can’t afford inner city. It’s like buying low PE stocks (value), vs high PE (growth). Value has shown to perform better over the long run.And then the topic of the 80’s property crash came up and the fact that the economy was crushed by high oil prices. So to get to my point… oil is a big threat to the economy, it’s > $51 today, could this be the lance that pops the bubble? Not just the housing bubble, I mean the economic bubble and then obviously the housing bubble in turn. Does anyone here diversify themselves in energy stocks? With a margin loan it would be possible to gear up to 70% into an energy index say.
I like the principles of diversification obviously. Every dog has is day! What say you? Is oil a risk? Could you handle owning shares in Exxon Penguin Killer Valdese?
I see it as just another input into the economy, like steel or gas. As the price goes up the economy responds. Interesting that he is buying land in the sticks and losing sleep about oil prices… if he really thought oil was going to go crazy I would think he would do better sticking closer to the CBD
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
Oh no, there was no mention of oil as a current risk, this is just my own theorizing. And non-CBD isn’t the sticks.
But, yes as you say, oil goes up economy responds, what happens when it REALLY goes up? $100 a barrel, in real terms?
I’ll tell you what happens. America invades another oil rich country, that what[medieval]
Just jokes. I like America.
But if prices went up like that then the global economy would be effected and no doubt there would be some heavy boardroom politics going on. But at the end of the day people still have to rent.
You will always miss 100% of the shots you don’t take!
Hi Superman,
You are extremely fortunate to have access to someone with that depth of experience investing in the property market.
What strategies has your friend suggested for insulating yourself against a downturn.
.
Good LuckDon Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
Originally posted by superman:I like the principles of diversification obviously. Every dog has is day!
And perhaps more importantly from a diversification point of view, every day has its dog.
GP
I thought the oil crisis was in the 70’s. The sharemarket crash was Oct 87 and property followed that. Those were the days of excessiveness, fraud, insider trading, receiverships, redundancies, bankruptcies etc etc.
I was buying all through that time. Prices went up, came down and went up again – as long as the cashflow was coming in it didn’t matter.
Cheers
JeffI think a rise in oil prices will have a huge impact on property prices for the following reason:
It will make filling the lawnmower up with fuel so much more expensive[biggrin]
People will want to move out of houses into units so there is no need to pay for fuel [idea]Ok so i am not serious here but just could not resist throwing that in there.
An interesting article!
Oil to hit $80?
A supply disruption could send crude prices to $80 a barrel, according to OPEC’s Secretary-General.
March 3, 2005: 7:22 AM ESTKUWAIT (Reuters) – Oil prices may temporarily spike to $80 a barrel during the next two years if there is a major supply disruption, OPEC’s Acting Secretary-General, Adnan Shihab-Eldin, was quoted as saying by a newspaper on Thursday.
“I can stress that the probability that the price of a barrel of crude rises to $80 in the near future is a low probability,” Shihab-Eldin told leading Kuwaiti daily al-Qabas in an interview in Vienna.
“However, I can’t rule out the rise of a barrel of oil to $80 in the coming two years,” he said.
“But, if the price rises to this level for one reason or another (for example a shortage of supplies from a producer nation by one or two million barrels per day), it’s not expected that this spike will last long.”
Prices around $50 or $60 a barrel, if they continued for two years or more, would increase investment to expand supplies and curtail demand, pushing down prices in the end, he added.
“This is an essential law of economics,” Shihab-Eldin noted.
Crude oil rose to a fresh four-month high over $53 per barrel on Wednesday as refinery problems in Texas propelled gasoline up to an all-time peak.
Shihab-Eldin has said that OPEC saw a growing consensus that a $40-50 range for U.S. crude was sustainable, backing up comments by Saudi Oil Minister Ali al-Naimi last week that prices could stay in that range this year.
Structural change in oil markets
Shihab-Eldin also told al-Qabas that it was in the best interests of the OPEC oil producers cartel and the rest of the world that there be no big or sudden jumps in price levels but instead a balanced and gradual rise.“It’s clear that there are some structural changes in oil markets that took place in 2004 which led prices to rise,” Shihab-Eldin said.
The most important of these changes is rising demand for oil in China and Asia, which accounted for nearly two thirds of the annual increase, and also a deceleration in the production rise from non-OPEC oil producing nations, he said.
This, he said, has prompted the Organization of Petroleum Exporting Countries to temporarily set aside its price band of $22 to $28 a barrel “until it finishes studying the structural changes in coming months and specifying a new price band.”
OPEC’s reference basket of seven crudes last stood at $46.17.
Shihab-Eldin said consumers in many industrialized nations pay for refined oil products, such as petrol, prices that translated into much more than the equivalent of $80 per barrel for crude oil.
“The price reaches more than 200 ($265) per barrel in some European countries,” he said.
“This price is subject to the tax disparity between the United States and Canada on the one hand and some European nations on the other hand, where tax on oil products rises to about 80 percent.”
Cheers
Jefflove the name old school skata….. very clever. and yes i like your opinion about oil prices and property. i hate nothing more than cutting the grass…..
Has anyone seen the Doco “The End of Suburbia”.
You can get it on DVD, probably have to Google it, as its not on wide release. I was handed it by someone who said i just had to see it.Its about Oil Depletion and goes into the real estate logistics so to speak. Really interesting stuff. In fact an eye opener. Its US/Canadian based, but quite relative to any country.
The gist is oil is going up in price (a lot) and the affect on suburbia and how people will live.
Maybe those easily heated, no car needed apartments will end up being good investments one day.
Highly recommended if you can find it.
I for one am looking forward with interest to the time of PEAK OIL and beyond. Interesting times ahead.
I’ll chase up that doco too, thanks Fern.
Cheers, F.[cowboy2]Hi all,
I was a ‘peak oil’ follower until I recently read this article…
http://www.rense.com/general63/staline.htm
… which gives some very reasonable debate material re the abiotic oil argument.
It’s a long read, but I always say that if you don’t read all the facts/theories/ideas etc you really cannot make an informed decision nor make a valid argument…
Any feedback from forumites who read the ‘complete’ article would be interesting.
Cheers, Nobleone. [biggrin]
“Making mistakes is just another another tool for learning.”
If you ask fund managers, the smart ones will tell you that from a valuation point of view, it makes SFA difference if oil is $45/barrel or $50/barrel. it just seems over $50/barrel has a psychological effect at the moment…
Also, high oil prices could be used to support a case for lower interest rates…so it’s not all bad news.[shocked]
Originally posted by Nobleone:Hi all,
I was a ‘peak oil’ follower until I recently read this article…
http://www.rense.com/general63/staline.htm
… which gives some very reasonable debate material re the abiotic oil argument.
It’s a long read, but I always say that if you don’t read all the facts/theories/ideas etc you really cannot make an informed decision nor make a valid argument…
Any feedback from forumites who read the ‘complete’ article would be interesting.
Cheers, Nobleone. [biggrin]
“Making mistakes is just another another tool for learning.”
WOW!!! What a read. Yup, read it all and followed a few links and it’s compelling; down right convincing. However, not at all surprising, given DeBeers does the same thing (as is even mentioned in the article). I don’t think they even mentioned in there the artificial flawless diamonds now being created for $10US per 3 Carat. They are not “artificial” in that they are true diamonds, but they were not formed naturally. Only way experts can tell the difference is that natural diamons have flaws, these do not.
So now all we need is a means of consuming the hydrocarbons only to produce H2O and elemental carbon and voila; unlimited clean fuel! [biggrin] Or refactor the hydrocarbons into hydrogen and elemental carbon before combustion? I just want my clean air. [biggrin]
Rightio seems this is way off track. So let me throw an good article about rents increasing so I don’t get hammered for an inane post:
http://www.finance.news.com.au/story/0,10166,12485854-14302,00.html
Originally posted by Nobleone:Hi all,
I was a ‘peak oil’ follower until I recently read this article…
http://www.rense.com/general63/staline.htm
… which gives some very reasonable debate material re the abiotic oil argument.
It’s a long read, but I always say that if you don’t read all the facts/theories/ideas etc you really cannot make an informed decision nor make a valid argument…
Any feedback from forumites who read the ‘complete’ article would be interesting.
Cheers, Nobleone. [biggrin]
“Making mistakes is just another another tool for learning.”
Hi Nobleone,
I’ve followed the theories, and I’ve read the whole article. It seems a fight of personalities to some extent.If you go to the basics, abiotic oil may or may not exist, maybe it seeps slowly out of rock formations and pools. But it is irrelevant if this process takes millions of years. We’ve just about used half of all these massive deposits collected over millions of years in 150 years or so. I can’t see the rock pumping out the 80 million barrels + we use every day continuously.
My take on it is Peak Oil is it’s not a doomsday theory, its just a peak in the oil supply graph. Oil will not run out ever, there will always be some to find at a price. Some parts of the third world use little and will be less affected, the rich will just pay what is costs. The most affected will be the middle classes who rely on it and will need to cut back.
The big affect will be economic growth, can growth be maintained with a slowly diminishing and expensive supply of oil?
Originally posted by Fern:Quote:Originally posted by Nobleone:My take on it is Peak Oil is it’s not a doomsday theory, its just a peak in the oil supply graph. Oil will not run out ever, there will always be some to find at a price.
…and that change in price should be enough to make alternatives cost effective. This is why Peak Oil would / will (?) be a Good Thing ™.
Cheers, F.[cowboy2]Originally posted by foundation:Originally posted by Fern:Quote:Originally posted by Nobleone:My take on it is Peak Oil is it’s not a doomsday theory, its just a peak in the oil supply graph. Oil will not run out ever, there will always be some to find at a price.
…and that change in price should be enough to make alternatives cost effective. This is why Peak Oil would / will (?) be a Good Thing ™.
Cheers, F.[cowboy2]Cost effective against oil doesn’t necessarily mean affordable for the average Joe, and I suppose it depends how quickly change is needed.
If tomorrow they find we will never again increase oil production, then we are in deep sh#!.
If we get 20 years to move on it and have things in place it should be easier.Its becoming more accepted in the mainstream that at some point the peak will be reached. Its what to do about it, and when it will happen thats being debated.
Saw this article today, very pertinent
http://english.aljazeera.net/NR/exeres/5EF86883-8CDB-49B5-9A07-5759205A9DBE.htmUS report acknowledges peak-oil threat
By Adam Porter in Perpignan, FranceWednesday 09 March 2005, 18:23 Makka Time, 15:23 GMT
It has long been denied that the US government bases any policy around the idea that global oil production may be in terminal decline.
But a new US government-sponsored report, obtained by Aljazeera.net, does exactly that.
Authored by Robert L. Hirsch, Roger Bezdek and Robert Wendling and entitled the Peaking of World Oil production: Impacts, Mitigation, & Risk Management, the report is an assessment requested by the US Department of Energy (DoE), National Energy Technology Laboratory.
“Uncertain timing
“World oil peaking is going to happen,” the report says. Only the “timing is uncertain”.
The effects of any oil peak are similarly not ignored. Specifically, the impact on the economy of the United States. “The development of the US economy and lifestyle has been fundamentally shaped by the availability of abundant, low-cost oil. Oil scarcity and several-fold oil price increases due to world oil production peaking could have dramatic impacts … the economic loss to the United States could be measured on a trillion-dollar scale,” the report says.
A US expert panel says markets
cannot solve peak-oil problemsThe authors of the report also dismiss the power of the markets to solve any oil peak. They call for the intervention of governments. But also they rather worryingly point to a need to exclude public debate and environmental concerns from the process. They say this is needed to speed up decision-making.
“Intervention by governments will be required, because the economic and social implications of oil peaking would otherwise be chaotic. But the process will not be easy. Expediency may require major changes to … lengthy environmental reviews and lengthy public involvement.”
Hirsch notes, despite arguments from the major oil companies and producer nations, that new finds of oil are not replacing oil consumed each year. Despite the advances in technology reserves are becoming increasingly difficult to replace.”
” The report highlights a series of ways to minimise any impacts. From increased fuel efficiency to technological help in stopping the practice of “oil-left-behind” or non-extractable oil and various forms of new liquid fuels, liquefied coal and gas-to-liquids.
But in its conclusion the report makes troubling reading, noting that “the world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary. Previous energy transitions were gradual and evolutionary. Oil peaking will be abrupt and revolutionary”.
This report is the clearest signal yet that the U.S government is taking the subject of “peak oil” seriously. Yet it remains to be seen what actions can be taken to stop this potentially “revolutionary” change.”
Cost effective against oil doesn’t necessarily mean affordable for the average Joe, and I suppose it depends how quickly change is needed.But I don’t think the average Joe ‘needs’ affordable oil. Sure everybody ‘wants’ affordable oil, but as my dad used to say, “it’s healthy to want”![biggrin]
If petrol hits $4.00 a litre there would be a need for adjustment, but people are incredibly good at adapting.
It is possible to eat perfectly well for $25.00 per week… but does the average Joe want to?
F.[cowboy2]
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