- ummester wrote:Debt has been growing unsustainably for a long time now – possibly as far back as the 80s. It has to correct. Doesn't matter what is done, the underlying problem has to go away for real growth to resume.
Only sustainable solution is a deleveraging the likes of which the world hasn't seen since the great depression.
That's my take anyway.
Doesn't mean there won't be oppurtunity – just means over-leveraging yourself in this environment is a little foolhardy, be it with property, shares, gold or whatever.
Can someone define the term "over-leveraging" for me? I hear it alot, but nobody ever seems to quantify it. And if it is quantified by a number, does that number change based on other conditions or is it a cosmological constant (or fudge factor0?
emptyvessel wrote:Can someone define the term "over-leveraging" for me? I hear it alot, but nobody ever seems to quantify it. And if it is quantified by a number, does that number change based on other conditions or is it a cosmological constant (or fudge factor0?This is my take only – don't bite off more than you can chew.
Don't invest expecting gains or others to cover the costs. Only invest in things you know you can cover the costs for yourself, so that if it goes pear shaped at least you don't go under holding the asset until it improves.
I would personally consider one common theme which happens with many Mar and Pa "Investors" I know, Negative gearing is over leveraging imo
I virtually don't really know anyone personally that "invests" to directly make a profit, they so call "Invest/loose money every week" because they ultimatley believe the next person down the road will take on there "investment" for a much higher premium then they originally paid
I would love to see foreclosures sky rocket and property loose a decent 20% while interest rates fall a few percentage points.
There could also be some great commercial deals around the corner with retail falling on its feet.
Just as the mainstream media is telling everyone how property is a bad investment and people are scared is exactly when ill be loading the boat with as much property as I can get my hands on.
Golly, could any more have happened in a single day? Our market falls nearly 6%, then a massive rally to end up 1%. Who can explain that?
It seems to me that in times like this, the ones who are most affected are those without a strategy and therefore have no benchmark against which to decide how they should act.
Thanks for the robust discussion. Keep it coming.
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
The road to riches is long and bumpy. All I can say is: Keep your eye on the prize.
My view:
The stock markets have overreacted and are panic selling, which is usually a sign that a bottom is close. Almost every stock in every index around the world is sooo far oversold the charts are screaming for at least a bounce. Then it is likely that we'll see another leg down or at least a double bottom. Then a period of high volatility with loads of trading opportunities while it hammers out a base. Then a nice recovery into year end/early next year.
The facts are, not much has changed fundamentally in the last few weeks, sure America is a bad credit risk, no surprises there, they've had unsustainable levels of debt for many years – I honestly thought this rating downgrade would have come quite a while ago. However the companies themselves are in quite good shape considering the tepid recovery since the GFC. The big difference between now and then (and why we won’t get a repeat) is the companies have strong earnings and some of the lowest levels of debt in many years – the GFC forced them to deleverage.
High earnings, low debt levels, but low prices – does this sound like it stacks up to you?
Stocks have been correcting nicely for a couple of months, this latest sell down has unfortunately coincided with a sequence of events that caught a lot of people of guard and stacked on top of each other. Since the memories of the GFC are fresh in people's minds it created a tipping point and we've seen panic selling, and perhaps capitulation. I think it's time to get ready to scale in to select stocks, commodities and currencies while they are at such bargain prices. But don’t pile in – like I said we may see another leg down yet.
As far as property is concerned, again not much has changed, although these events will only be good for property. We may see a .25% drop in interest rates due to the Aussie growth downgrade, but more likely flat for the reminder of the year. The best thing is that a lot of the cash that has just been scared out of the share market should flow nicely into our countries favourite "safe as houses" asset class – in the months and years ahead.
That's my thoughts anyway, I could be wrong, have been wrong before, and I case you are you've always got to have sound risk management.
Have fun!
I was reading something that made me giggle quite immensely a week or 2 ago.
"According to the latest daily statement from the U.S. Treasury, the government had an operating cash balance of $73.8 billion at the end of the day yesterday.
Apple's last earnings report showed that the company had $76.2 billion in cash and marketable securities at the end of June.
In other words, the world's largest tech company has more cash than the world's largest sovereign government.
That's because Apple collects more money than it spends, while the U.S. government does not."
This report was actually on the 28th of July so a week and a bit ago well before any of this debacle started. I would like to see the figures in a couple months time
My personal view, consumer confidence and media are massive contributors to this and also the GFC. They try to pin point and convince the average Joe Blow to do back flips in all the newspapers and media outlets. Where I believe in showing the hard facts, that no matter how bad things may be now history proves that any and every market will and has rebounded with momentum and far surpasses previous highs.
-Brendon
emptyvessel wrote:Can someone define the term "over-leveraging" for me? I hear it alot, but nobody ever seems to quantify it. And if it is quantified by a number, does that number change based on other conditions or is it a cosmological constant (or fudge factor0?You expose yourself to more debt than you can possibly handle on the premise that the markets will move in your favour and the fact you are using OPM (in this case banks) to leverage yourself. Over-Leveraging is the pushing into an area that either leaves you EXTREMELY vulnerable to market moves … or has you in a position where any market maneuver outside your expectations leave you unable to service the loan.
In an upwardly moving market when its boomtime .. thats how to make a motza (a heck of a lot) off a little by gearing it to the maximum. However .. its a true gamble because most of the transaction is done highly leveraged. So the gamble is more that you hope for maximum gains .. and dont really know what to do when you are forced to maximum losses.
Have to agree with the statement earlier that this is possibly the beginning of the beginning in regards to the US.
In my humble opinion explaining the share markets last few days ….. Well if we look at the basic mindsets …all that can be said is ……that an essential characteristic of any intelligent life is that it seeks to protect itself and its wellbeing whilst also rationalising that greed is healthy.
Greed is good…… You can still feel greedy and feel good about yourself…. Slap it in the mixing bowl and there you have it………lol…..
http://www.bmgbullion.com/document/790
Macro Trends in the US:
- Ageing Population (Baby Boomers Retiring)
- Outsourcing
- Peak Oil
Consequences of these Trends:
- lower GDP
- systemic unemployment
- lower tax revenues
- increased money supply
- more government debt
- rising inflation
- declining currency value
- higher gold prices
xdrew wrote:emptyvessel wrote:Can someone define the term "over-leveraging" for me? I hear it alot, but nobody ever seems to quantify it. And if it is quantified by a number, does that number change based on other conditions or is it a cosmological constant (or fudge factor0?You expose yourself to more debt than you can possibly handle on the premise that the markets will move in your favour and the fact you are using OPM (in this case banks) to leverage yourself. Over-Leveraging is the pushing into an area that either leaves you EXTREMELY vulnerable to market moves … or has you in a position where any market maneuver outside your expectations leave you unable to service the loan.
In an upwardly moving market when its boomtime .. thats how to make a motza (a heck of a lot) off a little by gearing it to the maximum. However .. its a true gamble because most of the transaction is done highly leveraged. So the gamble is more that you hope for maximum gains .. and dont really know what to do when you are forced to maximum losses.
Thanks. It was a rhetorical question and the answers I received reflected my own view,. There is no quantifiable objective measure of "over-leveraging". It is completely subjective.
For me, I keep my LVR across my entire portfolio below 80% and at the moment it is around 70%. This, of course, doesn't tell the whole story because this is across multiple asset classes, investment vehicles and currencies.
Anyone else have a strategic target for their LVR based on an actual number?
Or is everyone going by "feel"?
(I wager that most investors don't know their LVR and of the ones that do, most don't have a target. And of those that have a target, they can't explain why they have that target. Except to say that "it sounds good and makes me comfortable so I sleep at night." And of the ones that can, they most likely DO have a plan for keeping it in line with that target should values in an asset class go up or down.)EV
beedie wrote:Have to agree with the statement earlier that this is possibly the beginning of the beginning in regards to the US.In my humble opinion explaining the share markets last few days ….. Well if we look at the basic mindsets …all that can be said is ……that an essential characteristic of any intelligent life is that it seeks to protect itself and its wellbeing whilst also rationalising that greed is healthy.Greed is good…… You can still feel greedy and feel good about yourself…. Slap it in the mixing bowl and there you have it………lol…..
Or we can look at it as a jittery market that was looking for a reason, ANY reason, to correct. The panic is unnecessary. I'm sure most of us were wise enough to know that the dust from the GFC had yet to settle and yet the market rebounded seemingly overnight.
emptyvessel wrote:Anyone else have a strategic target for their LVR based on an actual number?
Or is everyone going by "feel"?
(I wager that most investors don't know their LVR and of the ones that do, most don't have a target. And of those that have a target, they can't explain why they have that target. Except to say that "it sounds good and makes me comfortable so I sleep at night." And of the ones that can, they most likely DO have a plan for keeping it in line with that target should values in an asset class go up or down.)EV
Precisely. I don't have a 'target' for LVR. However I do know what level of debt I'm comfortable with, can meet the repayments and can sleep at night. Although I'm having sweet dreams now thinking that the RBA could reduced interest rates. Ultimately, it's good to know the numbers because it shows where you stand in terms of your portfolio, but my eye is on the bigger picture: fulfilling a dream. With a plan that goes at least 10, if not 20 years into the future, I'm not hugely worried about temporary changes in market sentiment, and I'll bet on making a fortune come time to sell in 10-20 years time.
hbbehrendorff wrote:People will still need to keep themselves warm & clothed (True, Though it doesn't mean everyone will buy the latest dada attire)
i thought dada went out with ghetto blasters and marky mark?
I find some interesting daily updates on http://www.goldsilver.com regarding the U.S FYI
Always lots of differing opinions but the fact still remains that printing more cash is not the long term solution.
There will need to a partial bring back of the gold standard in some form to settle currencies and create consumer stability
IMHO
Here is some comforting stats that were in the paper in the last few days
For the majority of conforming loans in this country .. the loans in arrears rate remains a paltry 1.8% and steady.
That means in round figures .. for every 50 conforming loans … only 1 remains in arrears. Thats a healthy ratio.
For the subprime loans and non conforming loans .. the loans in arrears rate stands at 12.3%
Again . rounding up .. that means for every 8 subprime loans … 1 is in arrears .. Thats NOT a healthy ratio.
Luckily for us .. the exposure of the subprime market remains pitifully small at around the 10% of all loans provided.
But .. with those figures you can understand why the mortgage belt in the US collapsed. They had an exposure to subprime loans approaching 80%.
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