Be afraid. Be very afraid.

[Garry K]

I agree with some earlier threads that because the size of the credit held in public hands it will only take a small rise in rates to have a big impact on the public purse.
Therefore the RBA doesn't need large increases in rates to reign in spending.

Don't forget also that we already have higher rates than most of the world.
Don't higher rates mean money flows in from OS, aussie dollar goes up, this hurts our exporters.

At the end of the day, if anyone really could predict rates, they would be mega rich.
But even the smart ones can't.

Just try to cover this risk, like a lot of other risks involved with investing.

Garry

 

[astroboy]

Originally posted by multi
it is simple fact of life that if RBA try to lift interest rates just a bit (or as a matter of fact leave them on the current level) economy will collapse in a heap.

They want to raise them badly - BUT the only way for interest rates is DOWN.

*sigh*

ab

 

[MarkB]

Originally posted by Garry K

At the end of the day, if anyone really could predict rates, they would be mega rich.

Yep.

Not even the most sophisticated economic models available can predict, with 100% accuracy, whether or not the symbol at the front of the change in the exchange rate will be a "+" or a "-" at the end of each day.

Even if you could forecast just that most basic economic variable, you could make a mint!

Mind you, you wouldn't have to get it right, day in, day out. People like George Soros have made billions, just by being right (much) more often than not.

MB

Additional edit: Further to Multi's post below - I suppose the point I was making about the George Soros's of this world is that people can, and do, forecast trends through time.

But I will stand by my comment on models not being able to predict daily changes with 100% accuracy - unless of course someone can show me a model that does otherwise.

 

[multi]

There is nothing easier than predicting rates.

Problem is you can not predict something like planes flying into WTC or droughts - but generally it is dead easy.

For me it took 5 years in university, 3 years in post graduate, 5 more years to complete my Phd in mathematic modelling, 10 years teaching economics in Uni - since then I was never made a mistake... Well ... probably in timing +- 4-5 months maximum...

So, does not take much, really...

 

[MarkB]

Multi

Thanks for the links. They were interesting articles.


Re: Save Australia - keep working

Buggered if I am going to be working at 65! Or 55..... or even 45!

Certainly not f/t anyway.



Re: Building figures threaten first downturn since 2000

That article actually reminded me of one I saw in the AFR on Thursday 21 August - "RBA warned over rising rates" (p. 6).

There was one quote in particular that grabbed my attention:

"The comments [by the REIA] follow a subtle policy shift at the RBA to take account of the property market when setting monetary policy.

The Bank is still targeting conventional inflation but in recent months it has kept interest rates on hold, partly due to fears a cut would further fuel the housing sector."

I thought that was VERY interesting.

FYI - I would post the hyperlink for that article, but it wouldn't do any good - you'd have to pay $2.20 to read it.

MB

 

[ocean view]

SO??? MB & MULTI?????

what about a prediction peoples,,,

How high say 2005 ,2006 2010????
I'D say it WON'T go over 8.25% say 2008 TO 2010
But I would be shocked to SEE rates over 7.25% myself until 2008

But again thats my say..

I would find it interesting to read your views.

cheers
OV

 

[MarkB]

Before I make my predictions, it was interesting that this morning I saw an old mate from uni on the train (we live in the same suburb) - he's ex. RBA.

We were talking economics and I bought up the subject of the BIS Shrapnel forecasts.

He went onto tell me that a few weeks back he attended some breakfast function where the guest speaker was Dr. Chris Caton. Anyway, apparently someone asked Caton what his thoughts on the reliability of forecasts was.

His reply was to the effect: "I'm pretty comfortable with my 6 month forecasts".

He then said that a few months earlier he had been awarded some prize for the best forecasting of the $AUD over a particular period. He apparently also said that he was the only one in the group being considered for this prize who actually got the direction right of the exchange rate change right, so when it came to longer term forecasts you should "take them with a grain of salt".

(I could relate similiar stories about Professor Bob Gregory and Alan Oster).

Originally posted by ocean view
SO??? MB & MULTI?????

what about a prediction peoples,,,

How high say 2005 ,2006 2010????
I'D say it WON'T go over 8.25% say 2008 TO 2010
But I would be shocked to SEE rates over 7.25% myself until 2008

My predictions..... drum roll please.......

I'D say that rates WON'T go above 7.75% at any point between now and 2010.

I don't know about you, OV, but I see a major political (and psychological) barrier to interest rates much higher than those we have mentioned.

Mum and Dad investors don't care for the RBA rate - they only care for what they pay and with a cash rate of between 7.75 - 8.25%, it could reasonably be expected that variable mortgage rates would be somewhere in the 9.00-9.75% range - ie. Less than 10%.

Double-digit (10%) mortgage rates would be very bad for the government.

If I had to pick out a couple of reasons for my rate prediction they would be:

- (as noted by others) a rise of more than a 1 or 2% will cause many home owners to hit the wall, and

- the back of inflation has been broken and at this stage I don't see the pressure to hike rates to curb it.

MB

 

[astroboy]

Originally posted by multi
There is nothing easier than predicting rates.

Problem is you can not predict something like planes flying into WTC or droughts - but generally it is dead easy.

For me it took 5 years in university, 3 years in post graduate, 5 more years to complete my Phd in mathematic modelling, 10 years teaching economics in Uni - since then I was never made a mistake... Well ... probably in timing +- 4-5 months maximum...

So, does not take much, really...

Ok multi,
If you believe its that easy tell me what the what the rate will be on August 30 2006.
Oh, let make it a little more interesting, put your money where you mouth is and we can have a little wager on it as well,,,, what the hell lets make it a sizable wager......
ab

 

[OPM-addict]

Play nice.

This has been one of the most interesting threads I have read ever.

With the amount of knowledge in this forum the RBA should start reading it themselves.

I agree the majority of the people that walk around us have no idea whats going on with our economy. But if the interest rises a few points they will sell out of panic or be forced sell due to their lifestyle and poor economic planning. ;D

I dont believe the RBA will make drastic moves in the interest rates, but I will take a guess and say they will play with our heads and fluctuate it within a given range. Say 0.75% from the present over the next 5 years. ( I wait for the threads on this one)

Know that there is risk in all parts of your life. Then manage it.
Education does help us. There is only so much school will teach us and the rest we must learn for ourselves.

A man I met recently said something that inspired me towards this goal. It goes someting like this " The past is in the past, the future is uncertain, now is the present and is a gift.That why they call it the present."

I wish you all good luck in your endevours.
Please keep this forum for developing our financial and economic knowledge, not a intellectual version of the TAB.

OPM-addict
-Peace....out-

 

[MarkB]

Interesting article....

http://finance.news.com.au/common/story_page/0,4057,7129028%5E462,00.html

Basically the RBA is feeling the squeeze from both sides.

Reducing interest rates could help the slowing economy, but they are afraid that it will be akin to throwing fuel on the property market fire.

At the same time, heat in the property market probably makes them want to raise interest rates, but with adverse affects for the wider economy.

I think what we are seeing here is a real mexican stand-off in the way MP is managed.

Take the property market out of the equation and it seems clear to me that rates would fall.

But as it is, for the time being rates will likely remain stable.

MB

 

[multi]

Yeah.

Fresh one:

http://www.smh.com.au/articles/2003/09/02/1062403490819.html

Profits down, inventory up, growth stalled, sharemarket grossly overpriced.

These are sure signs of looming recession.

To tell the truths, all the economy which is not property related is already in the recession.

All the "robustness" in the economy our treasurer likes so much to talk about was due to booming building sector.

Now RBA scaremongering seem to start working - and we are back to old good "USA sneezes, Oz catches cold".

Big deal - the longer RBA demonstrates stubborness and refuses to cut rates - the more substantial cut will follow.

Although this game is getting not very funny already - if RBA continues to play with the fire any longer and we get deflation as a result - it will be very hard to climb out of that ditch.

It all reminds me of old joke:

Pharmacist needs to go to toilet and leaves pharmacy on young apprentice. Pharmacist returns in 5 minutes and asks apprentice if everything is allright.

Apprentice replies that there was only one old lady asked for something against cough and he has given her these pills.

Pharmacist is terrified: "What have you done!!! It is the most powerful laxative!!!"

Apprentice replies "So what? It works. See, she is standing at the middle of the street and is afraid to cough?"

 

[MarkB]

Have a look at the interest rate projection here:

http://www.news.com.au/common/story_page/0,4057,7153339%5E421,00.html


"Sydney's BIS Shrapnel's economist Dr Frank Gelber also told the conference that SA's GDP growth would continue its low growth performance at about 1 per cent below the national average.

Dr Gelber said limited job opportunities in SA forced many young people to seek employment interstate or overseas.

He predicted inflation would decline to below 2 per cent in the next few years, but rise again to a level which would force interest rates to rise.

He said that, by 2006, housing interest rates would rise above 10 per cent, which would "kill the housing market" and unemployment levels would fall towards 5 per cent but blow out to 8 per cent by 2008"

Where do these people get such silly ideas?!

MB

 

[Tibor]

Hi there,

I'd like to add some additional points which is basically overlooked by everyone in the overinflated houseprice increase discussion.

It is quite interesting if one compares what additional cost is involved in building a house to what was it 10, 20 or 30 years ago, which also complies with all the current regulatory requirements and also what cost it involves.

This should be added on the top of the GST cost, Stamp Duty cost and land tax cost which percentages basically has not been adjusted for inflation, hence all the various entities (State, Federal and Local Governments) ripping off a much greater amount of money from the property purchasers pocket.

As a couple of examples. In Sydney Western suburbs (the newly built ones in the outskirts of Sydney) the Local Governments are
getting around $50,000 per lot from developers for 'infrastructure'
as I heard.

In Brisbane outskirts a friend of mine had to pay an extra $10,000
on top of the building cost as he is living in an acerage estate where full recycling of waste and water is required by the local council.

Since last September all properties in QLD (including old ones)
have to have a electrical safety switch installed. It is also a cost.

During the past 10 years basically all states introduced several legislations which requires extra cost to be fulfilled and without which, the property will not be approved by local councils.

I am not trying to question the right or wrong of the above, but simply state, that the above (more changes and more requlations) are also a big contributory factor to the cost increase, which is basically not mentioned.

Couple this together with 'lifestyle' requirements, bigger living areas in houses (albeit the land is smaller), extra today 'essential' features like multiple phone lines, internet enability, modern appliances, etc, etc, it is no wonder why property prices increased so much. Land shortage, yes is also a big contributor, but this alone would not justify the cost increase.

As wages are left behind of these increases, people required to borrow a larger and larger percentage of the 'home', which today still considered a the big Australian dream. Affordability today and in the future, as well as possible social change from the next generation (the dream is not any more to own the home, but to enjoy life to the full) may lead to a lower percentage of the population that will be home owners.

This is already the case in the vast majority of Europe and while we have much more land avalable, there is less desire (for the time being) to move away from 'life' in the big cities, which also contributes to this overcrowding and land scarcity.

While the Reserve Bank might cosider various economic and other indicators to keep inflation in check, should not forget (somehow I would not bet on it that they will not) other cost that also contributed the the property price 'boom'.

Just the 2c.


Tibor

 

[jahn]

Hi
I was away for 1 week and have had a great read since getting back. (slowly getting educated, thanks to your input)

BTW OPM - addict
The version I heard was
Yesterday is History
Tomorrow is a mystery
Today is a gift,
That's why they call it the Present.

and I suppose you could say that if "Tomorrow is a mystery", it could explain why Dr. Chris Caton was the only one to even get the direction right, let alone the numbers.

MB364
Sounds like you know what you are talking about, and I'm guessing that Dr Gelber is guestimating ?
jahn

 

[MarkB]

Originally posted by jahn


MB364
Sounds like you know what you are talking about, and I'm guessing that Dr Gelber is guestimating ?
jahn

Jahn

Lets just say that Dr Gelber and I have different views of the world.

I wouldn't agree with much of what Milton Friedman has to say, yet he has won the Nobel Prize for Economic "Science" (ha!)

MB