# Cash



## MrBurns (2 October 2012)

I wonder what the bank wil charge me to hold my money ?..........just thinking into the future after todays cut.


----------



## Julia (2 October 2012)

Might have been good to tie it up for extended period when rates were high.


----------



## MrBurns (2 October 2012)

Julia said:


> Might have been good to tie it up for extended period when rates were high.




I wanted to keep my options open not sure why.

I might actally have to buy SHARES, perish the thought.....end of the month when the TD expires.


----------



## craft (4 October 2012)

2015 Indexed bonds are currently returning* 0.01%*.


----------



## ROE (4 October 2012)

MrBurns said:


> I wanted to keep my options open not sure why.
> 
> I might actally have to buy SHARES, perish the thought.....end of the month when the TD expires.




a bit late, most decent yield stocks gone a bit nuts after RBA cut rate on Tuesday  and still climbing


----------



## Muschu (5 October 2012)

Cash is fine if you have enough.  But TD rates are unlikely to hold.  Each of us probably has a personal view of risk.  But real wealth is not income imo.


----------



## MrBurns (5 October 2012)

Muschu said:


> Cash is fine if you have enough.  But TD rates are unlikely to hold.  Each of us probably has a personal view of risk.  But real wealth is not income imo.




There'll never be enough for me, I eat capital constantly.
Real wealth went out the door with my ex


----------



## craft (5 October 2012)

Muschu said:


> Each of us probably has a personal view of risk.  But real wealth is not income imo.





I certainly have a different view.

*Passive income is enduring wealth! *

Capital burn is a funding source that exhausts at an increasing rate – Fine, if you have enough, die soon enough and don’t need/want to leave anything behind.


----------



## MrBurns (5 October 2012)

craft said:


> I certainly have a different view.
> 
> *Passive income is enduring wealth! *
> 
> Capital burn is a funding source that exhausts at an increasing rate – Fine, if you have enough, die soon enough and don’t need/want to leave anything behind.




Depends entirely on your needs of course but you need a LOT of cash to get any reasonalbe income at the rates on offer now.


----------



## Superb Parrot (5 October 2012)

MrBurns said:


> I wanted to keep my options open not sure why.
> 
> I might actally have to buy SHARES, perish the thought.....end of the month when the TD expires.




I am in the same position and have to decide in 6 days time....'keeping options open' is turning out to be costly.


----------



## Julia (5 October 2012)

MrBurns said:


> Depends entirely on your needs of course but you need a LOT of cash to get any reasonalbe income at the rates on offer now.






Superb Parrot said:


> I am in the same position and have to decide in 6 days time....'keeping options open' is turning out to be costly.




Which is why you have to think about your options when rates are high.
Aside from about $100K which is still at call at 5.25%, I added to what's at 8% and 7% with the rest of the cash at 6%.  But it's for five years so I didn't do it lightly.  It's lodged in $50K separate deposits so if I need some within that time I don't lose the interest on all of it.
There's absolutely the risk that markets will ease out of their current volatility and I'll want to put money back in.

No decision you ever make will be completely right.  We all do the best we can with what we have at the time.


----------



## MrBurns (5 October 2012)

I have to decide at the end of the month, if they give me the same rate I might stick with it but if not I'll close the account and go shopping at the ASX.
I'm not looking for a percent here and there I'll be looking for some decent gains which means I'll be gambling......then againTelstra still looks good.


----------



## MrBurns (5 October 2012)

Superb Parrot said:


> I am in the same position and have to decide in 6 days time....'keeping options open' is turning out to be costly.




Every time I'm in that boat it's the same, things look like they could tank any time so I dont make a move, the economy is looking sicker by the minute but the market keeps rising.

Good luck.........


----------



## Ves (5 October 2012)

MrBurns said:


> I wanted to keep my options open not sure why.



I accept that you may take offense to this observation (and feel free to correct me if I am wrong) but from your previous postings it would appear as if you do not have a great deal of knowledge about share investment  (I am not sure if this extends to other asset classes). I also do not know how you made your wealth, so it is possible that I am rudely, over-assuming and I apologise in advance for that.

In this context what does "keeping your options open" mean?   Does it mean that whilst interest rates have been higher you have taken advantage of this "respite period"  to analyse and build knowledge on different asset classes?  I ask because in most people I have met "keeping my options open" is an excuse to retain the status-quo until they are forced to do something, and usually it is an un-educated decision  (which is interesting, considering they have had plenty of time).


----------



## Ves (5 October 2012)

craft said:


> I certainly have a different view.
> 
> *Passive income is enduring wealth! *
> 
> Capital burn is a funding source that exhausts at an increasing rate – Fine, if you have enough, die soon enough and don’t need/want to leave anything behind.




Agree - capital is useless to me if it is merely consumable and not producing of itself.


----------



## MrBurns (5 October 2012)

Ves said:


> I accept that you may take offense to this observation (and feel free to correct me if I am wrong) but from your previous postings it would appear as if you do not have a great deal of knowledge about share investment  (I am not sure if this extends to other asset classes). I also do not know how you made your wealth, so it is possible that I am rudely, over-assuming and I apologise in advance for that.
> 
> In this context what does "keeping your options open" mean?   Does it mean that whilst interest rates have been higher you have taken advantage of this "respite period"  to analyse and build knowledge on different asset classes?  I ask because in most people I have met "keeping my options open" is an excuse to retain the status-quo until they are forced to do something, and usually it is an un-educated decision  (which is interesting, considering they have had plenty of time).




I was im property so I was staying in cash in case I wanted to move quickly on something but there wasnt anything that interested me.


----------



## tinhat (5 October 2012)

ROE said:


> a bit late, most decent yield stocks gone a bit nuts after RBA cut rate on Tuesday  and still climbing




I disagree. Relative to the interest outlook for deposits I would say there is still some very good yields on offer, particularly if you can make use of the franking credits, which generally, any retired person should be able to do if they have organised their finances properly. I posted just a few as random examples in another thread just the other day. I'm talking about yields grossed up for franking credits around 8-9% I wouldn't be waiting too much longer though. Demand for good yielding defensives isn't going to go away during this current bull run.

At the risk of starting another going around in circles discussion let my just drop one ASX ticker code into this discussion...

TLS


----------



## MrBurns (5 October 2012)

tinhat said:


> I disagree. Relative to the interest outlook for deposits I would say there is still some very good yields on offer, particularly if you can make use of the franking credits, which generally, any retired person should be able to do if they have organised their finances properly. I posted just a few as random examples in another thread just the other day. I'm talking about yields grossed up for franking credits around 8-9% I wouldn't be waiting too much longer though. Demand for good yielding defensives isn't going to go away during this current bull run.
> 
> At the risk of starting another going around in circles discussion let my just drop one ASX ticker code into this discussion...
> 
> TLS




You seem to be promoting TLS tinhat fom this and previous posts I've seen


----------



## tinhat (5 October 2012)

MrBurns said:


> You seem to be promoting TLS tinhat fom this and previous posts I've seen




They don't call me "The Anti-Murray" for nothing :evilburn:

I just figure that TLS is a soft target for ramping. My handful of posts mentioning TLS over the past six months have done the trick - look at the chart!


----------



## Ves (5 October 2012)

MrBurns said:


> I was im property so I was staying in cash in case I wanted to move quickly on something but there wasnt anything that interested me.




Thanks for clarifying, I didn't realise you were in property (I am sure others were the same).  Helps put context to your posts.  Cheers.


----------



## Superb Parrot (5 October 2012)

MrBurns said:


> Every time I'm in that boat it's the same, things look like they could tank any time so I dont make a move, the economy is looking sicker by the minute but the market keeps rising.
> 
> Good luck.........




Thanks, keeping cash now is like an aircraft in a holding pattern, safe but going nowhere.

 I have no confidence in this market, for a long investor like me, strange signals are showing. CSL has just hit $46, and is a pure defensive play. It would surely come down if there was real confidence in equities. So, cash it will be for me until the signals change.


----------



## Julia (5 October 2012)

tinhat said:


> I disagree. Relative to the interest outlook for deposits I would say there is still some very good yields on offer, particularly if you can make use of the franking credits, which generally, any retired person should be able to do if they have organised their finances properly. I posted just a few as random examples in another thread just the other day. I'm talking about yields grossed up for franking credits around 8-9% I wouldn't be waiting too much longer though. Demand for good yielding defensives isn't going to go away during this current bull run.



How much account do you take of the global uncertainty and the increasing warning signs about the Australian economy?  i.e. the potential for definite risk of capital loss in the share market?
Imo to focus just on the yield is very risky.  I'd be very reluctant to put a large proportion of my available funds into the market under these conditions.

Should add the proviso that if you are generating a living from another source (eg salary) then that's quite different.
But if one is retired, capital preservation has to be a greater priority.


----------



## Muschu (5 October 2012)

craft said:


> I certainly have a different view.
> 
> *Passive income is enduring wealth! *
> 
> Capital burn is a funding source that exhausts at an increasing rate – Fine, if you have enough, die soon enough and don’t need/want to leave anything behind.




Apologies for being unclear.  I intended to mean only two things:

1. It's OK [at least I certainly hope it is] for individuals to adopt differing investment strategies; and 
2. Being wealthy in terms of dollars is not my prime objective.


----------



## MrBurns (8 October 2012)

Are there any circumstances where rates could go back to 10% ?

I think it's too much os a political hot potato as there are so many sucked into the inflated housing market that would suffer.


----------



## prawn_86 (8 October 2012)

MrBurns said:


> Are there any circumstances where rates could go back to 10% ?
> 
> I think it's too much os a political hot potato as there are so many sucked into the inflated housing market that would suffer.




Politics has nothing to do with it, the government doesnt control rates, although they do have an impact on the economy.

The RBA is mandated to keep inflation under control, so the only way now we would see a rate increase is if inflation (as measured/analysed by the RBA) was to increase outside of their 2-3% range, and look as though it was to stay there.

Those with better economics background could explain what causes inflation in detail, but essentially people need to start spending agin for that to happen


----------



## MrBurns (8 October 2012)

prawn_86 said:


> Those with better economics background could explain what causes inflation in detail, but essentially people need to start spending agin for that to happen




So the worse things get the less people spend the lower the rates......great

Well I sort of knew that but like a lot of others I'm getting sick of the continual reduction in rates and consequent decimating of income for those with cash.


----------



## white_goodman (8 October 2012)

prawn_86 said:


> Those with better economics background could explain what causes inflation in detail, but essentially people need to start spending agin for that to happen




largely yes but not necessarily, large inflation in input costs (oil) could force the hand of the RBA to raise rates which will be terrible for output, also there is a relationship between fiscal deficits and central banks stance on monetary policy (in theory)


----------



## prawn_86 (8 October 2012)

MrBurns said:


> Well I sort of knew that but like a lot of others I'm getting sick of the continual reduction in rates and consequent decimating of income for those with cash.




The joys of an ever changing World. For the first time i am seriously looking at property, with rates continuing to fall there are some properties out there that would be positively geared with a small deposit


----------



## MrBurns (8 October 2012)

prawn_86 said:


> The joys of an ever changing World. For the first time i am seriously looking at property, with rates continuing to fall there are some properties out there that would be positively geared with a small deposit




And then there's the property bubble.........if only we could look ahead.


----------



## tinhat (8 October 2012)

white_goodman said:


> largely yes but not necessarily, large inflation in input costs (oil) could force the hand of the RBA to raise rates which will be terrible for output




If you look over the RBA's statements I think you will find that the most important cost push factor they consider is wages growth. In my opinion this is because wages growth tends to entrench inflationary expectations. My observation is that the RBA tends to ignore one-off inflationary shocks such as the GST and the carbon tax.


----------



## prawn_86 (8 October 2012)

MrBurns said:


> And then there's the property bubble.........if only we could look ahead.




Is it a bubble or is it stagnation? As far as i am concerned, if i can buy an asset with debt that pays itself off then that is a good deal providing:
1. The asset maintains or gains value
2. The income the asset produces is going to increase in time

So one then has to look at the asset and if conditions 1 and 2 are going to be met.

Positive gearing means that it now becomes like any other asset/business purchase as opposed to having to negative gear and hope for capital appreciation


----------



## MrBurns (8 October 2012)

prawn_86 said:


> Is it a bubble or is it stagnation? As far as i am concerned, if i can buy an asset with debt that pays itself off then that is a good deal providing:
> 1. The asset maintains or gains value
> 2. The income the asset produces is going to increase in time
> 
> ...




Perhaps this s relevant - 

https://www.aussiestockforums.com/forums/showthread.php?t=17967&p=731955&viewfull=1#post731955


----------



## qldfrog (8 October 2012)

white_goodman said:


> largely yes but not necessarily, large inflation in input costs (oil) could force the hand of the RBA to raise rates which will be terrible for output, also there is a relationship between fiscal deficits and central banks stance on monetary policy (in theory)



I also want to add:
inflation can be linked to the currency;
if the AUD falls by let's say half, oil and related (ie food ,imports, etc) would jump; as Australia does not manufacture much anymore in a substantial manner, most of what you buy at the supermarket or even at Bunnings would double (or at least jump), even some food  price would jump: why would a farmer sell in Oz if he can get twice on an oversea market

So inflation can be linked to currency;
in normal situation, the RBA would raise rates and so increase attraction of the AU dollar so would compensate, but not always as clear cut...
And guess what, the AUD is going down with the end of the mining boom..


----------



## drsmith (8 October 2012)

MrBurns said:


> Are there any circumstances where rates could go back to 10% ?



When the bond market poops itself.


----------



## MrBurns (8 October 2012)

drsmith said:


> When the bond market poops itself.




Or when I dump all my cash into shares...........


----------



## drsmith (8 October 2012)

MrBurns said:


> Or when I dump all my cash into shares...........



As a wise broker once said to me.........,

you're the investor.

5% on cash will still be easily attainable even after the latest RBA rate cut.


----------



## MrBurns (8 October 2012)

drsmith said:


> As a wise broker once said to me.........,
> 
> you're the investor.
> 
> 5% on cash will still be easily attainable even after the latest RBA rate cut.




Nigerian bank ?


----------



## Julia (8 October 2012)

MrBurns said:


> Nigerian bank ?






> RAMS Saver (Base Rate 4.95%, Bonus 0.80% with savings plan) 	5.75 	Details
> USaver (Base Rate 5.01%, Bonus 0.70% with savings plan) 	5.71 	Details
> Citibank Online Saver (5.60% Variable intro rate for 4 months on balances up to $500k) 	5.60 	Details
> Savings Maximiser (5.60% p.a. variable intro rate for 4 months on balances up to $250,000) 	5.60



From Infochoice today.  But, Burnsie, if you continue to sit on your hands, you will continue to miss opportunities as rates continue to fall.  Only a few months ago you could have got over 6%.


----------



## MrBurns (8 October 2012)

Julia said:


> Only a few months ago you could have got over 6%.




It's still only peanuts Julia, I need to make money and that means property or shares........


----------



## Muschu (8 October 2012)

MrBurns said:


> It's still only peanuts Julia, I need to make money and that means property or shares........




Nothing in the market is risk free of course.  But we have spoken of TLS.  That's one risk I am willing to take over a term deposit.


----------



## MrBurns (8 October 2012)

I'm inclined to agree


----------



## prawn_86 (8 October 2012)

Julia said:


> From Infochoice today.  But, Burnsie, if you continue to sit on your hands, you will continue to miss opportunities as rates continue to fall.  Only a few months ago you could have got over 6%.






MrBurns said:


> It's still only peanuts Julia, I need to make money and that means property or shares........




Since you have been waiting there has been a lot of opportunity cost. What % pa do you feel you need to achieve? In a low IR environment you now need to take on more risk to get the same returns possible a few years ago 

It sounds to me as though you want a low risk investment with a high return, and dont want to research it, think about it, or learn much about it (dont we all?)


----------



## MrBurns (8 October 2012)

No not that at all I've taken advice before but shares have never been good to me except when I was in on float once years ago
I was waiting for property opportunities but I don't think the climate is right
I think park a bit in TLS is probably the way to go


----------



## Julia (8 October 2012)

Muschu said:


> Nothing in the market is risk free of course.  But we have spoken of TLS.  That's one risk I am willing to take over a term deposit.



Mr Burns is 'inclined to agree'.  However, he has been humming and hahing over TLS for months.  Ditto over taking advantage of even short term quite decent at call rates for cash.

Prawn is 100% correct when he talks about opportunity cost.




prawn_86 said:


> Since you have been waiting there has been a lot of opportunity cost. What % pa do you feel you need to achieve? In a low IR environment you now need to take on more risk to get the same returns possible a few years ago
> 
> It sounds to me as though you want a low risk investment with a high return, and dont want to research it, think about it, or learn much about it


----------



## ROE (9 October 2012)

MrBurns said:


> No not that at all I've taken advice before but shares have never been good to me except when I was in on float once years ago
> I was waiting for property opportunities but I don't think the climate is right
> I think park a bit in TLS is probably the way to go




Do a bit of research you can buy some small cap and midcap stock that can deliver all of the above
good yield and increasing plus capital appreciation  with higher risk scale that why research is paramount.


----------



## Julia (9 October 2012)

ROE, if Mr Burns has had difficulty over many months making a decision over whether to buy such a basic stock as TLS, the likelihood of him acquiring small or mid cap, little known, stocks seems rather remote.


----------



## MrBurns (9 October 2012)

Julia said:


> ROE, if Mr Burns has had difficulty over many months making a decision over whether to buy such a basic stock as TLS, the likelihood of him acquiring small or mid cap, little known, stocks seems rather remote.




Correct


----------



## Bill M (9 October 2012)

Hi MrBurns, I remember you talking about TLS about 12 Months ago, since then it's jumped nearly 30%. Still not a bad investment now, I hold quite a few and have been collecting those juicy dividends for many years now.

Anyhow no use crying over what could have been and better to look forward. You can still pull 5.46% from your Rabodirect account which is at call, not too bad. Sounds like it isn't enough for you, it isn't for me either so I've had to look elsewhere with higher risk too.

All my bank stocks are well up and in the green and all along they have been paying very strong dividends. I also invest quite a fair chunk of my capital in Subordinated Notes, Preference shares, Hybrids and floating rate notes. Some of these are paying up to 11% gross income. Take a look at the Hybrid Securities thread HERE, you might find that one useful. I spread my holdings over several companies to limit risk. None of mine went under during the GFC and none stopped paying distributions.

If you are not happy with 5.46% from a bank (safe and secure) then maybe property might not be for you either. Not taking capital gains or losses into consideration, the returns from a rental property only bags me around 4% net.

The only way out is taking on some risk, I don't know how comfortable you are with that. A lot of research and close reading of the prospectuses is needed too, good luck.


----------



## MrBurns (9 October 2012)

Bill M said:


> If you are not happy with 5.46% from a bank (safe and secure) then maybe property might not be for you either. Not taking capital gains or losses into consideration, the returns from a rental property only bags me around 4% net.
> 
> The only way out is taking on some risk, I don't know how comfortable you are with that. A lot of research and close reading of the prospectuses is needed too, good luck.




Thanks Bill, I was involved in a devlopment company years ago we bought buildings improved them and sold them on, thats the sort I've thing I was looking at not just passive investment.

I'll have a go toward the end of the month, I think banks and TLS probably and this time I'll just leave it there instead of reacting to market fluctuations.


----------



## prawn_86 (9 October 2012)

Agree with Bill and i have mentioned hybrids to MB before, however it seems as though he wasn't willing to research them.

I think the benefits of property now with IR continuing down is leverage to a relatively low volatility asset. If i can neutrally gear a property then i can save as per usual and am no worse off, so long as that property doesn't lose value. Knock a years worth of savings off it and it is positively geared and then the income is paying off the leveraged debt. Not a great % pa retrun, as Bill says, but you have leveraged into the market


----------



## MrBurns (9 October 2012)

prawn_86 said:


> Agree with Bill and i have mentioned hybrids to MB before, however it seems as though he wasn't willing to research them.




As I said i'm more of a property person, buy a small office buiding, strata it into small offices, bit of paint, there you go


----------



## Julia (9 October 2012)

prawn_86 said:


> and am no worse off, so long as that property doesn't lose value.



And that is the relevant qualifier.  The IMF are making unusually pessimistic noises about a world wide recession next year, plus - despite Mr Swan's protestations of his brilliance - the RBA is hardly dropping rates because the Australian economy is doing well.


----------



## MrBurns (9 October 2012)

Julia said:


> And that is the relevant qualifier.  The IMF are making unusually pessimistic noises about a world wide recession next year, plus - despite Mr Swan's protestations of his brilliance - the RBA is hardly dropping rates because the Australian economy is doing well.




Thats the crux of the whole dilema, there's been an axe hanging over the head of all markets for too long, watching, waiting, for direction that has substance behind it, it seems forever.


----------



## prawn_86 (9 October 2012)

Julia said:


> And that is the relevant qualifier.  The IMF are making unusually pessimistic noises about a world wide recession next year, plus - despite Mr Swan's protestations of his brilliance - the RBA is hardly dropping rates because the Australian economy is doing well.




Agree, but if i am buying a property for around 2-250k i can find ones with a PE under 20, which i feel is pretty good for property. It is also only 3.9 times the median income so is still 'affordable' so to speak. If prices are going to drop it will be the houses in the middle band of suburbs that are already priced >6x income imo

Or i could be wrong and there could be a huge crash, who knows?


----------



## MrBurns (9 October 2012)

prawn_86 said:


> Agree, but if i am buying a property for around 2-250k i can find ones with a PE under 20, which i feel is pretty good for property. It is also only 3.9 times the median income so is still 'affordable' so to speak. If prices are going to drop it will be the houses in the middle band of suburbs that are already priced >6x income imo
> 
> Or i could be wrong and there could be a huge crash, who knows?




Thats the problem there could be a huge crash, everyone says we're overpriced, we aren't immune to problems and the markets been rising rapidly for ages so there should be a correction, some say it's already here, slow motion, prices are down over the past 12 months.
The rental market here in Melb is not strong last time I got feedback there were thousands of vacancies.
All I can say is if you buy property to hold make sure you can hold it through all down scenerios as in the end it will be ok, but you have to be able to get through what might be on it's way.


----------



## Klogg (9 October 2012)

prawn_86 said:


> Agree, but if i am buying a property for around 2-250k i can find ones with a PE under 20, which i feel is pretty good for property. It is also only 3.9 times the median income so is still 'affordable' so to speak. If prices are going to drop it will be the houses in the middle band of suburbs that are already priced >6x income imo
> 
> Or i could be wrong and there could be a huge crash, who knows?




If the 'earnings' for a property is it's rent, it makes a lousy investment... 
(You'd struggle to beat a P/E of 15 for residential property!)


----------



## prawn_86 (9 October 2012)

Klogg said:


> If the 'earnings' for a property is it's rent, it makes a lousy investment...




Why is that? If it is neutrally geared?


----------



## McLovin (9 October 2012)

Klogg said:


> If the 'earnings' for a property is it's rent, it makes a lousy investment...
> (You'd struggle to beat a P/E of 15 for residential property!)




Shouldn't the rent be thought of as revenue, or are we going back to that glorious tech-boom measurement of "earnings before expenses"? yes that's what they were calling revenue at one stage!

I agree though, earnings on property look pretty lousy.


----------



## prawn_86 (9 October 2012)

McLovin said:


> Shouldn't the rent be thought of as revenue, or are we going back to that glorious tech-boom measurement of "earnings before expenses"? yes that's what they were calling revenue at one stage!
> 
> I agree though, earnings on property look pretty lousy.




Yeh i am just throwing a few different models together and trying to see if it makes sense or not. Cash is no longer a viable option for us with IR decreasing and being young, so looking for the next investment step.

I can find properties with a gross yeild of 7-8%, so after costs it is pretty much neutrally geared


----------



## McLovin (9 October 2012)

prawn_86 said:


> I can find properties with a gross yeild of 7-8%, so after costs it is pretty much neutrally geared




What sort of net yield would you have after expenses + tax?


----------



## prawn_86 (9 October 2012)

McLovin said:


> What sort of net yield would you have after expenses + tax?




About 0% first year and then increasing to around 2% after a yrs worth of savings have been paid off the loan. I'm not at home so dont have the exact figures. It seems the only way for a young couple to leverage their funds outside of a margin loan (which i am not sure if the bank would even give to us anyway with no property ownership history)


----------



## craft (9 October 2012)

prawn_86 said:


> About 0% first year and then increasing to around 2% after a yrs worth of savings have been paid off the loan. I'm not at home so dont have the exact figures. It seems the only way for a young couple to leverage their funds outside of a margin loan (which i am not sure if the bank would even give to us anyway with no property ownership history)




Prawn, be careful leveraging the residential real estate market.

In my opinion, current returns woefully underprice the potential risk for capital deprecation.

A lot of real estate is held on leverage for private consumption or negatively geared investments. That means the asset itself does not liquidate the debt which creates a nexus with employment to sustain the status quo.

The potential for falling house prices and unemployment to feed off each other could set in place a pretty serious negative feedback loop that could get very deep pretty quickly.

Considering there is no sound logic for house price growth to exceed the rate of real wage growth, and in fact can’t over the very long term, then this long term view sounds plenty of warnings.






The last 60 years have sown the future – the real questions now are when and how. (And of course it will be a called a black swan when it happens)

And when it happens, Australia’s net foreign Liability means there is less scope for macro intervention then many may perceive. 

If you really want to invest in residential property then USA looks a much better option.

If you want to buy a house for your own private consumption then now is probably not the time to go more grandiose then you can comfortably afford afford on a pessimistic basis

All just my   but please carefully consider. 

The first home buyer generation is unfortunately most at risk of making real loses as long term holders see the paper gains handed back.


----------



## prawn_86 (9 October 2012)

Thanks Craft & McLovin,

As i have said we are at a point in life where we have a substantial amount of free cash-flow (probably at least 100k over the next 5 yrs) and it seems there is very little areas to invest it in order to grow it quickly or consistently. We want to be able to make 15k pa off our 'assets' in 5 years time.

I agree that credit has fuelled the house price growth, and most of my assumptions have been based on no growth over the next 5 years, but i still have a niggling feeling that perhaps we are better off waiting a couple years and seeing where things are at, but then again it comes down to where do we park that 50 - 100k in the meantime... As this thread is stating, cash doesn't seem like a worthwhile investment at the moment.

The generation of little to no low risk returns hey...


----------



## McLovin (9 October 2012)

craft said:


> The first home buyer generation is unfortunately most at risk of making real loses as long term holders see the paper gains handed back.




From what I've read, they already are. Those FHB who bought in 09-10 seem to be the unfortunate ones who are left holding the hot potato when the music stopped playing. A large number are now in mortgage stress and selling for less than they paid.


----------



## craft (9 October 2012)

prawn_86 said:


> The generation of little to no low risk returns hey...




Australian Equity risk premiums haven’t been better than since early 1970’s.


----------



## craft (9 October 2012)

McLovin said:


> From what I've read, they already are. Those FHB who bought in 09-10 seem to be the unfortunate ones who are left holding the hot potato when the music stopped playing. A large number are now in mortgage stress and selling for less than they paid.




That genuinely sucks. The run up in house prices really amounts to nothing more than an intergenerational transfer of wealth.


----------



## McLovin (9 October 2012)

craft said:


> That genuinely sucks. The run up in house prices really amounts to *nothing more than an intergenerational transfer of wealth.*




Yeah, and wait until we have to start paying their healthcare and pensions...


----------



## Bill M (9 October 2012)

Klogg said:


> If the 'earnings' for a property is it's rent, it makes a lousy investment...
> (You'd struggle to beat a P/E of 15 for residential property!)




Every investment I buy whether it is property, shares or a subordinated note has to have a return. I don't invest in anything that relies on hope of capital growth. In other words, if there isn't any income then I won't invest. Capital appreciation is the bonus on top for me.



MrBurns said:


> Thats the problem there could be a huge crash, everyone says we're overpriced, we aren't immune to problems and the markets been rising rapidly for ages so there should be a correction, some say it's already here, slow motion, prices are down over the past 12 months.
> The rental market here in Melb is not strong last time I got feedback there were thousands of vacancies.
> *All I can say is if you buy property to hold make sure you can hold it through all down scenerios as in the end it will be ok, but you have to be able to get through what might be on it's way*.




That is pretty sound advice MrBurns!


----------



## Bill M (9 October 2012)

Just to add further to the thread. Right now a most of my interest sensitive investments are being hammered, lower income due to the lower Bank Bill Swap Rate. Suncorp has sent me an email telling me about their Issue of Convertible Preference Shares coming up. It will be called CPS2.

As I understand it this CPS2 will offer 4.65% over the BBSW. The BBSW right now is around 3.18%. So 3.18% + 4.65% will give you 7.83% income on your capital invested. Sure there are rules and nothing is guaranteed but I am willing to buy such a stock in order to lift my portfolio. This is what I mean about having to take risk on, of course DYOR, cheers.


----------



## Ves (9 October 2012)

Bill M said:


> As I understand it this CPS2 will offer 4.65% over the BBSW. The BBSW right now is around 3.18%. So 3.18% + 4.65% will give you 7.83% income on your capital invested. Sure there are rules and nothing is guaranteed but I am willing to buy such a stock in order to lift my portfolio. This is what I mean about having to take risk on, of course DYOR, cheers.



Bill, is the 4.65% premium better than the same offerings from the Big 4 banks?  From memory they were lower, especially the CBA Perls V.  My memory may be hazy though.  I guess the big question is whether it also included franking credits!


----------



## Bill M (9 October 2012)

Ves said:


> Bill, is the 4.65% premium better than the same offerings from the Big 4 banks?  From memory they were lower, especially the CBA Perls V.  My memory may be hazy though.  I guess the big question is whether it also included franking credits!




Yes it is, from memory I think PERLS V pays 3.3% above the BBSW rate. ANZPA is around that 3.1 to 3.3% as well. Dividends will be fully franked as far as I know. The 7.8% I mentioned before is the gross dividend, with franking that will be lower, cheers.


----------



## Ves (9 October 2012)

Bill M said:


> Yes it is, from memory I think PERLS V pays 3.3% above the BBSW rate. ANZPA is around that 3.1 to 3.3% as well. Dividends will be fully franked as far as I know. The 7.8% I mentioned before is the gross dividend, with franking that will be lower, cheers.



Thanks - gotta be careful if you are in the 30% tax bracket or higher then.  The yield quickly decreases from there on!

I think these sorts of things provide good comparison to other opportunities and that is the main reason I occasionally check what they are currently offering.  If I can find a quality business that pays an equivalent yield, that is growing at a good clip then it certainly surpasses these types of investments. I think you mentioned that you also do this yourself.  Cheers.


----------



## Julia (9 October 2012)

prawn_86 said:


> Agree, but if i am buying a property for around 2-250k i can find ones with a PE under 20, which i feel is pretty good for property. It is also only 3.9 times the median income so is still 'affordable' so to speak. If prices are going to drop it will be the houses in the middle band of suburbs that are already priced >6x income imo
> 
> Or i could be wrong and there could be a huge crash, who knows?



If I were in your position I'd be considering seriously the likelihood of capital gain v capital loss, especially if you're not actually getting a decent yield to offset any capital loss.




Klogg said:


> If the 'earnings' for a property is it's rent, it makes a lousy investment...



Exactly.  And absolutely no guarantee of capital gain in the foreseeable future, and quite possibly capital loss.
As Mr Burns has suggested if you were going to buy now, it would pretty much have to be on the basis of being prepared to hold for the very long term.  I guess that isn't a problem at your age, prawn.



craft said:


> Prawn, be careful leveraging the residential real estate market.
> 
> In my opinion, current returns woefully underprice the potential risk for capital deprecation.



+1.




> The first home buyer generation is unfortunately most at risk of making real loses as long term holders see the paper gains handed back.



Yes, lots of people who bought, fully leveraged 100% of cost of the property at the height of the bubble, are now in considerable negative equity.  Awful position to be in.



McLovin said:


> From what I've read, they already are. Those FHB who bought in 09-10 seem to be the unfortunate ones who are left holding the hot potato when the music stopped playing. A large number are now in mortgage stress and selling for less than they paid.



Several properties here on the market for around $550K - $600K because that's what they paid, having borrowed 100% of the entry.  That is more than $100K overpriced on the current market.  Most have been sitting there for about three years.


----------



## MrBurns (10 October 2012)

IMF now warning of a global recession
No wonder I keep deferring investment decisions


----------



## ROE (10 October 2012)

MrBurns said:


> IMF now warning of a global recession
> No wonder I keep deferring investment decisions




You never going to find blue sky report and if you wait for that sort of stuff it may be too late..

I usually don't care too much on macro level, I just look for something that provide me a reasonable yield (that I am happy with to hold for years)

good balance sheet, reasonable earning prospect then I load up and I hold up down, good or bad weather, GFC or not doesn't even bother me if it down 40%.

Most of them turn out alright regardless of macro environment or GFC or some bad ass event around the corner.

you need to have a frame work of how you want your money invest, take a consistent stand and I'm pretty sure things are not as bad as it seems...

GFC came and almost all the expert said buy and hold is dead  doesnt even register with me,  stick to same strategy .....some of the best stock I have since GFC are buy and hold


----------



## Tysonboss1 (10 October 2012)

By the time the general concensus is telling you to get out of cash you probably have left it way to late, Same as when the general concensus is telling you to sell out of shares it's probably to late.

I just focus on buying a diverse range of good businesses when they are good value and refrain from buying when they are over valued.

I never hold a business I would not be willing to hold through another GFC event,


----------



## Tysonboss1 (10 October 2012)

MrBurns said:


> IMF now warning of a global recession
> No wonder I keep deferring investment decisions




Do you base all your investment decisions on what the IMF says.

Try not to get over whelmed with macro information, If your into property focus on looking for individual properties that meet your investment criteria.

If your into businesses, focus on looking for individual businesses and companies that meet your criteria.


----------



## Ves (10 October 2012)

Many wiser people than I have said this, but I will say it again:  trying to predict the economy (especially if you are relying on the views of others in the process!) will lose you more money (through either "missing out" or "getting it awfully wrong")  than you will make by attempting it.

Lots of people got the GFC correct for instance:  they shorted the thing down and loaded right up when it approached the (now known) bottom and gave all of their gains back when it violently  v-bottomed.


----------



## MrBurns (10 October 2012)

Ves said:


> Many wiser people than I have said this, but I will say it again:  trying to predict the economy (especially if you are relying on the views of others in the process!) will lose you more money (through either "missing out" or "getting it awfully wrong")  than you will make by attempting it.
> 
> Lots of people got the GFC correct for instance:  they shorted the thing down and loaded right up when it approached the (now known) bottom and gave all of their gains back when it violently  v-bottomed.




I avoided losing a high 6 figure sum by not investing just before the crash, ever since Ive trusted my gut feel, I havent lost much since.'
It's made me very cautious.


----------



## Klogg (11 October 2012)

MrBurns said:


> I avoided losing a high 6 figure sum by not investing just before the crash, ever since Ive trusted my gut feel, I havent lost much since.'
> It's made me very cautious.




But the question can also be asked - will you be losing money by holding your assets in the form of cash? Given the rate of inflation floating between 2 and 3%, savings rates just about 5%, you'd barely break even after tax.

Hypothetically, what if savings rates went below the rate of inflation, where you do lose money in real terms - would you consider this a loss...? (especially when many companies are paying 4-5% fully franked dividends with a great chance of growth)


----------



## Julia (11 October 2012)

Klogg, your questions to Mr Burns are entirely valid, of course.
But perhaps they don't take into account Mr Burns' obvious fear of e.g. buying shares, presumably because his financial interests up to now have been focused elsewhere and he doesn't have the confidence to invest in shares?

In such a circumstance, particularly if Mr Burns is in a comfortable financial situation, and further, if he has other sources of income, the peace of mind offered by sitting on his money might be worth 'paying for'.

I don't think I've expressed very well what I'm trying to suggest.  Hope it's comprehensible.


----------



## McLovin (11 October 2012)

Julia said:


> Several properties here on the market for around $550K - $600K because that's what they paid, having borrowed 100% of the entry.  That is more than $100K overpriced on the current market.  Most have been sitting there for about three years.





Which I think goes to the point I made on either this or another thread and which craft alluded to a few posts up about people being happy (or less unhappy) to sit on paper losses as long as they remain employed.

I really do feel sorry for those who have bought, thinking they were doing the right thing and are now seeing the family home as the albatross around the family's neck.


----------

