Help on assignment

[Knobby22]

Smurf

I think if the oil price drops to say $50 then your first scenario is entirely feasable and interest rates will rise.

If oil keeps rising or stays where it is over the next year then this acts like an interest rate hike on demand and the interest rate ill stay at present levels.

If we see a drop in interest rates then another shock must have occurred which will not be good for anyone. The way property is in this country though, any cut in interest rates will reignite the property boom, unfortunately.

 

[krisbarry]

But everything costs more with higher petrol prices, which in turn increases inflation.

The RBA was 90% certain of a rate cut in the new year, that has now diminished to 10%.

Looks like a rate hike to me is on the cards....wooo hooo, cripple a few more property investors!

source:

TEN: 11:30 morning news

 

[tech/a]

Kris.

You really look like a fool when you answer like you have above.

Property investors gear themselves so that interest rates have little bearing on their overall stratergy.
The people who get belted are the double wage earners/possibly single parents/or simply wage earners who have over stretched themselves at the end of the boom.

Those that will get hurt most are those who you bleat about.

I've been where you are--- so when you've been where I am now you'll be in a position to make comment.

 

[Smurf1976]

I think that interest rates are one of those "understand the market OR make money in the market but you can't do both" situations. OK, maybe it can be done but I've always found that at any given time both the interest rate bulls and the bears can usually make a case for rates to move up or down. And neither seems to acutally make a profit doing it.

The more I have learnt about trading the more I have convinced myself to not predict interest rate movements. The predictions business was getting way too expensive for me (due to losses) so I stopped seriously trying to predict these things. And the only thing I regret is not stopping much earlier.

I know the orignal purpose of the question wasn't trading as such, just thought I'd add this in. Predictions can be educational but aren't necessarily the best way to make money in the market. Not for me anyway.

 

[krisbarry]

I disagree totally tech/a. You just want low interest rates to continue as that suit your current situation.

Property investors will leave the market in droves for 2 reasons:

House prices drop or interest rates go up.

Just like yourself, they are selling properties! Why? house prices are dropping, so there is less return and secondly they have been warned of an interest rates rise soon.

I am not a fool, I am just calling it as I see it.

 

[Bronte]

You are nobodys fool krisbarry.

 

[Kauri]

Kris... Have you ever thought that with your insistence on living in the centre of town you may be depriving a village of one its most prized residents?

 

[Bronte]

Please ignore them.

 

[krisbarry]

I would personally like to see much higher interest rates, more interest means more in my savings accounts.

Bring back those 17% interest rates like in the 80's. I would make a killing!

So would the pensioners!

I remember as a child getting a rate like this in my first savings account.

Ohh bring back the 80's

Greed is good, so I get told on this board, nothing wrong with it!

 

[Smurf1976]

Property investors gear themselves so that interest rates have little bearing on their overall stratergy.

Agreed with your comments tech/a where it comes to property investors.

But what about the large number of amateur property speculators who haven't even thought about a proper strategy in the first place?

The difference between the two is stark. One is professional with a long term plan. A bit like trading stocks with a strategy proven to work. The other is amateur and in it purely for capital gains. A bit like buying hot technology or mining stocks because they have already risen by a large amount.

Spot the difference? It is as clear as black and white.

Normally this wouldn't matter too much since owner occupiers and professional landlords greatly outnumber speculators. But it is no secret that the recent boom has been substantially driven by amateur speculators following the advice of reality TV shows and touring "investment" gurus promising near-instant riches simply by buying virtually any property. Remember that ANYONE can be a millionaire within months or at most a couple of years with no starting capital and practically no work required according to these "experts".

There is a huge difference between professionals and amateurs when it comes to risk management. No amateur will belive anyone advocating position sizing and limiting losses to 2% when trading stocks. No, you need to take big risks on junior mining or technology stocks because that's how amateurs think money is made in the stock market.

Let's face it, not many of us on this forum made our first trades with a stop loss limited to 2% of trading capital and a strategy back tested and proven to work. Some might, but not the vast majority who rushed in to some hot stock, made a profit, thought they knew the lot and then promptly blew the lot. Sound familiar?

Risk management, positive expectancy and exit strategies are for those who just don't get it that this latest bunch of amateurs has it all worked out when it comes to the market and every trade they make is a guaranteed winner. Risking the lot is perfectly safe when you're 100% accurate at predicting the market. Or so they think until it all comes spectacularly crashing down because amateurs don't have a clue about risk management.

Or we could look outside the financial markets to something physical. Consider how a qualified tradesman electrician wires a house compared to a typical handyman. In both cases the lights will work and there is power. But that nice fancy looking switchboard the tradesman insisted on is so your house doesn't burn down when something goes wrong. The average handyman doesn't have a clue that the physical environment surrounding a cable, as well as the cable itself, determines the rating of the circuit breakers needed to safely protect that cable. Indeed the average handyman hasn't got a clue what I'm on about... And if you ask them about power factor then be prepared for an awfully blank look. And the end result is that whilst both will work, the handyman is guessing that the risk of fire or shock has been adequately dealt with whereas the tradesman has properly calculated the required equipment ratings as the law requires them to do. The professional has managed the risk to a minimal level (since nothing electrical can ever be totally safe by its very nature) wheras the handyman said "she'll be right" which it will, until that day when something goes wrong and then you're in big trouble.

Now, does anyone seriously believe that all these newbie landlords with 4 properties all on close to 100% mortgages have done any proper risk management calculations? Half of them probably don't realise that a 5% fall in the price, which has already happened in Sydney, would completely wipe out their equity given the huge leverage they are typically using.

We are not dealing with professionals here but with amateurs with $ signs in their eyes. Amateurs who are already shocked to find that interest rates actually can be adjusted upwards. Amateurs who are shocked to find that property prices haven't risen by at least 10% this year so far since that 20% per annum is a guaranteed profit, right? Amateurs that never thought about what happens if the property is vacant or something expensive breaks. Or, more to the point, amateurs who never even thought they needed tenants in the first place and are purely counting on the capital gains to pay the mortgage, rates etc. when they sell.

Are these people properly prepared for tough times? Have they even considered that interest rate variations, price slumps, governments changing, recessions, destructive tenants and urgent repairs are perfectly normal occurrences which can be expected? I expect that tech/a has thought of these things and is running a proper landlord's business accordingly. But does the average mum and dad speculation empire have such knowledge of the markets? I very much doubt it.

 

[tech/a]

Kris.

When interest rates rise I to will be as happy as Larry.Up will go my rents!
Demand for my rentals will sky rocket.My passive income will dramatically increase.If they dont rise for a while I will continue to use the low rates to my advantage.

Smurf.
The "Speculator" you insist is in a majority is in fact pretty well a minority.

To have 4 properties 100% geared by speculators with no or little servicing ability is nigh on impossible.They just wouldnt get the necessary $$s.

Insto's use a 2% filter on affordability and if that cant be serviced then no loan.Those that are over stretched or at their max have had to take out mortgage insurance so that if and when they get hit the insurance company pays the difference between sell and bank commitment.

This doom and gloom scenerio with all due respect is perpetrated by those who are not involved in it!

Sure housing will stabalise and sure prices will pullback to satisfy demand and sure there will be some carnage---but it wont be anything like wholesale bankruptcy for those "Stupid,greedy,dumb,speculators"

Armchair critics who love to commentate and critisise those who have a go and lement missed opportunity---should really get inside the glass house before throwing stones.
Seriously comments thrown around on this topic can clearly be seen as from people who deal in theory not from practice.

Id rather hear from Jack Nicholas on how to play golf than someone who has watched tournaments on T.V.

 

[emily]

thank you to u all for helping =)