Inflation

[waterbottle]

More expensive to borrow if there's higher interest rates.

You want to borrow money for some reason, if putting it in the bank was 2% earning before you could conceivably borrow it from me for 2.1% (depending on risk), but if the bank is 3% now then now you've gotta pay me 3.1%.

Obviously the higher you go in required return, the fewer investments actually make sense.

And voila, recession.

Yes agreed, i thought you guys were referring to some howard-era policy I wasn't aware of

 

[over9k]

Yes agreed, i thought you guys were referring to some howard-era policy I wasn't aware of

Housing bubble and its associated debt.

Make money cheap, you make asset prices high. We haven't had a decent interest rate increase since the early 2000's, hence the absurdity with housing.

Interest rates are about to er, change, so housing will get knocked over and take everything else with it.

 

[Value Collector]

that means why would you buy shares for 5% div when you can get a 10% at bank?

Because of the inflation, over time the underlying assets of the shares will increase in value with inflation, where as the cash at bank won’t.

For example, over time as inflation devalues cash holdings, the range that Iron Ore price trades in will also rise, meaning the decades worth of Iron Ore in the ground, and alot of the long life infrastructure owned by the mining companies will rise in value too.

So with the share you will get your 5% franked dividend, along with a rises in the value of your capital base, but with the cash deposit your 10% unfranked interest you have to devote most of it to paying taxes and offsetting inflation, so it’s not a real 10% return.

 

[waterbottle]

Housing bubble and its associated debt.

Make money cheap, you make asset prices high. We haven't had a decent interest rate increase since the early 2000's, hence the absurdity with housing.

Interest rates are about to er, change, so housing will get knocked over and take everything else with it.

Maybe :

https://www.afr.com/wealth/personal-finance/house-prices-to-correct-up-to-25pc-20220505-p5ait4

I don't think rates will go high enough to cause a crash. Besides, data from banks shows most mortgagees should be able withstand a rate rise... Particularly with a potential 5% raise thanks to Albo

 

[waterbottle]

Because of the inflation, over time the underlying assets of the shares will increase in value with inflation, where as the cash at bank won’t.

For example, over time as inflation devalues cash holdings, the range that Iron Ore price trades in will also rise, meaning the decades worth of Iron Ore in the ground, and alot of the long life infrastructure owned by the mining companies will rise in value too.

So with the share you will get your 5% dividend franked dividend, along with a rises in the value of your capital base, but with the cash deposit your 10% unfranked interest you have to devote most of it to paying taxes and offsetting inflation, so it’s not a real 10% return.

More importantly, no one ever got rich by saving money in a high interest bank account.

 

[Value Collector]

More importantly, no one ever got rich by saving money in a high interest bank account.

Unless you are using OPM.

 

[over9k]

Maybe :

https://www.afr.com/wealth/personal-finance/house-prices-to-correct-up-to-25pc-20220505-p5ait4

I don't think rates will go high enough to cause a crash. Besides, data from banks shows most mortgagees should be able withstand a rate rise... Particularly with a potential 5% raise thanks to Albo

Remember that inflation means more living expenses which means less money to actually pay the mortgage with.

Either way, there's less money to pump into housing.

 

[sptrawler]

Because of the inflation, over time the underlying assets of the shares will increase in value with inflation, where as the cash at bank won’t

What, like if someone bought AMP for $25 ten years ago, or bought Telstra in the last float at $7.40, AGL for $15?
Or are you talking about those who were fortunate to pick winners. Lol
Oh sorry I forgot everyone's a winner. Lol
God do we need a reset.

 

[qldfrog]

I'm hopeful of a Labor win and the promised 5% wage increase comes through, that will IMO kickstart the economy in a big way, the buying power will be given a hell of a boost and should really put a rocket under the economy.

And a rocket under inflation and Australia collapse

 

[sptrawler]

Unless you are using OPM.

Weren't you into peer to peer lending a while back, how is that going?

 

[Value Collector]

What, like if someone bought AMP for $25 ten years ago, or bought Telstra in the last float at $7.40?
Or are you talking about those who were fortunate to pick winners. Lol

I am talking about the average market rate return of the share market as a whole, like buying the index vs something like a term deposit or bond fund.

Off course some individual share investments perform badly if you buy at the wrong time or the wrong company, as do some bonds and other fixed interest investments.

 

[sptrawler]

And a rocket under inflation and Australia collapse

The sooner the better, at least then they can recover, the longer it is held of the harder the recovery.

 

[sptrawler]

I am talking about the average market rate return of the share market as a whole, like buying the index vs something like a term deposit or bond fund.

Off course some individual share investments perform badly if you buy at the wrong time or the wrong company, as do some bonds and other fixed interest investments.

Well what you said didn't reflect that at all and was completely missleading.

 

[qldfrog]

Weren't you into peer to peer lending a while back, how is that going?

I have stopped all new lending and taking all available money back as it become available.
Around 4k left from 20k initially.
Roughly 6% return so far but i expect issue with both bad loans and liquidity freeze in coming months so getting out

 

[Value Collector]

Weren't you into peer to peer lending a while back, how is that going?

Yep still am, it’s going great. I use it as a place to store cash I need in the short to medium term (where the share market isn’t suitable)

For example, when I earn a dividend I place the portion of that dividend set aside for my living expenses into my “wage fund” and my “wage fund” pays me a weekly wage from it over the next 5 years.

A decent chunk of this “wage fund” is in Plenti loans, that pay monthly principle and interest payments back into the account used to pay my weekly wage.

I also keep a bunch of OPM, In there such as my tax reserves, options premiums, and other cash that needs to be held for a while.

 

[Value Collector]

Well what you said didn't reflect that at all and was completely missleading.

How didn’t it reflect that, My point was that there is underlying assets in shares that provide an inflation hedge, and I gave one example of a mining company’s assets.

Obviously I can’t go through the entire asx 300 index and explain how all the different companies assets are inflation hedged, so I thought giving one example would allow people to see what I meant, and they could use their own thinking cap to over lay the concept onto the other companies

But, I could have mentioned how the price of Avocardos and the land the grow on will rise with inflation over time and provide the inflation hedge.

Or, the price of pizza will rise and provide a hedge for dominos.

Or, the price of groceries will rise and provide a hedge for Woolies.

Or, the rental return on most reits etc etc.

The point is simple, real assets have inflation hedges built in, cash deposits require you to add back some of the interest into the principle so the sticker price return isn’t your real return.

 

[divs4ever]

Maybe :

https://www.afr.com/wealth/personal-finance/house-prices-to-correct-up-to-25pc-20220505-p5ait4

I don't think rates will go high enough to cause a crash. Besides, data from banks shows most mortgagees should be able withstand a rate rise... Particularly with a potential 5% raise thanks to Albo

the rates don't need to go high , just cause jobs to vanish , folks without jobs struggle to pay rents OR mortgages ( and many landlords have mortgages as well , so no rent less income to service those mortgages ) so housing prices moderate meaning the bank is holding a security that MIGHT even go down

this MIGHT turn very nasty ( and complex ) and remember those mortgage-backed securities , they are lurking somewhere as well

AND by the time the worker gets the rise 5% won't be enough ( it is just the way inflation works , sorry )

 

[againsthegrain]

a 30% drop in re is not even a crash, since it had gone up that much during covid its a "healthy correction" so are IR going up. What is everybody getting worked up about our leaders will be happy to remind us

 

[over9k]

@waterbottle

 

[waterbottle]

@waterbottle View attachment 141516

Yep it's going to happen, the question is how much and for how long. Ultimately interest repayments will be the limiting factor for rate rises, unless central banks are actively trying to cause a deflationary enviornment/recession...