patrick.net

What about the effect of the (finally) bursting Australian housing bubble?

This link is from yesterday:

http://globaleconomicanalysis.blogspot.com/2011/04/australian-home-sales-sink-luxury-units.html

I have relatives living in Australia. They got a pretty painful bubble out there, I recommend staying out.

Does that mean the housing market, their stock market or both?

Australia's housing market failed to pop in 2007 and continued to go up on a resource/export boom to China. If you believe China is in a bubble, then Australia isn't far behind. What that means for the AUD is up in the air. It's more psychology than any fundamentals in the short term, even after a pop in the Chinese bubble. I bailed on all my Australian investments (mostly mining stocks) the second they started talking about taxing them more than they already were. Personally, I'm out of Australia for good. I do own a small agriculture stock in New Zealand. That's about it.

Agree that AUD could have some wild swings when the sh*t really hits the fan in Australia.

Remember how the USD went **up** when the US stock market crashed (along with the housing bubble bursting) in 2008?

The same thing could happen in Australia, or perhaps is already happening. But it is far from certain and not easy to time. Then there is the effect of the inevitable public interventions in the market.

Australia's markets are going to be the same hornet's nest as we had here. Very diifficult to play unless you are the equivalent of "Government" Sachs.

@theoakman

How did you do while you held the mining stocks? Did you get a good gain when you sold?

I'm still holding. Biggest winner SLW (not really a mining stock though), approaching 950% gain. I jumped in heavy Nov/December 2008 when they got beat down. Put about 80% of the money I made from my new job into them the past 2 years as well. Basically, got me a house paid for in full if I want. At this rate, I may get another one when its all said and done. I think late 2008 was a once in a lifetime buying opportunity. These things are up 50 to 100% from their 2008 highs but way more from their 2008 lows. They should have never gone that low. I've always maintained that Gold is going to $2k and Silver is going to $50. Looks like Silver gets there first. I start major profit taking once either of those things happen. My time frame for that happening was always around 2013. I'll settle for 2 years early.

Australian dollar is up above $1.08 $US again...

Where will the Australian dollar go from here?

Australian dollar around 105.5 $US...

You could short the Australian banks...I think there's Common wealth bank and West pac bank that have enormous exposure to the housing mortgages on their portfolio...and these banks are way overvalued, when considering the risk they have taken on.

Steven Keen (debtdeflation.com, Australian economist) suggested this on Peter Schiff's radio show once.

The Australian Dollar has taken a hit in the last week.

The Australian dollar is inching back up.... over $107(US).

I think the Aussie Dollar is going to have major problems with China faultering. They'll turn to the printing press and send it down. I'm not much for trading currencies though. Long precious metals seems to be all the insurance one has needed against currency moves.

Australia is in for some serious pain. Their housing bubble isn't sustainable anymore since no suckers left to play the game. They'll either let foreclosures happen or try to print money inflating their currency to worthless.

It was a prison colony when Brits kicked them out, it probably will get back there again.

Macquarie tips Australian dollar could reach $US1.20

http://www.theaustralian.com.au/business/markets/macquarie-tips-australian-dollar-could-reach-us120/story-e6frg94o-1226126520294

@FortWayne

Got an axe to grind with the Australians?

American in Japan says

@FortWayne

Got an axe to grind with the Australians?

Just with their government.

Seems to me it might be a good bet to buy Australian government bonds at this point.

When their housing bubble gets seriously deflated, they are probably going to lower interest rates like the US did. This just mathematically drives up the price of existing bonds.

Of course their currency will fall if their interest rates fall, so your gains would be in nominal Australian dollars, which is fine if you want to spend them in Australia.

Not investment advice, just speculation. Wait, not speculation either. Just, uh, musings or something like that.

When so-and-so tell you "look into this, this is good investment", that shit is most likely overvalued already.

When their housing bubble gets seriously deflated, they are probably going to lower interest rates like the US did. This just mathematically drives up the price of existing bonds.

Of course their currency will fall if their interest rates fall, so your gains would be in nominal Australian dollars, which is fine if you want to spend them in Australia.

That actually sounds like a good idea, at least I do expect their bubble to pop in next few years. I just don't really understand how bonds work to make that call.

How will the Australian dollar fare in the next 3 years?...

American in Japan says

How will the Australian dollar fare in the next 3 years?...

Australia is a commodity based economy and commodities will fare strong when all currencies are weakened competitively (currency wars - everybody wants a weaker currency than everybody else and therefore they all weaken at different rates over time).

All currencies will be devalued, because no currency can be allowed to become too strong (severe deflation). Lessons can be learned from Swiss Franc (CHF) for e.g.. It is pegged at 1.20 to the Euro.

We are in a currency war and those who don't fight, lose - Colombian Finance Minister.

http://www.bloomberg.com/news/2012-08-13/currency-flows-reversing-china-to-colombia-as-trade-slows.html

To answer your question: relatively it can do well (say against the euro or the dollar), but when measured against hard assets - it will also lose value over time.

Thanks for the info.

Interest rates were lowered again this month...

My partner's cousin lives somewhere near Melbourne. The extended family recently "invested" in a SFH rental. Sky was the limit.

Someone in that clan (a CPA) just got riff'ed by the municipality she worked at.

Brentok3 says

You should note that the Australian dollar went to around 60 cents to the US dollar during the 2008-9 crisis.

This is when I put $1000 US into AUD. A nice, safe, easy hedge, and it worked out great. That money is now $1500. A small investment, sure, but that 50% USD-denominated return in just 4 years is fantastic. All my savings accounts pay under 0.5% per year, and I own negligible stock (employer forbids it) -- so it feels very strange to have unearned income like that.

theoakman says

I bailed on all my Australian investments....

theoakman says

I'm still holding. Biggest winner....

Oz sounds like a magical place where you can have your cake and eat it too.

Michinaga says

Brentok3 says

You should note that the Australian dollar went to around 60 cents to the US dollar during the 2008-9 crisis.

This is when I put $1000 US into AUD. A nice, safe, easy hedge, and it worked out great. That money is now $1500. A small investment, sure, but that 50% USD-denominated return in just 4 years is fantastic. All my savings accounts pay under 0.5% per year, and I own negligible stock (employer forbids it) -- so it feels very strange to have unearned income like that.

Nice. Congrats. 50% return in 4 years is great.