Archive for banks
I have watched the OZ property market defy gravity, well forever , so it is interesting to see some cracks finally appear. I had started to conclude that maybe their compulsory super scheme was actually going to allow them to escape the recession in terms of housing values, but cycles are by nature relentless so maybe it is finally catching up with them.
This article LINK exposes the likely downside for the banks, but worse then New Zealand it will also put a lot of Oz investors underwater. Australia has always been only a growth play so remove the growth and……
you can hear the pop from here .
Like all markets I am sure there will be money to be made in this correction and some markets will roll on. Melbourne, which has been the darling of investors certainly looks like it might be in for a roasting for a while.
Putting aside the human element and just talking as an investor it would be interesting to see a US style collapse in Australia to bring yields up to where it is worth investing there. (I hope this doesn’t happen for the sake of the Aussies but interesting Deutsche Bank allowing for a 60% drop, scary). In the mean time we continue to see double digit net returns in Memphis and Atlanta
Get Going and Stay Safe ~ Dean Letfus
PS: Latest Memphis list at LINK
In case you missed it there was a case this week in New Zealand where a house was “foreclosed” on or repossessed, by chainsawing through the foundations and putting it on the back of a truck!!
In trying to find out more detail I came across a forum that was punding away at the bank for its heartlessness. One apt post said”
“Come on guys, they would have had months of warning. Westpac didn’t wake up yesterday and think; “Who can we **** off today? I know let’s go take that guys house, oh and let’s actually “take” it!”
The whole thing smacks of “more going on than we know”, but it is a timely reminder of the folly of not talking to your bank.
I have had incredible pressure from banks over the last 2 and a bit years and in some cases stopped paying mortgages for some time but always kept the banks fully informed. As a result I am still able to find my houses on their own sections.
Many people think the worst is behind us and that may be true, however there are still lots of people under the gun financially and the temptation is to hide and do nothing. This is almost certainly what happened to the family above and whilst the outcome is more dramatic than normal it was hardly unfair or the banks “fault”.
My personal experience of asking for my private parts back form every bank in the country has been that even the ones who are unreasonable respect the fact you came and saw them and definitely don;t rush you into trouble as long as you keep the channels open. And in fact most institutions will work very hard to assist you.
Often there is no good solution and we have to come to terms with that. I am going to lose my home, my rentals or go bankrupt or whatever. We will want to blame the bank, the cat, our boss, the tv evangelist and the government but generally it is going to be better for us to accept responsibility for getting through it if not causing it.
And whatever you do, talk to your lenders BEFORE you miss a payment if possible. If too late for that get off the computer and ring them now.
What s that I hear?? Sounds like a chainsaw………
Get Going and Stay Safe ~ Dean Letfus
Apologies for the late blog today but I was waiting for the RBA interest rate announcements and it is no surprise that the evils of Investment Property have been blamed over the ditch for the .25% rate hike.
Generally I like the OZ governments fiscal policies but sadly in this case they are ignoring the overall picture in my opinion and defaulting back to the same old same old; prices are rising again, investors are making money, let’s slam them to death with interest rates. I discussed why this is a bad idea before HERE and I am genuinely surprised that a relatively progressive government has resorted to the same blunt implements that caused this problem to try and solve it.
What we have to hope for is the NZ is smart enough to not follow suit. I have been saying for several months that I believed the worst was yet to come and certainly amongst insolvency professionals and in the USA we are seeing the cracks starting to show up. Christmas will wipe out countless businesses who on top of not paying GST and PAYE will have holiday pay and no income for 6 to 8 weeks, so expect some carnage in the new year. We do not need high interest rates as part of that equation.
Of course for investors this is all good news and for educated investors it is an early Christmas but I do worry about the average mum and dad with no plans for retirement and no strategy to grow wealth and no understanding of investment property..
I noticed with much mirth this week that the government in NZ finally noticed what I have been preaching for 3 years, that we cannot sustain our pension scheme. It will cost of 17 trillion dollars by 2050 because of the boomers they suddenly realise. If a relatively simple guy like me could figure this out in 2006 just from analysing basic population stats it is a bit sad and a bit scary that it takes professional economists and politicians forever to work it out don’tcha think
So be glad that the action you are taking now to support yourself in retirement through smart investment property purchases is not only a great idea but will be essential if you don’t want to retire into poverty.
Of course you are buying investment property aren’t you ??
Stay Inspired and Stay Safe ~ Dean Letfus
The Ethical Investors Strategist
PS if you bet on the Melbourne Cup you have too much money. Sort your future out first HERE
As I am in Sydney currently I have the luxury of reading and watching more than my normal dose of Aussie reaction to the Reserve Bank of Australia’s interest rate rise yesterday.
Whilst it had been pegged as a 50/50 call by local commentators I get the feeling it may be the right ladder against the wrong wall.
The fact is that Australia has meandered through the recession relatively unscathed. There are of course significant numbers of small business closures and bankruptcies but they have been those who were close to trouble anyway in many cases or in particularly hard hit industries. As to why Australia has fared so well one has to say their government policy around immigration and compulsory savings for all workers has proven to be a very, very sound strategy. They have also spent up large to keep the wheels on the economy and that is why they have moved rates now to start to “buy back” their stimulus funding.
So the big concern in my opinion is that they are going to immediately hit the pocket of every homeowner, many of whom are just starting to breathe again. In addition there are thousands of first time home owners helped into their own homes through government grants who are not yet used to the costs of home ownership as opposed to renting and many of them may well sink before they learn how to swim.
And lastly Australia has enjoyed the support and trade monies of China, an economy that just will not die, YET!
In reality Chine cannot be guaranteed to keep going indefinitely and if their economy does retract then the mining and trade related feast Australia is enjoying could end in tears for the whole economy.
The rest of the world is still in trouble and for Australia to engage recovery policy may set them up for a bigger fall in the next year or 2.
So there’s my take on their activity, now the good news for New Zealand.
The reaction in the financial markets in OZ has been most positive. Finance markets, share markets and associated industries are all welcoming in the great recovery and generally everybody is feeling good. Australian banks are once again able to borrow money without wholesale funding government guarantees and generally life is good.
This will help NZ investors in the short term anyway in 2 areas.
1. As mortgage rates rise here there will be increased interest in New Zealand property from Australian investors and that is always good for the supply and demand equation.
2. More importanlty the Australian non bank lenders will start to spread their wings again and return to NZ bringing their non conforming loans with them, just like they did in 1999/2000.
You see the absence of pain in this recession for Australia will ultimately bring a rapid return of risky behaviour in the financial markets because they haven’t learned anything yet. So easier money is likely to appear on NZ’s doorstep sooner rather than later. I don’t think this is particularly a good thing in many ways, but i think it is what will happen.
So expect to see “lowdoc/nodoc/tell me your name and you can have the money” money returning t ouor shores. It will initially be at higher interest rates than banks but in terms of investing we don’t really care about the rate, just show me the capital!!
So all in all thanks to the RBA I think 2010 is going to be a great year for us kiwi investors
Stay Inspired and Stay Safe ~ Dean Letfus @ www.MassiveAction.tv
See you all next Tuesday!! HERE
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Even though it’s not what anybody predicted we are seeing an interesting trend emerge with the banks in New Zealand currently.
They are disregarding the Reserve Banks instructions to pass on lowering interest rates, which is causing everyone to shake their fists at the evil capitalists.
In usual biased media fashion though no one is explaining why the banks are doing this. I deal with senior managers in 9 banks on almost a weekly basis and when you ask them what is going on you get what I believe is closer to the truth.
The banks fund their lending in 2 ways.
Short term lending they fund primarily from cash in their vaults. As people have shied away from finance companies and shares they are pouring cash into the banks. Because we are in a low interest rate environment depositors are shopping around for the highest deposit interest rates, which is creating competition for their money. This causes the banks to offer higher deposit rates, which they have to make money out of by increasing short term interest rates. You may think this is good or bad, it just “is”. This is why short term money is between 5 and 6% rather than 1% above OCR. So in a sense our desire to maximise our investment return is driving short term interest rate hikes.
Longer term interest rates are a different story. A lot of long term lending is funded by the banks literally borrowing the money off shore. They go to wealthier nations and borow the money to lend to you. The reason for this is that if they used depositor funds to give you a 5 year mortgage and a lot of people withdrew their savings they could literally run out of money if enough people did it at the same time. This has happened before many times during recession/depressionary environments.
SO to remove that risk they simply borrow it form somewhere else for 5 years and then lend it to you.
Now because we are in a global low interest rate environment the international lenders are trying to not lend money long term because they know that interest rates will increase again and they can get a better rate of return on that money then. So when Mr Ozzie or Kiwi bank rocks up and asks for 100 million to lend against 5 year first mortgages they say “Yes you can have the money, but because you want it long term we have to charge you a premium to compensate us for the fact that when interest rates rise we won’t be able to charge you more”.
In addition there is a thing known as LIBOR, which is the “interbank lending rate”. In simple terms this is the amount that banks charge each other to borrow unsecured money. When things are “risky” the LIBOR rate is higher which means that there is a premium being charged between banks.
So what does all this mean and why am I telling you about it?
Well what this means is that right now we have a strong trend of long term interest rates increasing, due to a combination of LIBOR rates and premiums being charged offshore.
Short term rates are staying low due to largely being funded locally.
Why am I telling you about it?
Well this situation is creating nightmare for any of us who have mortgages and it is difficult, almost impossible to know what to do or advise others to do.
If you are on floating or coming off fixed loans shortly you will find for example 5 year mortgages are at around or just under 8%. This is 2% higher than a few weeks ago, and the likely trend is to continue upwards.
Short term mortgages are under 6% still so the temptation is to go short term or stay floating for now.
So far so good so where’s the nightmare. Well the nightmare is that the world governments continue to print money like there is no tomorrow, which is going to be inflationary. BIG TIME!!
So if you stay floating or fix for 18 months there is a very real possibility of coming off fixed into a double digit interest rate environment. We have had 25% mortgages before and it could happen again.
So do you hope inflation doesn’t kick in soon and stay floating basking in the joy of low interest rates and “see what happens”? Or do you fix as long as you can now and run the risk of paying more than you needed to if you had stayed short?
There is no crystal ball proof answer. I am breaking and refixing loans for a charitable organisation I work with because theta is the safest thing to do and is good stewardship of their funds. My own loans I am keeping floating in the hope that the short term rates will stay low for some time.
What should you do? Well do some homework yourself. This money thing is quite involved. For some more technical info on why we have this current weirdness there is a good article on bond curves HERE.
Talk to your broker or professional advisor and work out what is best for you. If you are risk averse, then going long and fixing now is a safe strategy. You will know what your payments are for the next 5 years and you won’t care about inflation. Risk tolerant people can stay floating and endeavour to get their debt reduced so that when rates do balloon they won’t have so much to fix!!
Stay Inspired and Stay Safe ~ Dean Letfus @ www.MassiveAction.tv
I have over the past 6 months had an extraordinary amount of contact with all the major banks in New Zealand as I work through trying to keep people afloat. In the main the banks have been wonderful. There are a large number of people in trouble here and so any heavy handedness by the banks is only going to create bad press for them and more importantly, further damage the property market by flooding it with more mortgagee sales.
One of the “bank owned non banks” however has been quite different. They are run and managed from Australia so the NZ office is simply a paper shuffling department. Recently we had a property for sale which managed to get a cash offer for the same amount that the current owner had paid for it. In other words this offer would clear the mortgage and reduce further debt to the bank.
To get the Aussies permission we had to get a valuation done from a list supplied by the bank. Not one name on the list was a company that knew the area well necessarily so one just had to pick one out of the hat as it were.
So the valuation comes back at full retail price in a good market, nothing to do with the current carnage going on in the country. So because the offer isn’t up to the valuation they won’t let the owner sell. Given that the offer is 10K more than the agent thought they would get and that the alternative is mortgagee for the owner this is ridiculous behaviour from this bank. Instead of improving their clients and their own position they will probably end up with a deficit.
This is the downside of multi-nationals who haven’t embraced corporate empathy into their businesses.
It shows the difficulty of an offshore decision maker. Things aren’t bad in Aussie yet so they can’t see why this is an acceptable deal here.
There’s another scary thing the banks are up to that is the subject of a special report I am sending out tomorrow, keep an eye out in your inbox if you subscribe to me newsletter of get subscribed HERE today to make sure you receive it.
Stay Safe ~ Dean Letfus @ www.MassiveAction.tv