beechwood homes goes bust, page-48

Hi LE,

I'm interested in your comment that you've made a couple of times now that AUS and US interest rates are basically in sync, but AUS lags by 6-9 months. This, I believe, is what you base your assumption on that interest rates in Aus will soon fall, perhaps just like the US rates have recently.

I have looked at the data from 1990-2005, and I think the correlation is quite poor. Both show a large structural decline in rates leading to 1994, and then a small rise. At this point, the correlation is lost on me. Aus rates started to trend down again, confirming the long term downtrend that ended in 2002. In the US, rates stayed comparatively higher, and then plummeted with the tech wreck. The US recovery then lead to their rates rising much faster than the Aus rates, which have been slowly ticking up since 2002. We all know what has happened to US rates recently.

Sorry to verbalise this, I don't know how to post graphs.

I agree Aus rates may well have peaked, but to expect a decline in line with the US rates is naive. We did not slash rates after the tech wreck, and we can't slash now. That's because the Aus economy has absolutely no spare capacity in it whatsoever. Cutting rates aggressively would stoke an inflation bonfire. The US, on the otherhand, has much more spare capacity, but even there inflation is looming as as huge problem.

The job for the reserve bank is to slow the economy without inducing a recession. Some would argue that this has already failed in NSW.

Anyway, my point it that buying investment property RIGHT NOW is a bad idea. Everyone agrees over the long term property does about as well as shares. Why buy now when you can buy cheaper later, or save yourself a whole bunch of interest?

How many people reading this thread are honestly looking at buying an investment property RIGHT NOW. Apart from maybe Warnie, I reckon hardly any. And I get the distinct impression that Warnie is not as bullish as he was just a few months ago.