Bluster, bubbles and bitcoin
- It’s not a bubble when it’s a high-quality development
- On guard!
- Bitcoin worth US$33k? No way…
- How to crypto
What’s one of the signs a bank has overleveraged itself…and doesn’t want you to know about?
They make sudden changes and reassure you it’s about falling in line with ‘regulations’.
The Teachers Mutual Bank made sudden changes on Tuesday to their home lending practices. Effective immediately, the bank will now only allow a 50% principal and interest set-up for all home loans. Existing interest-only loans have seen rates jacked up 0.4% to boot.
As The Australian reported, the Teachers Mutual Bank claimed ‘….the change is aimed at managing interest-only lending growth in line with requirements from bank regulator APRA.’
Except, of course, for new builds by owner-occupiers.
Before I dissect that little gem of information…let’s take a look at the markets.
Overnight, the Dow Jones Industrial Average fell 20.82 points, or 0.10%.
The S&P 500 fell 1.11 points, for a 0.05% drop.
In Europe, the Euro Stoxx 50 was down 6.63 points, or 0.19%. Meanwhile, the FTSE 100 dropped 0.09%, and Germany’s DAX index was up 0.13%.
In Asian markets, Japan’s Nikkei 225 is up 201.07 points, or 1.02%. China’s CSI 300 is down 0.13%.
In Australia, the S&P/ASX 200 is up 6.30 points, or 0.11%.
On the commodities markets, West Texas Intermediate crude oil is US$48.73 per barrel. Brent crude is US$51.16 per barrel.
Gold is trading for US$1,269.02 (AU$1,714.95) per troy ounce. Silver is US$17.34 (AU$23.43) per troy ounce.
The Aussie dollar is worth 74.02 US cents.
It’s not a bubble when it’s a high-quality development
Sudden policy changes from banks alarm me.
I’ve worked for a lender. For a while, I was privy to the delinquency data. That is, all the people who are behind on their loans by a certain amount of days. People 30 or 60 days in arrears don’t always terrify lenders. However, once this stretches out to 90 days, well, that’s when your loan becomes ‘delinquent’.
All banks have a tolerable default figure. And it’s monitored daily. But it remains internal. The general population doesn’t get to know about it.
If you trawl through a bank’s end of financial year data, you won’t find the total loan delinquency rate either. What you will find is the percentage change in the number of bad loans throughout the year. But you never get to know what the actual delinquent amount is.
Which is why sudden moves like the one from the Teachers Mutual Bank are telling. It lets you know the bank needs to build a buffer between the debt on their books and customers’ cash on deposits. And they need to do it quickly.
They appear to appease you by saying they are falling into line with regulators. But they’re not. Especially when they point out that these rules don’t apply to new builds by owner-occupiers.
You read that right. These new lending requirements from the Techers Mutual Bank apply to established properties. Properties which likely have historical price figures.
However, brand new buildings — most likely on the city fringes — don’t have to follow the same rules.
Think of all those new suburbs currently under construction. New houses being built without basic amenities nearby. And, of course, let’s not forget that none of these newly-constructed buildings have price histories.
Yet the bank is happy to continue offering interest-only loans to this pocket of the market…
That strikes me as fascinating because there may be more to those off-the-plan purchases than you realise.
I discovered this recently in conversation with my mortgage broking friend.
We debated the merits of the property market; he mentioned to me that developers over the years have offered him incentives to refer clients to him.
Apparently, if one of these referrals signed on to build a brand new establishment, a developer would pay anywhere from $5,000–20,000 as a referral fee.
This acquaintance said that this was a large conflict of interest to him, and wouldn’t refer anyone for something like this, adding: ‘If this is how much they are willing to pay for a simple referral, just how much padding is there in these new homes and apartments people are paying for?’
Talking property is as Australian as cold meat pies are to an AFL match at the MCG.
Yesterday, word got around that new CoreLogic data suggested a property price ‘correction’ lay ahead for Australia.
Shortly after the press picked up on it, my news feed was full of headlines like ‘What comes after the housing boom?’
John McGrath, the mogul behind the McGrath real estate business, has weighed in on the endless ‘is it or isn’t a bubble’ saga.
McGrath came out and said that after 30 years in the business, the ‘doom and gloom’ predictions have never eventuated. In a statement, McGrath said:
‘I’d actually encourage you to welcome a slowdown in growth. After a long period of price rises — about 75 per cent in Sydney alone, we need a period of consolidation that will put a floor under these new price levels and provide stable ground for home values to rise strongly again in the next boom.’
I can’t argue with that logic. A small fall in house prices will test the market to find support.
However, it was McGrath’s next statement that got me (emphasis mine):
‘Of course, no home owner likes to see prices going down. But it’s important to remember that if we do see some price reductions, they’ll be small and short term. History tells us that good quality properties double in value every decade but growth is never in a straight line. More often than not, we have a few decades of strong growth, a few years of little growth and round in circles we go.’
It’s entirely possible that ‘good quality’ properties double in price every decade. But where are these good quality properties? Ones near places of employment, in good school zones, with solid infrastructure and public transport nearby, I’ll bet. That doesn’t say much about the houses being built on the city fringes with yet to be determined levels of infrastructure and interest-only loans.
But here’s some food for thought. What if the property boom isn’t over? And what if you could pinpoint the exact date at which the property market will peak?
It isn’t…and you can.
It’s called the ‘Grand Cycle’. Whether you own a home or not, this information is critical to understanding where we are as a nation, and where we’re going.
But it’s not merely a crystal ball for the property market. The Grand Cycle is your guide to navigating the stock market over the next decade as well.
Its creator, our real estate guru Phil Anderson, has just released a brand-new video presentation detailing the ‘Grand Cycle’. You’ll find the video here.
Bitcoin worth US$33k? No way…
I’ve been on the Bitcoin bandwagon lately. I know I’m a latecomer to this. But Japan’s now making Bitcoin legal tender, legitimising the currency in one fell swoop.
Rather than being demonised as a currency for criminals and nerdy types, Japan is actively taking steps to embrace an alternative currency that, for now at least, is free from government control.
The Australian government, on the hand other, is doing what it does best: When it sees something that even hints at losing its vice-like control on the matter, they remind you that only bad people would want to act outside the system.
My view is that our pollies are hell-bent on keeping you away from Bitcoin. Which is a shame.
Sam Volkering, our tech expert and editor of Revolutionary Tech Investor, agrees. I awoke to an email from Sam this morning about this. He points out that Australia is way behind the eight-ball here when it comes to alternative currencies.
The way he sees it, Bitcoin and other cryptocurrencies have a long future ahead. And Australia’s failure to adapt will cripple the country in the long term. Sam notes:
‘This creates an interesting conundrum for government because of the decentralised nature of it. If there’s a jurisdiction that is harsh on it then users, companies and the whole ecosystem packs up and moves somewhere else virtually in an instant. The power of decentralised distributed power.
‘Meanwhile Japan is taking the lead and embracing cryptocurrencies like Bitcoin. So is China and South Korea. They get it. The western world — Australia and the US for example – they don’t get it. They see it as an existential threat to their power base so want to quash it. But they’ll miss the boat — perhaps they already have.
‘Switzerland is known as “Crypto Valley” (akin to Silicon Valley) because of their particular set of laws and regulations that allows the starting of crypto-based companies and entities.
‘Frustratingly Australia has an opportunity to loosen regulation and really enable this tech to flourish but they’re so stuck in their old ways that they — once again — are missing an opportunity that’s smacking them in the face and has been for years now. It’s such an indictment on the short sighted nature of government — and it’s exactly why bitcoin and other crypto is gaining such momentum and power.
‘Anyhow, here’s a thought for those moments when someone challenges the idea of bitocin or crypto being based on nothing.
‘When Jobs and Wozniack [the creators of Apple] started in their parents garage assembling computer boards, or when Gates and Allen created an operating system for computers, did many people stand up and say, ‘yes! This is the future!’?
‘OR did they fight nay sayers and negative nellies along the way? Look at Microsoft. It’s software. Nothing but code. But it became a US$540bn company.
‘Bitcoin and crypto is really nothing more than code. Ok, it’s a little bit more complicated than that, but any crypto currency is essentially code. If bitcoin becomes as big as Microsoft it would be worth roughly US$33,300 — over 14 times more than it is now.
‘The question is, can it become as big as Microsoft…or bigger?
‘Comparing the two is apples and oranges, but should bitcoin become a truly flourishing, alternative global financial system — which in my view it will be — then it should really leave the size of Microsoft for dust.
‘Which in that case is it expensive at around US$2,250 now…or is it cheap????’
Normally, when I talk to anyone about breaking from the financial system, I ask them: ‘Have you got gold?’ Perhaps this time, I should ask, ‘Have you underestimated the impact of cryptocurrencies?’
How to crypto
If you don’t know an ‘ethereum’ from a ‘litecoin’, you’re not alone. For many, the whole world of cryptocurrencies is new…unusual…and completely mystifying.
The good news is that colleague Sam Volkering is all over cryptocurrencies. He’s been into them since the ‘old days’, when they were known as ‘alt-coins’. And recently, Sam added two cryptocurrencies to the Revolutionary Tech Investor.
One is up 226%, the other is up 78%. Want to know more? You can, and without paying an annual ‘subscription’ fee for Sam’s service. How? By joining the Port Phillip Publishing Alliance program. Details here.