RBA Interest Rate cut

Chordling · Post by **Chordling** » Sun 12 Oct, 2008 11:09 am

LoL Miru, 'tidy profit' is an understatement :p

Angelsheart · Post by **Angelsheart** » Sun 12 Oct, 2008 12:11 pm

housing market took quite a beating recently.
A real estate agent told me they even stop investing in new building projects as the cost of material is too high atm.
Sales on houses are way down but rentals are steady.

Creac pretty much explain most of it in summary without going too indepth.

leidana · Post by **leidana** » Sun 12 Oct, 2008 4:52 pm

New estates keep popping up in my area, makes me sad all of the 5 and 10 acre properties are becoming 600sq m blocks with massive houses on them.

Post by **Jarinu** » Mon 13 Oct, 2008 10:33 am

These were the predictions one guy tossed out there I was reading:

· Congress will fund the $700b.

· I predict that Rates will come down next Tuesday to 6.5%.

· The 90day Bank Bill swap rate has dropped in the last week from 7.47% to 7.01%.

· The 90day Bill rate is now 6.96%. This is below the RBA 7% rate.

· Australian banks are awash with money and have just recently lodged with the RBA a record $11b. This compares with an average $2.5b over the first half of the year.

· The RBA itself has bought $840m in mortgages off the banks in one day alone last week.

· We know the supply of housing is at critically low levels.

· As a result rents are still going through the roof on record low vacancies. The lowest is Sydney on 1.5%.

· I predict that within weeks the media will be full of positives on our low rates and rising house prices. Vendors will start refusing offers and escalate prices rapidly.

· Buyers who hesitate now will be paying these higher prices.

· Can I quote Warren Buffet recently - 'When there is greed in the market I have fear. When there is fear in the market I have greed. There is now fear in the market and I am buying.'

Creac · Post by **Creac** » Mon 13 Oct, 2008 2:32 pm

$2.8b injection into the banking system today - about $1b more than "necessary" and talk about further economic stimulus through more immediate increases in pensions (ie spending some of the surplus).

Increase in bank deposit guarantees by the RBA and I think the next 18-24 months will see housing increase as interest rates continue to lower. It will also be generally a little harder to get a loan, but that's not a bad thing.

If you're thinking of buying, I'd say save like you've never saved before and be ready to grab something in 6-18 months if you can.

Miruwin · Post by **Miruwin** » Mon 13 Oct, 2008 3:24 pm

I'm looking at selling up in about 2 years time.

Failing that, I might just toss some cash at the house and fancy it up and rent it out for a decent price and buy a small cottage for cheap in the sticks. The rental would cover the house repayments.

roobboo · Post by **roobboo** » Tue 14 Oct, 2008 9:09 am

God damn it the banks passed on 80% of the rate cut? We shareholders deserve better. Should have been closer to 20%. Also this latest chaos has provided excellent buy in or extend oppurtunities.

To date dividends have only fallen marginally if at all so equities offer far better value now then they did 6 months ago.

Post by **Jarinu** » Tue 14 Oct, 2008 9:49 am

Some of the dividend yeilds are amazing atm.

Kofn · Post by **Kofn** » Tue 14 Oct, 2008 10:24 am

http://video.google.com/videoplay?docid ... 7695921912

varutia · Post by **varutia** » Tue 14 Oct, 2008 11:29 am

The Herald understands the Government is planning to double the first homeowners grant from $7000 to $14,000 to invigorate the housing market which is slowing.

Who got a house already

.

Ephyr · Post by **Ephyr** » Tue 14 Oct, 2008 3:59 pm

and apparently to 21k for new construction....maybe my development investments won't go broke after all! hurrah!

anyone wanna by a house?

-Ephyr

Thyrx · Post by **Thyrx** » Wed 15 Oct, 2008 1:35 am

the thing to take away from this is to live with in your means, prepare for rough times, and stay away from debt in any form wherever possible. people have lost everything in this economic turmoil. do not gamble with anything you are not prepared/willing to lose.

this is where i have been this last month. i have really been wheeling and dealing and if all goes well next spring i will be retiring. if not and all goes wrong.... well at least i now own my home and my orchard (this is due to some of the wheeling and dealing i have been doing) so i will at least have shelter and food.

Vexo · Post by **Vexo** » Wed 15 Oct, 2008 11:28 am

I'm not so sure that I'm not a bit miffed about not having any debt, seeing as I'm now paying to secure all the stupid beyond reason people who spent their ass off because... that's what stupid does...

Aedryen · Post by **Aedryen** » Wed 15 Oct, 2008 11:38 am

How are you paying?

Post by **Jarinu** » Wed 15 Oct, 2008 12:57 pm

If the government is paying it means that the people - you and me - are paying for it through their taxes or country reserves. Its easy to forget that the Government is actually us.

The british solution that was employed makes the most sence to me. The governement is buying "assets" in the form of shares holdings in the banks. The dividends made subsequently by the companies / banks owned go back into the goverment coffers (back to the people) but the people end up owning components of the banks.

Its a far cry from the government selling off the assets it owns

Aedryen · Post by **Aedryen** » Wed 15 Oct, 2008 3:15 pm

The money would be spent anyway....it's just this is a quick way of bumping the GDP up

Creac · Post by **Creac** » Wed 15 Oct, 2008 6:55 pm

You realise that the US plan also involves buying risk from institutions, right? They will likely receive payment of a huge amount of it, and even some return.

varutia · Post by **varutia** » Wed 15 Oct, 2008 7:19 pm

They could make money out of it, but could stand to lose a lot of it as well. US government already brought almost 300 billion worth of bad mortgage from various of banks, currently the value is only 30 to 50 percent of what when they originally purchased.

The big talk now is if US Fed reserve will become insolvent as well, this should be interesting.

Vexo · Post by **Vexo** » Wed 15 Oct, 2008 9:19 pm

Where is Russia and China in all of this? All I've heard about those is that Russia offered to bail out Iceland...

We're so heading for Rusina world domination :p

varutia · Post by **varutia** » Wed 15 Oct, 2008 11:36 pm

This is the time foreign reserve actually is handy. China has 2 trillion US dollar worth of it, in addition to that Chinese financial institutions are less exposed to sub-prime compare to most of western country's, they are a decent position.

The key question is what to do with all those money. I guss wait and see will be adopted by Chinese government first, some sort of bail out is possible if things worsen further.

Russia has sizable foreign reserve as well but no where near what China, Japan holds, plus I see the drop of commodities price will have a huge hit on Russia. so if I was them, I'd hold on to that money.

Rank Country/Monetary Authority billion USD (end of month) change in year 2007
1 People's Republic of China $ 1905 (Sept) 1 +32.9%
2 Japan $ 997 (August) +8.7%
3 Russia $ 546 (October 03) 2 [1] +56.8%
— Eurozone $ 555 (July) +16.6%
4 India $ 291 (September 19) 2 +64.4%
5 Republic of China (Taiwan) $ 282 (August) [2] +2.7%
6 South Korea $ 243 (August) +9.7%
7 Brazil $ 205 (Aug 31) 3 +105.9%
8 Singapore $ 175 (July) +19.1%
9 Hong Kong $ 158 (August) +14.6%
10 Germany $ 137 (August) +20.3%

Creac · Post by **Creac** » Thu 16 Oct, 2008 6:13 am

You also need to consider that "bad mortgages" are sometimes only bad on paper, and the ability of an individual to repay isn't the key factor in making the determination. This is mostly to do with various derivative products used to back some of these loans. So the US government is less likely to lose money than it may appear.

Post by **Jarinu** » Thu 16 Oct, 2008 10:02 am

Its true they may seem bad on paper but really how much of that huge amount of money have they gone through the rick they purchased to see if they were good.

Meh who knows.

varutia · Post by **varutia** » Thu 16 Oct, 2008 2:06 pm

It is ok until Fed Reserve run out of money and things still don't seem to improve, some pretty bad things can happen after that.

The amount of debts Australia carries also is pretty significant, this can cause some issues down the road.

Hiroki · Post by **Hiroki** » Fri 17 Oct, 2008 5:29 pm

With all due respect, Creac, you can think whatever you want, but you appear to not understand whats going on.

NAB annouced today it will pass along a further .25% interest cut. Giving it's customers the full 1% decrease the RBA gave.

I guess any and all arguements made previously defending the banks position to only pass along .75% of the interest rate cut are now null and void, and all banks can follow suit and pass on the full 1%

Creac · Post by **Creac** » Fri 17 Oct, 2008 5:38 pm

Not really. ANZ also made an announcement.

The injection of $2.8b into the banking system earlier in the week and the guarantee of all Australian bank deposits, along with the European plan has done a bit to add confidence and, importantly, liquidity into the system.

With further cuts likely not just here, but globally, in funding costs some of the banks are looking for a competitive advantage by reducing rates further.

You'll also note that here in Australia the federal government undertook to purchase high quality debt from NBFI's in order to lower their cost of funds and stimulate additional competition.

With lending levels dropping significantly the banks are now looking at how to increase volume in a fairly basic supply/demand function.

As to whether other banks can afford to lower their rates will depend on their underlying costs and their appetite for and capacity for more volume, as well as market competition.

Essentially, this week has seen enough moves globally to bring down and, most importantly, forsee continued reductions, in global funding costs.

The essential argument that local rates are not the be all and end all of funding remains. You'll also note that I said going forward I'd expect them to pass on local cuts in full.

I know you were trying to be funny, but some people are trying to glean a genuine understanding of what's happening without being driven by uninformed bias, so it's worth providing an informed analysis.

If you don't think I know what I'm talking about, that's fine. Ignore me.

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