How to Profit From the Coming Aussie Property Crash (and Banking Crisis)

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How to profit from thecoming Aussie property

crash (& banking crisis)?

Warning: Contains uncomfortable facts that you will notwant to hear.

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First, will there ever be a propertycrash in Australia?

See the facts for yourself…

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Why are house prices in Australia rising far above inflation?

Source: Steve Keen’s Debtwatch No. 33 April 2009: Lies, Damned Lies, and Housing Statistics

http://www.debtdeflation.com/blogs/2009/04/06/steve-keens-debtwatch-no-33-april-2009-lies-damned-lies-and-housing-statistics/

Is this a bubble?

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Since 2001, house prices are rising much faster than weekly average income



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Why are house prices in Australia surging much fasterthan inflation and wages over the past 10 years?

The reason is NOT housing shortage!

Housing ‘shortage’ is a myth!

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Hometrack (www.hometrackaustralia.com), the Australian branch of theUK housing intelligence research group says,

…the widely quoted views of many property market commentators who believe that Australia’s current buildinglevels are not enough to meet the future demand for housing, may be based on inaccurate data calculations.

“Our analysis indicates Australia may already have an excess of housing. We estimate there are at least 10million dwellings in Australia compared with ABS data showing occupied dwellings of 8.3 million. The extra oneto two million dwellings consists of a mixture of housing awaiting sale or development, vacant dwellings, secondhomes, and abandoned homes,” he said.

He went on to say that the ABS method for calculating the ratio of people per dwellings is based on ABS censusdata which in turn is based upon occupied dwellings. However, he said, Hometrack analysis which is based onpostal address data indicates that Australia’s current level of housing relative to its population is in line withother Anglo economies.

Following on from this, Darcy said that when looked at in the context of population growth, total residentialbuilding approvals have been running above demand.

“This points to a build-up of excess stock of housing over the past six years, despite the gap between buildingapprovals and demand narrowing over recent months,” he said.

Source: Press release at http://www.brokernews.com.au/news/breaking-news/hometrack-we-have-enough-houses/34665

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Respected economist Professor Ross Garnaut – yes, the same economistcharged by this Federal Government to lead our response to ClimateChange – described our current housing market in his recent book TheGreat Crash of 2008.

In his book, Prof. Garnaut stridently argues against the typical hypesurrounding our housing market.

1. He is unequivocal in his view that Australian house prices have beendriven primarily by speculation; and

2. Garnaut is skeptical that there is any actual shortage of housing.

By many measures, the housing bubble in Australia is much more extremethan it was in the US before it burst.

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Except for first quarter of 2009, Australia is building homes faster thanpopulation growth



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If the housing ‘shortage’ is anillusion, then there must be a lot of

vacant homes not available for rent.

Where are they?

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Map of vacant homes in Sydney from 2006 census data

Source: Sydney Morning Herald, “Empty homes now for all to see”

http://www.smh.com.au/news/national/empty-homes-now-for-all-to-see/2008/05/26/1211653939197.html

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Largely vacant and overpriced apartment block in Parramatta, Sydney

Source: Bubblepedia

http://bubblepedia.net.au/tiki-browse_image.php?imageId=71#

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There was a housing ‘shortage’ inUK too1. They had lots of

immigrants too!

Yet, house prices crashed in the UK.

1Do a Google search with "housing shortage" site:uk and see foryourself the housing ‘shortage’ situation in UK.

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There was a severe housing‘shortage’ in crammed full Hong

Kong1.

Yet, Hong Kong property crashed in1997.

1http://www.hku.hk/hkcer/articles/v42/wong.htm

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There was a housing shortage inCalifornia up till 2006 before the

housing crash…On February 2006, The Acord Online reported1,

“The Californian Building Industry Association (CBIA) continues to express alarmover what it calls an ongoing housing crisis in Southern California. Alan Nevin, theassociation’s chief economist, projected in a 2006 CBIA Housing Forecast that only185,000 to 205,000 building permits will be granted this year, far short of the240,000 new homes needed each year. Southern California has been experiencing amassive population boom in recent years and it’s believed that 6 million newresidents will be living in the region by 2020. The population increase, coupled withthe housing shortage, has the CBIA worried that it will be increasingly difficult forfirst-time homebuyers to find a moderately priced unit.”

1http://www.toacorn.com/news/2006-02-09/Front_page/005.html

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There was a housing shortage inIreland too before the housing crash

in 2008…On February 2003, BBC reported1,

“A severe shortage of housing is predicted if the planners do not release more land, aleading Northern Ireland builder has warned.”

1http://news.bbc.co.uk/2/hi/uk_news/northern_ireland/2759581.stm

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RBA Governor, Glenn Stevens can’t understandhow can there be a housing shortage in Australia!

“How is it that in a country this big in area and this small in numbers ofpeople we can't manage to make the marginal price of a dwelling lower

than it is? It seems to me quite high.”

November 6 2009http://www.abc.net.au/am/content/2009/s2734826.htm

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So, who profit from high andrising property prices?

I wouldn’t go into that. You and I know who arethe winners and losers.

Think: tax, corruption, speculation, incompetence

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So, how can you profit from theinevitable property crash in

Australia?

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Be prepared to short the banks!

In particular, CBA and Westpac.“For the investors in the nation's banks - particularly the CommonwealthBank and Westpac, which are the most exposed to the housing market - the

prospect of a correction in prices is nerve-racking.”

Sydney Morning Herald, “Investors fear housing bubble will pop”, http://www.smh.com.au/business/investors-fear-housing-bubble-will-pop-20100310-pz8q.html

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Let’s compare the banks’balance sheets

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'Rotten' UK and US Balance Sheets

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'Healthy' Commonwealth Bank Balance Sheet

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How safe is Australia’s bankingsystem?

1. 50% of Australia’s mortgage market is held by CBA and Westpac, 25% are heldby ANZ & NAB (see CoreData’s Australian Mortgage Report Q1 2010)

2. As at December 2009, 60% of CBA’s lending books are mortgages. 50% ofWestpac’s lending books are mortgage.1 Both figures are set to continue to grow.

3. Look at CBA 2009 annual report—Leverage ratio is almost 20 times (total assetsof $620.4 billion against $31.4 billion of equity). Of $620.4 billion of assets,$473.7 billion are loan assets. If around 6.6% of CBA’s loans go bad (any loans,not just mortgages), 100% of its shareholder equity will be wiped out!!2

4. Australia’s banks have $13 trillion of off-balance sheet liabilities, according toRBA’s figures!3

1http://www.theage.com.au/business/argus-pays-out-on-big-banks-20100324-qwvo.html2http://cij.inspiriting.com/?p=12173http://www.rba.gov.au/statistics/tables/xls/b04hist.xls

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What if one of the Big 4 fails?

In 2008, The Australian reported1,

The Reserve Bank of Australia has a dark worry about ourbanks: they get 90 per cent of their cash from each other. Ifone bank gets into trouble, the Australian financial systemcould be snap-frozen overnight.

1http://www.theaustralian.com.au/business/fast-rise-of-round-robin-lenders/story-e6frg8zx-1111116954669

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Will the government bailout the banks American-

style when there’s abanking crisis because of

property crash?

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Do you know how freaking expensivebailouts will be?

Australia’s budget deficit will soar!Foreigners who lend money to us will stop lending!

Fact 1: Australia’s net foreign debt is AU$648 billion on December 2009.Fact 2: Australia’s personal debt is AU$1.2 TRILLION

Consequence: Australian dollar will tank becauseunlike America, it is NOT A RESERVE CURRENCY!

Australia will have twin budget and currentaccount deficits & banking crisis!

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What happens if the Australiandollar tanks?

Inflation will soar because Australia imports than itexports!

Bank for International Settlements warns in the 79th

Annual Report that “Particularly in smaller and moreopen economies [e.g. Australia], pressure on the

currency could force central banks to follow a tighterpolicy than would be warranted by domestic economic

conditions [e.g. falling house price].”That is, Australia will have rising interest rates, rising

unemployment, rising inflation and falling house prices!

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Which means to protect yourself, youneed to diversify your saving out of

Australian dollars!

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Of course, the government will wantyou to believe that it will never ever

happen.Maybe it won’t happen.

But if it does (touch wood), mostAustralians will be stuffed big time.

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What can you do?Don’t go into debt!

Especially mortgage and credit card debts.

Diversify your savings into foreign currencies (open abank account overseas, for goodness sake) and physical

gold and silver.

If you are a cowboy, be prepared to short the banks.

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There will be too many vestedinterests who hates what you are

reading now.They will continue to saturate the media withpropaganda (e.g. China will save Australia,

property always double every 7 years, housing‘shortage’)

Even the government are either held hostage bythem for fear of upsetting the applecart. Or

perhaps the government (especially stategovernments) is complicit?

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Ask yourself: who benefits fromrising house prices and rising debt

levels?Will you benefit? Will your children benefit? Will

future generations of Australian benefit?

Soon, the property bubble will burst.Will you rather benefit from it?

Or would you rather be the victim?

How to Profit From the Coming Aussie Property Crash (and Banking Crisis)

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