Clifford Said:

Will house prices in Australia drop in the next 12months?

We Answered:

Based on several factors such as:

-the ratio of wages to house prices
-the price of oil, rental income increasing and food prices increasing in part from the drought is placing more pressure on inflation
-mortage repayments being at their highest levels before interest rates started to rise
-the comparison of the same factors for the Japanese housing boom of the late 80's (their prices are currently 60% lower than they were in 1990)
-the same principles for the house price increasing as for the US
-Low unemployment putting more pressure on interest rates
-Consumer confidence being the lowest level in 15 years
-The effect of write-offs from the sub prime mortgage in America placing more pressure on our interest rates and the ability of people to attain almost unlimited credit
-The fact that the UK had a housing hortage and their house prices are falling as fast as they were in 1990
-The fact that the increase can be in part blamed on the herd mentality (thinking that you need to get into the market otherwise you never can)

......i think this year we will see roughly 4% growth if not less (australia wide) and possibly the next 3 years the biggest crash you have ever seen.


What happened in Japan? Housing shortage, low interest rates over an extended period of time, a booming economy, low unemployment, banks granting increasingly risky loans, high rates of reinvestment, asset speculation soon followed. Some US$20 trillion was wiped out with the combined collapse of the real estate market and the Tokyo stock market, and the effects hurt Japan for a long time to come.

Jennifer Said:

What is a good DVD to educate someone about the stock market and investing in Australia?

We Answered:

There is a seminar coming au in Perth: http://www.asx.com.au/resources/educatio…

FREE Online videos:

On ASX web site, I recommend video downloads:
First 6 videos: http://www.asx.com.au/resources/educatio…

Selecting stocks with a margin of safety by Colin Nicholson, Author and Trader: http://www.asx.com.au/resources/podcast/…

How to diversify by Jonathan Morgan, ASX
Opening and closing prices explained Graham O'Brien, ASX
http://www.asx.com.au/resources/videos/i…

Loretta Said:

Should China be allowed to conquer Australia by buying up all it's resources at fire sale prices?

We Answered:

Rio Tinto was originally an American company. It was a subsidiary of Alcoa.

China has very strict rules about how foreigners buy China's companies. I think it would be a good idea for countries dealing with China to have "mirror policies".

Americans and Australians cannot buy land or properties in China. However, China can buy land in other countries. ( China only provides long leases to foreigners and not real ownership. )

Tracy Said:

Is the stock market out of sync with reality ?

We Answered:

Your views seem very reasonable, referring to the undervaluation of the market last yr and the questionability of gold as a hedge. In brief, the stock market is NEVER in touch with reality in the short term as it is led by human emotions: fear and greed. In the long run, the stock market represents a claim on a real asset: a business, which is reality in-itself. Also remember, the stock market reflects human perception of the future, and the reality in the future can never be certain.

China is a ‘black-box’, and many investors are riding the boom, me being one of them. Others are looking into this blurred economy looking for the bubble, again me being one of them as well. I’ll address your points:

1.First, in a sense, they have already supported and bailed out the world. The only advanced economy to avoid a technical recession, Australia, has its economy based on Chinese demand for raw materials. China controls the fate of the $US, and China is leading a global economic recovery. But everything that rises must fall, and the faster it rises, the faster it falls. With China’s recent gov injections, the economy seems to be heading towards a dangerous path. Yet again, the opposite might occur. Remember China is not leveraging its growth, and has by far the largest foreign reserves of any nation. So one might argue that China has saved up for years (both money and commodities) in preparing for this economic boom. Yet this itself seems to be the problem, as too much money does not mean a better economic system, or the ability to growth more than a country’s capability. Money is simply a nominal measure, and it is the people that will build the roads and bridges using rocks, and not gold or $US.

2.This uncertainty of the consequences of the asset bubble is the driver behind the rapid increase in gold prices. The asset bubble has popped, and the response to ‘save’ the economy might lead to hyperinflation, a currency collapse, or even a ‘lost decade’. Yet again, this was unprecedented and the world economy has only recently began operating without the gold standard (starting in the 70s). So maybe the Fed did the right thing in ‘saving’ the system by pumping in liquidity, and hopefully will be able to unwind itself effectively and save taxpayer money (highly unlikely). If gold wasn’t this expensive, I would’ve most likely got in, but I am currently sceptical.

3.Good point, nation ‘on steroid’, which I am assuming refers to the highly-leverage society, which was mainly caused by fractional-reserve banking. I am an opponent of high leverage, but there are 2 sides to the story. If the borrowed money was used to create value (worth more than this money) such as building a school or improving the effiency of energy consumption, than this leverage was beneficial, and can be paid back, no matter how high. On the other hand, when there is too much leverage, used for speculative purposes such as building too many houses, then this is where steroids comes in which can have dire consequences.

4.This is good news, as consumer savings can smooth the business cycle (smaller booms and smaller troughs). It would be a mistake to have consumers regain past habits of borrowing too much, causing strains in the system.

5.This is another issue which needs to be looked at and should not be ignored, because there are plenty of countries out there with much higher debt than the US (as a % of GDP), Greece and Latvia being two obvious examples.

The efficient market theory assumes perfect human minds...far from the truth. It does apply in the long run, but again, in the long run we are all dead, and as long as we breed and the earth keeps spinning, the stock market will keep on living.

Allison Said:

How will the situation with the stock market in America affect me personally?

We Answered:

Pretty much only imported goods from the U.S. because the prices will most likely rise.
I live in the U.S., and it hasn't even affected me. The media is great at hyping this stuff up, and making it sound like utter devistation is going to happen....when in reality, it's not.

If you have money in the stock markets, it will probably affect you, and you might lose money.
If you have any loans with variable interest rates, it MIGHT affect you, but doubtfull because you are in Australia.

Other than that, you'll probably be fine, and believe it or not, most people in the U.S. are still doing fine, we're just on tighter budgets, and being very wise with our money. The media makes it look horrible, but they're only showing the extreme situations, and not the average person.
People affected here are ones that got home loans from banks that shouldn't have gaven them the loan in the first place (greedy greedy banks!), and people with lots of money tied up in the stock market. Some people with 401K retirement plans have lost money from it, but that's dependant on how the money was invested, and by who.
Inflation has been on the rise for years now here, but hasn't yet reached dire levels yet......and hopefully it won't!

Joann Said:

Will house prices in Australia fall in the next 12months?

We Answered:

Based on several factors such as:

-the ratio of wages to house prices
-the price of oil, rental income increasing and food prices increasing in part from the drought is placing more pressure on inflation
-mortage repayments being at their highest levels before interest rates started to rise
-the comparison of the same factors for the Japanese housing boom of the late 80's (their prices are currently 60% lower than they were in 1990)
-the same principles for the house price increasing as for the US
-Low unemployment putting more pressure on interest rates
-Consumer confidence being the lowest level in 15 years
-The effect of write-offs from the sub prime mortgage in America placing more pressure on our interest rates and the ability of people to attain almost unlimited credit
-The fact that the UK had a housing hortage and their house prices are falling as fast as they were in 1990
-The fact that the increase can be in part blamed on the herd mentality (thinking that you need to get into the market otherwise you never can)

......i think this year we will see roughly 4% growth if not less (australia wide) and possibly the next 3 years the biggest crash you have ever seen.


What happened in Japan? Housing shortage, low interest rates over an extended period of time, a booming economy, low unemployment, banks granting increasingly risky loans, high rates of reinvestment, asset speculation soon followed. Some US$20 trillion was wiped out with the combined collapse of the real estate market and the Tokyo stock market, and the effects hurt Japan for a long time to come.