By Amanda Morrall
Weighing up whether to jump into the property market in Auckland?
You might not like what Canadian economist/ecologist/Peak Oil theorist Nicole Foss, senior editor of the financial website automaticearth.com) has to say but her opinion is probably worth consideration on the chance her bearish views are right.
Foss, whose convictions about the global economy collapsing were so strong she moved from the U.K. to Canada where she's built a self-sustainable refuge, believes we are on the cusp of the next Great Depression that will plunge New Zealand and other developed nations into a prolonged financial funk that will leave debt-laden Kiwis in serious trouble.
According to her gloomy forecast, the euro will become a footnote in history, civil unrest will sweep Europe, nations that are not self-sustaining will be thrown into total chaos, oil will plummet to US$20 a barrel and the remaining housing bubbles including New Zealand, Australia and Canada will burst violently.
For this reason, Foss (on a speaking tour in Australasia) has the following advice for prospective first time home buyers in Auckland.
"Don't buy a house under any circumstance, unless you can buy it outright.''
"It's a trap"
She describes the property market here as "a trap" that will leave thousands helpless, homeless and bankrupt when the bubble bursts and interest rates rise.
"Auckland is the sixth least affordable city in the world, the property bubble is huge, asset prices have a long way to fall, mortgages here are recourse loans, so if people end up under water, and the house is foreclosed and sold for less than they owe, they will have to cover the difference.
"So it really is a trap, and interest on ordinary peoples' debt are going to rise sharply so people will find their levels of debt unserviceable. This is a trap, do not go through. If you have a job, by all means rent. Don't jump in to the property market especially not in Auckland.''
How can she be so sure, particularly as a foreigner visiting Auckland and the southern hemisphere for the first time in her life?
Two big reasons: Peak Oil and the credit crisis, part two.
"I think we're facing global economic depression, a period like the 1930s and it could come on quite quickly and the impact is potentially enormous.''
Foss believes we've hit peak oil already and blames the demise of the global economy on the finance sector.
Credit crisis part two
"What we're really going to see over the next few years is the financial crisis being the dominant factor. That's hurdle No.1, peak oil and energy is hurdle No.2 because the time frame for changes in supply and oil demand is simply longer.''
The supply crunch, says Foss, is closer than many might think; five to 10 years.
"As we saw in 2008 prices can fall a very long way which is nothing to do with supply and demand for oil it is simply that you take liquidity out of the market,'' she said, noting that oil prices fell 78% in five months in 2008 - from a record high of US$147 a barrel.
"We could see something like that again. If purchasing power is falling faster than price, even if oil prices are low, it doesn't mean it's affordable. In fact it could be less affordable if people have less money.''
She sees the troubled eurozone breaking up even sooner.
Au revoir eurozone
"I'd be surprised if the single currency lasted more than a couple of years. It could go all at once or shed members. Various countries on the periphery of Europe look poised to go over the edge pretty much immediately."
"Default is definitely on the cards for all of them. Austerity programmes are accelerating the default. Even the countries at the centre of Europe have major financial risks enormously over exposed banking system, too much leverage, large housing bubbles. It's pretty much the story across Eurozone. We're seeing contagion that is going to spread from Europe to much of the developed world.''
And the U.S.?
"In the U.S. there is a knee jerk flight to safety into the reserve currency, it began a year ago and it I think it still has far to go."
"Interest rates are very, very low because the U.S. is perceived to be a safe haven. Rightly or wrongly there is a perception that the U.S. will never default on its debt. And that's enough to make it the recipient of capital flight from Europe. At the moment, the U.S. is seeing its dollar rise while interest rates stay low because it's not attracting the risk premium unlike the eurozone where interest rates are going through the roof because interest rates are a risk premium."
Following the onset of the US sub-prime mortgage crisis and credit crunch, the Federal Reserve has held official interest rates at 0% to 0.25% since December 2008 and says an "exceptionally low level" of rates is likely until at least late 2014. Speculation is rife in financial markets over whether the Fed will launch another round of quantitative easing, or money printing, which would be the third with the first two rounds having totaled US$2.3 trillion.
Canada's bubble next to burst
Foss' grim projections include a negative outlook for the country she lives in. She believes a bursting of the Canadian housing bubble is overdue.
"I think 40 year mortgages are sup-prime by almost anyone's definition; 110% mortgages. Canadian banks aren't that large or liquid and too often they are holding the bag at the end of a reinsurance contract. So I don't think the banking system there will be able to withstand what's coming.
"There are some of the largest housing bubbles in the whole world there and the banks are invested in assets that are going to collapse in value."
While Foss also foresees some financial pain for New Zealand and Australia, she expects it will be somewhat tempered. That is especially the case for New Zealand having a resource base that could adequate support the population.
"The prospects for New Zealand are not that bad. The prospects are far worse for Europe, and ultimately the United States where the political culture there is heading in a dangerous direction, toward a police state. There will be an almighty financial crisis and a period of economic depression here. If people look at the history of the depression here in the '30s it wasn't a pretty picture.''
10 years of serious pain
And the length of the suffering?
"Probably 10 years of a depression and seriously hard times.''
And there's no soft landing for China in Foss's crystal ball.
"We (Canada) were insulated (from the effects of the global financial crisis) as in fact were New Zealand and Australia, by being commodity exporters into a commodity bubbly particularly to China. But the Chinese bubble itself is bursting and commodity prices are going to fall with the withdrawal of liquidity as they did in 2008, so this time all the exporters are not going to be insulated from what's coming."
Foss isn't entirely pessimistic. She see hope and renewal on a small scale basis and on her talks advocates a movement toward sustainable communities.
Local solutions
She said those looking to depression-proof will do well to take a back to basics approach, anything that services basic needs that aren't dependent on discretionary income.
"The sort of things that have local supply chains and a local customer base. It'll really going to be about being self sufficient, living within the local resource base because trade takes an enormous hit during times of economic depression. In the '30s trade fell by 66% in two years.''
"New Zealand is currently extremely plugged into a globalised economy as an importer and exporter. That isn't going to work in an economic depression so New Zealand will have to revert to living on its own resource base. The transition from here to there is going to be uncomfortable but at least it's possible. It some parts of the world it won't be possible to be self sufficient.''
Foss baulks at the idea of an effective political or financial intervention.
"No faith"
"Everything they will do will be too little, too late. They'll be behind the curve and they'll feed the cycle of fear. Just like we're seeing the European government do at the moment. When fear picks up it becomes a self sustaining dynamic and it drives deleveraging to its natural conclusion until the small amount of remaining debt its acceptably collateralised by the remaining creditors.
"I think we are definitely going to see that dynamic no matter what central banks and governments do and they can't print money because the bond market prevents them from doing that. They are trying to midwife credit to keep the credit Ponzi scheme going. It's not going to work because you don't have willing borrowers and lenders any more and the engineers of credit expansion like fractional reserve banking and securitisation are breaking down.''
Asked whether she was not adding to the fear, telling her audiences to prepare for the worst, Foss was staunch.
Tough times
"I'm trying not to feed fear. When I lecture, I try to present the scope of the problem in the most dispassionate and analytical terms possible because I don't want to feed the cycle of fear. Where I try to put emotional impact is on building local solutions, creating local mechanisms to deliver liquidity, looking at how you can build local and resilience communities because that's how you're going to get through tough times.''
167 Comments
All power to this lady.
If she scares off enough property investors I will have no competitors leasing out their properties. The market will be mine alone.
And if she scares all the potential house owners into renting I will be swamped with demand for my properties.
Go you good thing!
Yeah everything is good for property.... Not. If what Nicole Foss says is correct, we could well end up fighting a war somewhere. In saying that, I will always be bullish about the US economy and world economy in general, bearish times come but they eventually go away.
The average age of farmers is so high because no young can enter the market cause they can't afford to buy a farm. http://www.trademe.co.nz/property/rural/auction-467390074.htm
I think she is basically right.
However I am hopeful that the Chinese yuan will be useable especially if backed by Gold.
The Chinese are not dumb, they know what is coming. They have already made lots of noises about using the yuan internationally. Recently the Brics have talked about creating their own World Bank. China have already released press saying they are investigating/planning on a system compatible with SWIFT, which is at the heart of Western Finance.
The Chinese are also trying to get as much Gold as they can, so that they can back their currency. They seem to like Keynes and his bancor idea.
"The bancor was to be backed by barter and its value expressed in weight of gold."
http://en.wikipedia.org/wiki/Bancor
Hopefully if NZ can stay onside with the Chinese we may be able to get through this with the least amount of pain possible.
Are you for real.....? no I mean seriously...? why did you take the Nom Kiwi.......your endless rhetoric on the virtues of sucking up to China are really starting to piss me off.....,.,. and yes some of them are dumb as a hill of sh*t ...rubbing what little remains of endangered species into their apendages to improve thier virility and wot not.....
If you feel we have a great deal to learn from such an enlightened race , you should go there have a good look around genius.....they have a class system just like anywhere else....and ,Money by fair means or foul rules just like anywhere else.
I don't mind if you embrace the Communists ...I just don't want to bow to them.
GBH ....firstly I find it a remarkable irony that our gracious host could interpret your positivity as derision.......but at the risk of teaching grandma to dis-content eggs...hell hath no fury eh..?
On Nicole.....as an overview she reminds us she has no wish to perpetuate the cycle of fear.....but at best, that is mayo on a bitter salad.
I concur with a number of her thoughts on things ...such as the U.S. holding a perception of safety with a zero default potential . That is the world in which we operate / trade /interface /reside / where perception borrows it's strenght in reality from believers untill perception is reality for the interim.
As you know despite events pending there have always (even in the great depression) those who have capitalised on the circumstance of the times....it will again be so.
As to my overview on Nicole's outlook for the global economy.... I interpret it as speculative without investment in the outcomes she feels are inevitable.
The Auckland housing bubble....well yes..! it's highly leveraged.....therefore vulnerable to shock....but again as I pointed out above, the believers that lend credibility to that particular market may yet find fault with the doctrine.
I would be less than honest if I did not say I reduced my property portfolio in favor of Angel Investment Capital.....I was no longer comfortable with what I saw as my own parasitic dealings as they were not creating / producing /developing / anything ...and I feel that has become a core part of the problem Globaly.....the speculative Markets have overtaken productive ventures to the point where money as an IOU has become of percieved value no longer underwritten by a productive economy.
Ah ...I'll tell you a story one day (by e- mail).....have a great one....look after your Hall Pass ,take the teach a nice wee apple....from the forbidden tree ...eh ?.
Good on yer , Count ....... enjoyed the thoughts ......
..... the Gummster family has just spent 5 days in the Adelaide Hills , amongst the small towns , orchards & vineyards ...... German food in Hahndorf , toy factories , wildlife parks ...... autumn colour on the trees ......
Life seems pretty good , to me ...... great folks & food , warm 28'c days ... the last of the summer wine maybe .......
..... too good to be gloomsterised by the chill blast of Nicole Foss's winter whine ...
I reduced my property portfolio in favor of Angel Investment Capital. You do realise Christov that this sort of thinking takes you from a BB to a 'Generation G'? :-)
The G stands for generosity,( not G-string). It's about shifting your attitude from 'what can I get for me' to 'how can I be useful'.
The bromance continues huh boys...it's so cute. Gummy I was josh'n earlier. I wasn't slagging you specifically although you know very well that you push the limits at times. Someone has to monitor the virtual hallways in B's absence.
I expect your views on Foss aren't far off my own. I'm a rational optimist these days, the world doesn't need any more pessimists...because they surrender to defeat too easily. I'll fight till the end for our race, even if we are rats.:) we need to find a middle path solution.
....... one does ponder , that Nicole Foss is nothing more than a more extreme version of our resident " chicken little " , Monsieur Hickey ....... peddling a doom & gloom story to get visits to her website , or bums on seats at her seminars ........
And it matters little to her the future , the current need for cashflow is paramount ...... if the future doesn't pan out as she painted it , too bad ...... she got paid in the here and now ...
..... scare them ...... fleece them ....... forget 'em !
Nah, I think she is a nut case.
An interesting characteristic of such people is that they say "it will happen" when others might say "it could happen"; i.e., not only does she predict an end of the world, she makes out her prediction as inevitable.
Of course, there's always a following that such people create. Even this site has a couple of under-educated inhabitants who echo her delusions ("property will lose 90% in value"; "there will be no economy"; "there will be no cars in 10 years' time"; etc. etc.).
Another curious characteristic of people like this is that is that they can become aggressive, rude and arrogant when their psychotic behaviour is exposed as such.
Are they harmless? – To those who do not buy their delusions, they are.
I stopped short of labelling Ms Foss as a raving lunatic , merely because Mandy Moral is threatening to have me biffed off the site .....
..... but brave man you , Alex13........ for calling it like it is ....
Out of her Canuck picking tiny mind ........ but I didn't say that , OK !
The thing I can't find about Ms Foss is any real background information on her. As she is referred to as an 'economist' and an 'academic' I was expecting to find a biographical back ground that listed her qualifications, institutional affiliations, and her current and past places of employment and the roles she had there, a list of her publications. But I can't find any of that by just doing a brief google check of her. Her qualifications that I can find are listed as a BSc and a LLM I think it was. Hardly the background and qualifications of an academic economist I would have thought? So on that basis I'm not really sure why she's being held up as an expert in these fields, or in energy? I don't see where the expertise is coming from, unless I'm missing something? Did she go by another name that I’m missing? There is nothing wrong at all with her having an opinion and expressing it to all who will listen, but that doesn’t make her an expert, or give greater weight to what she is saying. It just means she's a women with an opinion.
My feeling is that she's being made into an expert in New Zealand as her opinions happen to resonate with certain types of provincial Ashram dwellers from the South Island who share her largely atypical views, and who have brought her out for some mutual reinforcement of shared but closed minds? A meeting of the closed organic minds if you will. It is sad that to these vegetarians’ concepts such as expertise, empirical evidence, objective rationalism, and basic scientific understandings are wobbly at best, and actively defended against at worst. If their inclinations weren’t such they could have saved themselves the airfare. But I stand to be corrected if somebody can shed some more light on her professional background and qualifications, I'd be much obliged.
Here's her bio.
Nicole M. Foss is co-editor of The Automatic Earth, where she writes under the name Stoneleigh. She and her writing partner have been chronicling and interpreting the on-going credit crunch as the most pressing aspect of our current multi-faceted predicament. The site integrates finance, energy, environment, psychology, population and real politik in order to explain why we find ourselves in a state of crisis and what we can do about it. Prior to the establishment of TAE, she was previously editor of The Oil Drum Canada, where she wrote on peak oil and finance.
Foss runs the Agri-Energy Producers' Association of Ontario, where she has focused on farm-based biogas projects and grid connections for renewable energy. While living in the UK she was a Research Fellow at the Oxford Institute for Energy Studies, where she specialized in nuclear safety in Eastern Europe and the Former Soviet Union, and conducted research into electricity policy at the EU level.
Her academic qualifications include a BSc in biology from Carleton University in Canada (where she focused primarily on neuroscience and psychology), a post-graduate diploma in air and water pollution control, the common professional examination in law and an LLM in international law in development from the University of Warwick in the UK. She was granted the University Medal for the top science graduate in 1988 and the law school prize for the top law school graduate in 1997.
Source.
Thanks OMG. So she has a background in energy (nuclear safety and EU electricity policy from the 1980s) law, farming, self-sufficiency and renewable electricity generation from poop. And she runs a website. Don't see anything on economics though, no PhD, so she isn’t an academic economist then. Interesting.
DavidD says: "It just means she's a women with an opinion."
When we really think about it, isn't that how we should think about anyone who says anything at all? Would you believe, for example what the head of the Federal Reserve says, just because they hold that position and perhaps have some well regarded qualifications?
I am more inclined to believe someone who has done a lot of research on the matter and who apparently doesn't have much to gain whether you believe her or not. Incidentally where does one go for a qualification on predicting the future regarding the environment, energy and the economy? Serious qeuestion.
If only I were more astute, I could call you by your real name gummy
This link is for you. Interesting.
Investors are the casualties in a booming oil patch - The Globe and Mail
http://www.theglobeandmail.com/report-on-business/industry-news/energy-…
Amanda - interesting link, but it fails to identify the problem.
Some of us energy-types have been adamant - for a long time - that tar-sands and shale don't have the EROEI to go near maintaining Business as Usual. I guess that will manifest as 'cost overruns', kind-of.
3 million barrels a day by 2018? That's a game-changer - not!
.... buy Halliburton stock on the NYSE , you'll clean up on the energy front ..... awesome stock ....... poised for a parabolic move upwards .....
Just love these clean & green environmentally friendly stocks ....
..... have I mentioned Transocean or Schlumberger yet ?
Amanda, in depth researching and running spreadsheets? kind of wonder....
"Surge" to 3.6million by 2018....bad news old gal...we need 7million more every year just to tread water.......
http://www.youtube.com/watch?v=NcctPxT-2vA&feature=related
So in 6 years 7 x 6 = ?
Where does the other 38million per day come from?
Saudi Arabia produces 9, its biggest oil field is very very mature and they are spending huge amounts to keep it producing, but its easy (quality) stuff is gone or almost ......Iran is in decline, Iraq could surge to 5 or 6....from its present 3....Russia is 10 and it wont go much higher...so thats th biggest covered off as not getting there....
Now as a financial journalist tell me how our economy survives that decline?
regards...
Alex13 said "Nah, I think she is a nut case.An interesting characteristic of such people is that they say "it will happen" when others might say "it could happen"; i.e., not only does she predict an end of the world, she makes out her prediction as inevitable."
We also picked up on the "will happen" as opposed to "could happen". She is quite certain of herself as to what is going to happen and how it will play out. I would not be so sure as so many things can happen that are really unexpected. I think her general ideas are in the right ball park however.
Oh and she doesn't predict the end of the world. When I think of end of the world I think of Hitch hikers guide to the universe. :-)
GBH says: "peddling a doom & gloom story to get visits to her website , or bums on seats at her seminars ........ And it matters little to her the future , the current need for cashflow is paramount ...... if the future doesn't pan out as she painted it , too bad ...... she got paid in the here and now ..."
Her seminars are free. You can make a donation if you wish. At the seminar here in Christchurch we even got pizza.
Bromance....! ......it's everything a woman wants.......no expectations after dinner and drinks.
Rational optimist,.... Amanda.?.....is like taking the lotto ticket expecting to lose but living in hope.
One more step.... to go ...you've got the bones ...your informed , canny, and not without the ability to persuade.....
Now rationalise your bets....and follow through.....knowing you can't win em all , but reducing the number of longshots for real returns here and now.
Happiness upon you.
Why indeed Kiwi.... I guess I'm a little less than enamoured with our new best freinds...our go to guys... than your good self.
Probably a bit sensitive in a longsighted overview.
I'll ...ah..butt out in future........unless it's really provocative.....then I just can't help myself the Devil makes me do it.
Great to see Nicole Foss on this website. I think she's right up there with Chris Martenson www.chrismartenson.com on what's coming.
As steven asks, what are your thoughts now on buying a house in Auckland Amanda?
As I said the other day in the comments... If you find it acceptable that your house value might plummet and your income may drop significantly - which essentially means a small mortgage at most - then buy. If your house dropping significantly in value and/or income dropping significantly will cause grief, do not buy.
My partner and I weighed this up and bought a very modest house a couple of years ago, though not in Auckland. The advantage of owning your house is that you can make your life more resilient - insulate the house, plant fruit trees, learn to grow food, that kind of thing.
Remember, the house price might plummet (as has happened in the US where the average house price is now less than in New Zealand, but incomes are higher) but the debt (from the mortgages) will stay the same (or increase if interest rates go up).
I guess it all hinges on what actions the central banks around the world will take.
There is more debt out there than money, so theoretically without the printing action of the central bank, money supply could shrink to somewhere approaching 0.
The way I see it, they have had no problems demonstrating they are prepared to print-baby-print!
However that wont ever be allowed to happen, there is no ceiling to the amount they could increase the money supply. any amount of deflation can be met with a dealing out of ten grand to every man woman and child, if that didn't work a hundred grand, if that didn't work a million, or 100 million or a trillion.....problem solved. You get the picture.
There are people out there that think by diluting the money supply through debasment, it is somehow possible that the its value wont ultimately drop by the corresponding amount.
There is one of those types heading the FED at the moment!
BB all 'money' out there is 'debt'.
Yep there is no limit to the amount of debt they can 'create' (thats why QE/money printing, but actually debt creation can not work in the end). They will create more and more debt (trillions) and try to keep interest rates low (but negative real interest rates destroy capital - opps unintended consequence!).
Actually I think you will find Ben doesn't believe what you think he does, thats why he is 'officially' holding back on 'QE' (actually he has already done QE3 via currency swap with the ECB just before Christmas of a trillion or so)...
'I guess it all hinges on what actions the central banks around the world will take.'
We know what central banks will do, they is no mystery here. They will print and print and print BB. It's either that or the system collapses. Central banks are to protect against collapse, so they will do everything they can not to let that happen, which means for the one trick pony 'print'... a system with inflation is better than a collapsed system... so they will try and maintain control of the monetary system till the end... then they will be forced to go back to gold.
I agree, I just don't understand the deflationists arguement. Wether they think central banks just wont loan more money into esistence, or that perhaps they just think prices will not rise as a coinsiquence of expanding the money supply maybe?
Surely any shortfall in a contracting money supply will just be met with more fresh printed currency, and some? No risk of substantial deflation there.
The ECB will print, its the last man standing, yet its not supposed to?....as long as it keeps buying Greek etc bonds the musical chairs will continue....but realistically there is no one else....and these markets are huge, way bigger than printing can hope to counter.
So i think you are wrong on the printing being enough or capable. At some stage it will implode and we will see deflation...
At that point I think whats left of the gold speculators will run to US Treasuries as a safe haven....and gold will nose dive.....
Sit back, pop a beer and lets see who is right....nothing either of us can do to change the outcome.
regards
They dont actually physically print. The Fed can just hit zeros on a keypad as it is forced to monetise the entire US federal debt. I think US treasuries are the biggest bubble of all time actually. With the world moving away from USD and 2 out of 3 usd held offshore (outside the US)... I think you have to be almost clinically insane to still be parking money there.... The Fed and co are the only major buyers lleft.... By gold speculators i take it you are referring to those short gold in the paper market who will get crushed eventually as the system comes down... Of course the longs will loose aswell in the paper markets as the shorts will have to default.... Then yes... Lets have that beer... But ill leave mine in the fridge as its going to take a while yet... As the crisis just gets worse and worse (Greece and co are small fry)... Yes neither of us can change the outcome.....
I am not sure I understand your point Steven,
"and these markets are huge, way bigger than printing can hope to counter."
That sounds counter intuitive to me?
There is no limit to the amount of money these banks loan into existence ("print"), what ever money is required to pay loan repayments, is just conjoured up. That is precicely the point, any new money has the equivelent corosponding debt attached to it created in the very same instant which is also added to the primary debt. Ponzi!
I think Chris is more correct.
The difference was that back in the 1930s they were supposed to be on a gold standard and during the 20s printed more credit than they could back (ie - it was just a credit bubble), trying to undo their criminal efforts just caused deflation so they devalued against gold (after collecting as much of it at the old price they could of course).
There is no such monetary base today in any fiat currency (or to put it another way - we are on a fiat debt standard). Any sign of deflation can be meet with still endless debt creation - the just need someone to borrow it (someone more often than not being governments in this current world case). They can create as much debt as they like at will, by the touch of a button... it was not so back then...
Couldn't agree with her more! I wish she could have a chat with John Key, he may filp like he did after listerning to AL Gore, and stop the crazy borrowing.
Hard, inflation proof assets brought at the right price is one way to protect your wealth. http://j.mp/yE0rV4
You may have missed the word depression....which is defined as deflation at 10%+ also Russia when it imploded saw -25% in GDP. In such a situation its cash and short term govn bonds....conventionally nothing else is worth it.....though I might conceed gold may not be too bad....it might hold up better than any other "hard" asset I can think of.
regards
Umm Steven, read about the Weimar Republic!! Printed money is not some thing I would want to hang on to, fill your boots if you like!! If gold is ok, then land and many other hard assets will act similarly, in the moment of collapse everything will go down, its what comes back thats important.
I live and work in Europe, I can see whats going on, I'm in the Netherlands, which also has it's own problems, but does run a current account surplus so is much sounder than most. But we are not keeping our cash in euros.
This is not a convential down turn...........
Well to start with the Wiemer was pretty screwed in 1919 and on to 1924, ie it was a very depressed economy that was down I think as low as it could go. The Great Depression on the other hand was from a high or boom, just like us. So the two are significantly different events at this stage.
Now if you said once on the bottom we will probably see inflation as a risk, yes I agree, then hard assets probably make sense and gold amd housing are real considerations. BUT, the point is that bottom for us has yet to arrive ie the World is some years off, we have to go through massive debt destruction first....I think the drop will be quite severe 10% per year for 5 or 6 years...once on the bottom a period of stagnation before we start to see some signs of recovery, then as oil shoots up in price yes there is a risk of inflation....
No, I dont agre on land, land, is a huge bubble, its way over-priced. Look at the returns, they depend on high commodity prices and rents for one. Take grapes, prices have dropped from above $1600 ($2400?) to $400, dairy etc will go that way. Housing is at least 50% too expensive and thats based on what we earn today, so wages will also fall, hence the median of 3;1 indicates houses prices have to drop a lot. Where I have to think twice however is gold. Gold I think might not be too bad because ppl see it as a store of value....the psychology is a lot different IMHO....also I would suggest most gold isnt bought with debt so the bank/council/govn (ie I expect land taxes etc) isnt going to come knocking so there is not going to be much mortgagee sales in precious metals...
"not a convential downturn" no ideed it is not....we have not had this for 80 years....and the one before that was the 1870s....
regards
The issue in the Wiemer Republic I was referring to, was the printing of money and consiquently the hyperinflation that made land owners and business owners assets values keep up with inflation, although converting it to cash had issues, but it did protect the wealth of the owners, against those on fixed incomes form bonds etc, were slaughtered...... Printing will be the last resort governments turn to, we can see it already as QE takes on an arua of credibility.
I wouldn't buy farmland in NZ either its well over priced, thats why I am buying where its much cheaper. In a crash it may go down there too, but I will still get a return on it and I it will take less time to get back to $1200 an acre than $10,000 (figurativily speaking) and I have on debt on it. Lasty the driving force for demand will remain, even through a significant down turn.
My concern about gold, which I do also own, is how to get out of it, selling before that bubble bursts. Owning land or equities which produce raw materials will at least provide a return, even if the value plumets. I apply a simple theory, follow a unstoppable trend and try to buy cheap. Lastly there are very few so called experts I trust, as very few called the sub prime debacle, nor did I, but I am trying to make sure I don't make that mistake again!!! If your are in the economics and finance business and missed sub prime etc, I find that hard to forgive...
Actually Robo47 you might find that land didn't keep up with inflation in that case - foreign students studing in the Weimar with overseas study allowances where able to buy the house they were renting as the currency collasped..
I don't think gold is in a bubble (don't know why someone would say that). Gold isn't a commodity, its money and traded as such by the large commercial banks. The reason is that the marginal utility of gold is unique in that it declines at a slower rate than that of any other substance on the planet. Gold as money is the ultimate extinguisher of debt. The coming debt crisis is a consequence of exiling gold from the international monetary system. Under our current system total debt (all fiat money is debt) debt can only grow, not shrink. All the bad debt remains in the system - it is just kicked up river via toxic purchases by the FED and co... The world needs gold as a safe way to eliminate bad debt.
"If governments fail to rehabilitate the gold standard and its clearing house, the bill market, together with the wage fund, then a much more devastating leap-tide may soon engulf the world." Professor Antal Fekete, monetary scientist.
Also gold has increased 9% on avergae since 1971 - when the US finanally left the last traces of the gold standard, I wouldn't be too concerned by it not 'earning an income', I mean its not like bank deposits after tax return that... keep your gold - its going to go much much higher, infact its bull run hasn't really even begun yet...
If you look at what others say then yes look at America, there are already ppl in tents.....and yes I think we face a depression of the magentude of the Great depression....of course dont use a single point of info, look for others, say Steve keen tells a similar story......
Meanwhile keep buying shares, you are giving me time to pay down debt....so buy more!!!!!
regards
You are indeed the lucky one steven , poor old Gummy has no debt , none ........ so I can't achieve that wonderful sense of euphoria when sticking it to the banks by reducing my indebtitude to them , as you can do .. ..
... I am " positively geared " , as Doug Somers-Edgar used to say . Debt free . So any dividend I receive from my shareholdings is tax-free income into my pocket ......
I can but dream of being in your shoes ...... middle digit upthrust against the bank manager's hooter , as you pay back his money ..... lucky lucky you ......
regards
Being debt free is one of the main recommendations of Foss, Martenson etc. so good on you. The question then becomes how to maintain your wealth in the event of a downturn. My prediction is that governments will increasingly come looking to the productive citizens to make up the government shortfall. We live in interesting times... and thankfully not in the US where it is now legal to strip search anyone arrested for ANYTHING, no matter what the charge. How humiliating.
Economist- I dont disagree with you on the whole. Foreign students using foreign currency could buy property in the Wiemer Republic, as the currency they used was not wrecked by the havoc of moneu printing, but in Deutchmark terms land keep up with inflation, so much so the government taxed the increasing vaue of the land, as it was politicaly expedient to do so. If such conditions visited NZ in the future I am sure you'd see the same happen, as readers of this website would be advocating it just as they are today!!
As for gold, I dont disagree, my thinking is though as the price will, one day, reach a top it maybe 10,000 an ounce but picking the top won't be easy, just as today there are those who think gold is reached its top.
I am not an economist, I have spent the last 3 or 4 years reading all I can, as in my very humble opinon the current crop of experts have really buggered it up..
both land and gold make traditionally good inflation hedges. Gold is more undervalued though. The remonetarisation of gold is the only solution to fix both the solvency and liquidity problem. Neither the banks nor most politians want to go there though as it takes the money debt power away from them. But that is where it will finish. Its not really a matter for how high gold can go as much as how low can paper go. All paper only has value as its someones liability, but with governments going broke gold will end up the last safe haven left. Maybe it will even one day be the last bubbleas trillions of paper currency flees to it.... A day yet to come... Whatever new currency they come up with then will need gold backing....
The truth will have out - The Economist tolls the Peakoil bell:
GBH
I'm shocked you would admit to being comefuddled on this family web site!!!
http://www.urbandictionary.com/define.php?term=fuddle
hehe - 'comefuddled' seems to accurately describe the the western world's love affair with globalism (read corporatism) and the debt jamboree.
Notice how the bank adverts are shelving the warm and fuzzy and ratcheting up the fuddles?
Here's a classic :
(symptoms of nausea may be experienced but does not necessarily indicate a pregnancy)
http://www.youtube.com/watch?v=O-0dNLyMn34
.... aha , interesting ....... so she's saying that we'll gladly buy refined oil products now , when the price of oil is over $US 100 per barrel ....... but that we won't touch the stuff if oil slumps to $US 20 / barrel , 'cos we won't have jobs , and it's armageddon .......
..... and this is from an economist ........ she's very good , isn't she .......
Canadian too ! .......... very good indeed .......
This link's for you my little Gummy wummy Bear....no "derison" whatsoever.:)
"La plus ca change...mon ami...."
Good reading...
http://www.theglobeandmail.com/report-on-business/industry-news/energy-…
It could be worse for us than Nicole thinks. i.e For instance there is a good chance that the main Alpine fault will move sometime in the next 40 years with a magnitude 8 earthquake, and the government buries its head in the sand at the thought at raising the age for superannuation.There is no planning for future shock.
It could be better for us than Nicole thinks . i.e. For instance there is a better chance that the main alpine fault won't move sometime in the next 40 years with a magnitude 8 earthquake ....
...... but I daren't offer an opinion , 'cos Amanda hates any derison being directed at Canadian crack-pot's who come over here spouting their weird armageddon prophecies .......
So I won't venture an opinion of this ridiculous article , no opinion whatsoever ...... nope !
GBH,
Having taught natural hazards in NZ - geography being one of the 8 subjects I taught - the Alpine fault is overdue for its next move.When it goes it will be felt in Australia. The view is that no modern society will have faced such a quake so close - I think the Fukushima quake epicentre was 300 kms from Japan,someone correct me if I'm wrong. The Wellington fault is also overdue and there is a quiet panic going on in local govt in Wellington, the Manawatu and the Wairarapa over quake prone buildings and infrastructure. Christchurch has been a wake up call.The next volcanic eruption is likely to be Taranaki, right next to the basket Fonterra put all its eggs into! Gaia help us all if Taupo erupts.
Oh, almost forgot. Mighty River Power will have wind farms right on fault lines - see yesterdays post.
Australia is looking better all the time. As far as Nicole Foss is concerned, I see she has quietly backed away from the climate change bogeyman and is focussing on the real issues, energy and the ponzi financial system we have. She's pretty smart. She is also right about oil collapsing in price in a depression, but there will be a very big run up in oil stocks IMO until the price drop. You will just need to be ready to exit. People are mad when you look at crowd behaviour - imagine what they will do when the MSM finally front pages the (old) news that oil is depleting faster than demand is rising, they'll buy anything that smells of hydrocarbons. That's been the thinking behind the merger I have been involved in. Our oil asset as a private company was not tradeable, but now will be. Our accountants see it as a potential $US3 billion asset - and yes you read that number right.
I've been reading on stuff.co that a quarter of Feilding's business district will collapse in a moderate earthquake, and one eighth of Palmerston North's. Also most of Palmerston North is a severe liquefaction risk. So there is a lot of very expensive work to be done.
Interesting set of tensions around oil. Refineries in the US have closed because margins are so thin given the slump in demand.
Production cost for non-conventional oil requires a price-floor of anywhere from US$65-85 per barrel, depending on the form of extraction.
Non-conventional oil is taking up the slack from declining conventional production, anywhere from 3-7% pa.
The Big Squeeze!
A lecturer at Foss' Otago uni talk mentioned Maersk's policy; if they lose the Fonterra contract (slump in commodities?) they would no longer come to NZ. We're at the end of the shipping lines...
So on thhis doom endtimes basis, we should not buy a house, couples not have babies, no point studying for a qualification, no point having any investments with maturity beyond 2 years, ... etc. Yep, lets live inthe bush, with traps, spaghetti cans, ... now where did i bury thatt caash again?...
Stop playing the drama queen, we get it, like a lot of us you like the status quo too. That doesn't change the fact that eventually we will need to start acknowledging the bigger issues, even if it they are uncomfortable to think about and very difficult to deal with. Pretending this coming decade will resemble 'business as usual' is foolish, as is the sticking your head in the sand and pretending bad things can't happen.
As a report by the German Military report says:
We are unable to think about the consequences of Peak Oil via our everyday experiences, and can only draw partial historical parallels. It is accordingly difficult to imagine what kind of impact a gradual withdrawal of one of the most important sources of energy would have on our civilization. Psychological barriers account for the suppression of irrefutable facts and lead to an almost instinctive rejection of in-depth discussion of this difficult issue. The occurrence of Peak Oil is, however, unavoidable.
At some point we will have to have a serious debate on this issue.
Oh so we are moving on from the failure of "you know its common sense" to "Usually the weak minded".
I really fail to see how.....its not like she's offering salvation aka the bible, quite the opposite....but then Ive always found your logic lacking.
I assume then that you have absolutely no quals?
regards
LOL....yes canon fodder, the ordainary folks always are and I include me, mind you Im too old for that....Home guard maybe. Nothing wrong with manual work....its going to become the in thing I think.
The point is yeah sure some ppl start wars but look at who, how many are academics? not many (any?)....mostly we see Pollies and Indstrialists...it suits them....
regards
Who said the world is going to end? it seems many ppl only see the world around them as black or white. Like the Great Depression of 1929, its not at the moment going to end, its going to change.
Now if we continue on the path of CO2 emissions humans will indeed end in 150 years or so....so its our choice to do something about that, but clearly we have made that choice not to already.
regards
OK, so morally, you are bankrupt.....co2 predictions are following the worst case scenario....which 6.5deg C...at that we will be in a super warm period and the food chain will be gone, so will humans....but at 4deg C and agriculture will be gone so no society as such......any humans left will be scavengers...until we get to 6.5 ish....
regards
ChrisJ - silly comment. You haven't died yet, haven't died yet, and haven't died yet. But you will, 100% certain. You prepared to predict you won't. on the basis that you haven't so far?
Stupid, is that.
http://www.chrismartenson.com/blog/trouble-money/73469
Read it all, Chris, with your prejudices kept aside. If we are past peak energy (I'm with Martenson on that) then it's inflation via bidding for the essentials, and the discretionary spend will crash. I believe they call inflation and no-growth stagflation. If you think it's purely because the debt/credit graph couldn't keep going exponentially (you'd be right) but that peak energy hasn't happened yet, then you have to be in the Foss camp.
Nobody is going back to the way it was 1945-2008. Get used to it.
36,000 typo Dow 36000 - Wikipedia, the free encyclopedia
.... the guys who wrote the book " Dow 36 000 " did so merely months before the NASDAQ collapse , when the dotcom bubble burst ....
They were enamoured , to put it mildly , with the new world order in business .... where old fogey things like revenue streams and profits were no longer necessary , because " this time is different " .......
... they were wrong ...... spectacularly wrong ......
But the DOW will reach 36 000 one day , in the year 2025 ..... give or take a few years ..
Hmmm...
Reminds me of the 1970s' when inflation was going to destroy the world..
A guy called Howard Ruff advocated storing food and "heading for the hills". He spoke as emphatically as this woman does.
Oddly... even thou I agree with much of what she says... I think she is way...way... off in left field in regards to her conclusions.
In regards to Aucklands housing boom ...she bases it all on the affordability ratio..which makes us the 6th least affordable housing market.
That ratio is MEANINGLESS, by itself, in determining whether we are in a bubble or not...She is drawing a very, very long bow.
Maybe the so called unafforability ratio should be called a "desirability ratio".. ie. people want to live in Auckland. .... maybe the unaffordability ratio needs to distinguish between the haves and have nots... maybe there is more than enough demand from the "haves" ..to push prices much higher.?? ( I have no idea... just saying this to show how useless statistics can be without having an undelying understanding)
She is using the Great Depression as an analogue of todays enivonment ..and how things will unfold.... She is implying that Global trade may fall by 66% again.
AGAIN... she is drawing a very..very long bow. I find that view, at the extreme edge of possibility.
If the Great depression was truely an analogue for today... we should have sunk soon after the GFC back in late 2007.?????
She talks about Peak oil.... and oil at $20/barrel... $20/barrel...yeah right !!!!
I think she is being dangerous ... by talking in such an emphatic and certain way... talking as if she knows.
All the best minds that I follow.... say the outcome is still uncertain.( deflation vs inflation ) That it will be Govt. policy that determines which road we go down. ( eg. govt. austerity measures )
I agree... but my own view is that Central Banks have already played their hands ....and have clearly shown that "money printing " is the the road that they are going down. My own view is that we are moving into a Global inflationary climate.
In New Zealand... the Reserve Bank will drop the OCR to .5% and open the floodgates of liquidity... if they saw any signs of a deflationary crisis.
If there was any threat to our banking system.... the reserve bank will respond with liquidity...They will NOT ALLOW the BANKS to FAIL.
Just the fact that the western world has a social welfare system pretty much precludes an implosion in consumption and Global trade... of the magnitude she is talking about.
Just my view of course.. :)
Cheers Roelof
Yes the conclusions are definitely debateable, although the general thrust is probably OK.
For interest's sake, here in HK when you go the bank to borrow for an apartment the bank looks at the asking price and automatically discounts it by 30% and that is what they are prepared to lend. Looks like the banks are now directing the market. I know about this as my sister in law, a cash buyer, is looking and this is what the banks are telling her.
As far as oil going to $20, that is in my view very extreme. The company I'm involved with produces and ships oil at a total cost of $32 US, and in todays oil market that's cheap. They have no debt. At anything less than $40, I reckon they would just close up and wait. @$20 for a prolonged period the implication is that we would all be begging in the streets.
After the $147USD of 2008 it went down to $35USD...($32USD?) and this time or maybe the next time it will be worse....so $20 is as conceivable as $35....its not a huge difference between them from the present $104+USD.....
Yes I expect to see us begging in the streets, which is what NF is saying....
regards
This time round Steven, I think many oil producers will just shut in production. Many oil producing states need $80 to 100 to balance their budgets and keep their restive populations quiet. If it hits $20 I don't think it will be for long as production costs have risen. We live in very interesting times!
Roelof ...... it's a psychological thing , that the majority of people crave " certainty " in their lives , so they're gullible to the ravings of the Ms Foss's of the world ...
... because a clearly defined map of the terrain ahead , no matter how rocky that terrain is pictured as being , is preferable to uncertainty ......
Hence these apocalyptic predictiors garner more avid followers than middle of the road generalisations of an array of possible future outcomes ....
.... the fact that the future is best imagined as walking into a fog , and that it gets thicker and more opaque the further you peer into it , matters little to the professional prognositicator ...
They either believe that they " know " the future ( neatly extrapolating from past events , as if history repeats nearly exactly ) ...... or they just wanna peddle a good story , at a personal profit to themselves ....
........ and the track record of these sure fire soothsayers is pretty appalling , to put it mildly ....... , isn't that right Bernard !
Slight typo "mortgages here are resource loans" should be recourse loans. Foss assumes she knows something that the Bernanke doesn't, which I doubt. There are two sides to everything, and what Foss et al. describes is a financial armegeddon but it's ignorant to believe central bankers won't act. They have for the past 5 years, and I'll assume they will continue to do so, and if they do act and provide ever increasing amounts of emergency liquidity, then the whole theory is busted. $20 oil wont happen as long as you have solo mums on the dpb raking in $800pw. Fixed income, regardless of any recession, and govts have central banks to fund their borrowings, the so called 'financial markets' have been marginalised lately.
No doubt we still have to go through the whole bursting of the debt bubble, peak oil, and cope with the exponential amount of pollution we create. Though I doubt Foss's particular flavour of crisis will come to pass. I wouldn't be buying in Auckland, land is overpriced, I could buy a reasonable sized farm for the price of a house in Auckland. It's hard to see how a renter will be better off then a buyer, in a worst case scenario neither has anything.
...... the only " winner " in this scenario will be Nicole Foss herself ...... she will have sucked fees out of the gullible , who pay for her crystal ball gazing .......
You'd get more accurate forecasts on the future from Punxsatawney Phil !
........ it's Groundhog Day ! ... ( actually it is world earth day , which coincidentally is where the world's finest prognosticators - the ground-hogs - live ! )
In all fairness, she doesn't charge as far as I know, it's a donation. As opposed to Jamie Mcintyre who charges thousands for spruiking property. Scamming the gullible, big time, just the other side of the coin. Though he has done a far better job of lining his own nest by getting people massively into debt.
...... yes , she gathered alot of " free " publicity for herself on her little trip downunder ...
And she got more runs on the board here , than the Black Caps have scored all season .....
..... Foss'l clean up nicely , dontcha worry aboot that , there'll be more loons in her purse than blog here daily ......
Father and son watch V8 in Hamilton - 59 laps - fifty-nine laps !! - and watching again.
....and after all the blue car was 10cm faster then the second one - hhhooooo !
…and of course it makes headlines in the media a few hours later - that the blue car was 10cm faster then the second one.
….and tips how to preserve petrol doesn’t make headlines in the media –
…..and it is all okay.
…and then the two, father and son go and vote for the blue one, because he was the fastest.
..and was JK in Hamilton too - ? - I guess he was.
Better to own nothing than some hundreds of Ks of debt you cant pay off.
It makes sense to buy at the right time, and not just a homeowner but also a PI.....So once the dust has settled and we are at the bottom of the second Long Depression then at that stage inflation is a risk and Govn theiving is a risk.....so housing with a cash positive income strikes me as one of the few sensible ideas I can see....for many they wont have many options....
regards
Pity I was away for the weekend, missed the fun.
Amanda - never let emotions be part of it. Proactivity (what I do) is valid, optimism is a waste of time, will skew your judgement. Follow a sequential logic-path, nothing else. But - good on you for interviewing Foss - puts you in the Kim Hill class of bravery, rare in the NZ Media.
Interesting to read no fact-based rebuttal in the whole thread; obfuscation, messenger-attacking, name-calling only.
Little men all - smell the fear.
It's the cloak of invulnerability...PDK.....I think myself clear to those who get me, but have no real desire to alienate those I would like to get me.
Gosh you never know I may just find the middle ground with them one day....n ,I'll have learned a bit in the process....just like i did from you.
PDK...I think you know full well my thoughts on the insane proliferation of the species way beyond the point of sustainability, to be fair I think I have made that clear here on any number of occassions , ....but as you know no one wants to hear it because no one wants to have the conversation ..(not argument)......
I see no point , for me anyway in having been a messenger, who can do what ..?.. shout out I told you so when I'm sinking in the same boat along with them.
As long as Growth remains the fixation of the developed and developing world , we will be responsible for our own demise( as a species)........You wanna talk peak ...?
Peak people.
that is with respect as always.
Ah, so you're a prolifer.
S.Ok, Count. I did feel that this was one thread which mught have the take-it-as-gospel types doing some introspecwhatsitthingummy, given that it came from one speaking their tougue.
You are right, as ever, re the prolife-eration of the insane (If you'll excuse the repossession of the possessive) population. Bet the house on it - your schloss would be someone else's gain.
Go in the manner to which you have become accostumed. No 'fence meant.
This article may help explain the logic of the claim that prices may fluctuate quite wildly http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/high-oil-prices-threatened-by-high-oil-prices/article2409670/
Very much a may IMHO....The effect of Peak oil by itself suggests oil would fluctuate widely as excessive price causes global recession...then the price collapses which means a recovery is possible only for recovering demand to quickly drive up price...we saw that in 2008 and 2009...it will be rinse and repeat.....so 2012 looks like 2008, 2013 or even earlier will see pirce collapse....
Hmm its really a complex piece with a lot of speculation and guess work ad errors...some of the things it says are doubtful....for instance the suggestion Saudi might let oil go at $50 or even $70....to kill Alberta....Saudi would need to be able to put huge quantities on the market literally over-night, at least double what Alberta can do, so 4mbpd say....
"The economist said oil producers have long been counting on China to take up the slack from slower-growing developed countries, where oil demand is thought to be in permanent decline." Which is kind of wierd....India and china will, indeed and are consuming more and more.....however note that the producers (which ones?) are aware that its teh developed world's economy that demands the oil.
Then we see "tight oil plays like North Dakota’s Bakken." which frankly are dubious.....I can but suppose the economists are taking what is said by the "frackers" at face value....yet that's questionable.........We see a comment that the US will go from 5.1 to 9....in 4 years, so an extra 1 per year yet Ive seen comments that we need as much as 7 per year just to tread water....due to mature fields peaking and declining....
So in terms of trend I think high price is here to stay, what comes on the market will at best temper it the qualifier is if or when to my mind that a Depression starts.....
"Canadian policy makers, for the first time in a long time, have to start worrying about the oil price. That’s because consumers are driving growth almost entirely alone, and higher gasoline costs will cause that engine to sputter.
“The bank projects that private domestic demand will account for almost all of Canada’s economic growth over the projection horizon,” the Bank of Canada statement said.
That’s a lot like the United States, where the price of fuel is a national obsession."
http://www.theglobeandmail.com/report-on-business/economy/economy-lab/d…
I think those few lines set it up very well....So when consumers slow, bye bye growth....which is what we are seeing.....so when we go for austerity that also badly hits consumers....which we are seeing....
regards
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