Monopoly Economy Still Here: Higher Prices and More Debt

Monopoly Economy of More Debt
Monopoly Economy Still Here

Today’s Profit Watch hammers down a familiar nail: The ongoing rollback of provisions put in place after 2008.

It’s perfect proof the world is setting up for another big downturn sometime next decade.

But you wouldn’t know it unless you take your cues from the daily headlines.

The stories that matter are so obscure you’ll never, ever think about them unless you know what to watch for…

Here’s a case in point: For sure you know that Trump has made a bizarre offer to buy Greenland from Denmark.

And even the inverted yield curve appeared on Shaun Micallef’s comedy show Mad as Hell last night.

But do you know Trump’s given the greenlight to more low-deposit loans in America?

Yep. The Wall Street Journal reported[1] last week that the Federal Housing Administration (FHA) is ‘vastly expanding the scope of condominium purchases eligible for lower-down-payment loans.

These down payments can be as low as 3.5%.

Hello. Don’t you remember all those low-income, low-deposit US loans before 2008 that fried the world economy?

Don’t fret. I don’t think we need to worry about a big real estate downturn crashing the markets right now.

This move is likely to be bullish in the short term. After all, it means more people buying and borrowing.

But it’s clear that the boom-bust cycle that we’re all hostage to — based on property values and bank credit creation — is not going away.

Higher prices, more debt = the usual

Politicians have no real answers to the perennial problem of high real estate prices and low wages.

They just keep doing the same things, which means we’ll end up with the same results over time.

We can see this dynamic at work right here in Australia.

Stockland is the largest residential developer in the country.

According to today’s Australian Financial Review[2], the company said that ‘banks have yet to come to the party to help fire up the property market, revealing credit remains tight for prospective home buyers.’

Don’t you see? Nobody gives a rat’s about genuine housing reform.

We’ll just shovel out more credit, inflate real estate prices higher, and ratchet up more private debt. The reckoning will come for this eventually.

But not before Australian real estate prices go higher. Just look at the influences beginning to impact the market.

Profit Watch has already told you that the state governments have record infrastructure plans. This will take property values higher wherever these improvements go in.

Then we the ongoing population boom happening.

Annual permanent and long-term arrivals hit a record high in the last financial year, eclipsing the previous record high set the year before. We might do it again this year.

Greater Melbourne is taking the biggest chunk of this action — as anyone on the roads down here can attest.

Concentrated population growth like this is going to pressure real estate prices to the upside — especially with the collapsing outlook for construction happening.

And it won’t be long before the Banking Royal Commission becomes a distant memory, and the Aussie government pulls a move like Trump to loosen credit and let buyers back into the market in a bigger way.

You’re playing Monopoly in life, as always

We already have historically low mortgage rates in the US and Australia.

Some fixed-rate loans here are under 3% for buyers with a 40% deposit. Even a 20% deposit can get you a loan just over 3%.

Land values will rise to reflect this.

It also wouldn’t surprise me in the slightest to see a lot of wealth continue to flee out of Hong Kong, given what’s happening over there. It will most likely be parked in Australian real estate.

Both American and Australian real estate will be very important to watch over the next 12 months. The share markets in both countries are delicately poised.

One wonders if investors might jump out of stocks in 2020 and back into property if the volatility and outlook begin to cause too many headaches.

We’ll see on that.

Is there a way to make money from this today? Not that I can see. But the long-term path to wealth is accumulating assets over time.

Everything I see suggests we’re all still playing Monopoly.

Those who own the most properties can reap huge windfalls.

Those who don’t get a ‘wage’ that’s fleeced by the time they’re due the next one.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch