Great minds think alike and seldom differ!

Call it what you want, manipulation, dilusional behavior, denial -- but it all eventually plays out.

And as always, someone else other than the elite have to pay!

Bottom Line for RE in our little part of the world is not unlike the ROW (Rest Of World), it doesnt matter about the move in rates or terms or policy. In an emotional UNAFFORDABLE RE market, once the shift is in place there is no stopping it.

Key items to watch. If the government starts to issue policies to curb debt or hint to consumer to be careful, it's already too late. Watch what the wealthy players are doing right now (putting high end properties on the market) looking for take profits and/or protect wealth and cashflow. Watch very carefully two key indicators about market mood at this level, One - % increase in listings and TWO - % decline in sales transactions. For the transactions that do take place, look for duration it took to sell.

Here's a good one, in watching a property in Damansara Heights drop from 6.8M to 5M and not selling for over 150 days, it appears the owner has re-listed with a new agent and back to 7M. This is a great game for both Agent and Seller but rarely works.

Watch Trends and Behavior right now and these simple indicators!

Emotional ties to RE are the strongest! Just look at the direction of this forum topic and the swings in discussion. Most (98%) of people would rather lower expectations then face the reality of selling. This is enabled not only by themselves but by friends and "face" in the community.

This is why the ELITE love it, high end props in a downturn are always available. Downward spirals are deadly but for those with cash and liquidity another gift.

Asian ties to RE as safety, hedge etc could make the Asian FC look like a blip on the radar.

Again, keep your eye on the simply indicators and read between the lines/lies!

Here's a good forecast that I support from MISH in the USA on the global scene. I agree with all points but again the order can change the overall play for the investor. The one we have to worry about is China here in Malaysia.

For those who have been asking me for investment or diversification advice, I am not a financial advisor so I will only suggest good information so you have further insight into making your own decisions. We are all on different paths and many limited to our reach of investments. I can tell you though, putting all or most of your eggs in the RE basket moving forward will not end well.

I do not look at paper gold/silver as solutions either and with RE the paper gains are nothing but that and can be lost OR if things get really bad, taken away!

Remember, for now, everything such as GOLD, OIL and commodities are priced in USD. Swings in USD or these assets classes are only relative to the value of where the money is to be used and invested in the future. If you wish to look at one currency that is performing excellent against all others, it would be the CHF (Swiss Franc).

Wednesday, December 22, 2010 12:06 PM

Ten Economic and Investment Themes for 2011

1. US Municipal Bankruptcies Head to Center Stage

Look for Detroit and at least one other city in Michigan to go bankrupt. Also look for increasing discussions regarding bankruptcy from Los Angeles, Miami, Oakland, Houston, and San Diego. Those cities are definitely bankrupt, they just have not admitted it yet. The first major city to go bankrupt will cause a huge stir in the municipal bond market. Best to avoid Munis completely.

2. Sovereign Debt Crisis Hits Europe

The ECB and EU are hoping things return to normal and they can deal with things more calmly in 2013. The markets will not wait. Expect a new Parliament in Ireland to want to renegotiate whatever horrendous deal Prime Minister Brian Cowen agrees to. Portugal and Spain will need bailouts. The surprise play in Europe will be Italy, a country not on anyone's front burner. Italy will come under intense credit market pressure, and when it does the whole Eurozone comes unglued. Europe's banks are insolvent and ECB president Jean-Claude Trichet will have a choice, haircuts or massive printing.

3. Cutbacks in US Cities and States

With Republican governors holding a majority of governorships, with Republicans holding a majority in the House, and with a far more conservative Senate, there is going to be little enthusiasm for increasing aid to states. There will be some aid to states of course, but nowhere near as much as needed to prevent cutbacks. Expect to see a huge number of layoffs and/or cutbacks in services. Cutbacks in cities and states will be a good thing, but that will counteract other gains in employment. The unemployment rate will stay stubbornly high.

4. Public Unions Under Intense Attack

Public unions will face increasing hostility, not only in the US but also the Eurozone and UK. Look for Congress to consider legislation to kill collective bargaining. If it passes, the president would veto it. The problem however will not go away. Cities and states in distress will increasingly outsource every contract they can.

5. China Overheats, Multiple Rate Hikes Coming

China, everyone's favorite promised land, has a hard landing. China will grow at perhaps 5-6% but that is nowhere near as much as China wants, or the world expects. Tightening in China will crack its property bubble and more importantly pressure commodities. The longer China holds off in tightening, the harder the landing.

6. Property Bubble Bursts Wide Open in Australia and Canada

Australia, having largely avoided the global recession runs out of luck this time around. Look for the Australian economy to fall into outright recession. Look for Canada to slow dramatically as its property bubble pops. The US property bubble is much further progressed, by years, than Australia, Canada, and China. This matters immensely.

7. US Avoids Double Dip

The tax cut extensions and the payroll tax decrease will keep the US out of recession. However, growth estimates are still too high. The tax cut extensions do nothing more than maintain the status quo while the payroll tax deduction is just for a year. Most will use it to pay down bills. Look for GDP at 2.0-2.5%. That is the stall rate.

8. Year That Something Matters

For the global equity markets, this will be the year that something matters. Certainly nothing mattered in 2010, and optimism for equities is at extreme levels. I have no targets other than a suggestion this is an extremely poor time to invest in darn near anything.

9. Decoupling in Reverse

I do not think any countries decouple in 2011, including China. However, on a relative basis, the US could. Europe is a basket case, China is overheating, Australia is headed for recession, the UK is going nowhere, and 2.0-2.5% growth in the US just might look damn good compared to anything else. Bear in mind far more than 2.0-2.5% US growth is priced in, but on a relative basis that is likely to smash the performance of the Eurozone, Australia, and Canada. China may grow 5.0-6.0% but with 10% priced in, overweight China, the emerging markets and the commodity producing countries is a serious mistake. Actually, equities are a mistake in general and so are commodities. Finally, falling commodity prices would be US dollar supportive and supportive of a decreasing US trade deficit as well, especially if grain prices stay high while oil sinks. Should grains stay firm while other commodities sink, it would help boost US GDP.

10. US Dollar to Strengthen

Look for the US dollar to strengthen because of the net effect of all the above issues.

Relative Performance Examples

On a relative but not absolute basis I like the US. On a currency adjusted basis I especially like Japan. Here is a hypothetical example: Should foreign equities drop 20% and the US dollar strengthen 10% the loss to US investors would be 30%. Should Foreign investors buy US equities and face a loss of 20% and a 10% rise in the dollar, they would see a 10% loss. US investors of course would see the full 20% loss. Japan looks attractive in nominal terms but strengthening of the dollar compared to the Yen could negate some if not all of that. Equities in general, with the possible exception of Japan do not look attractive.

Miscellaneous Issues

The order in which the above themes play out could be important. If a muni crisis hits the US before a sovereign crisis in the Eurozone and a slowdown in China, the dollar may not initially perform as expected. Similarly, if the US strengthens more than expected in the first quarter while Europe and China stagnate, another leg down in treasuries may be in store with the US dollar quickly blasting higher.

I have no firm conviction for gold, silver, or US treasuries other than gold is likely to hold its own and then some should the ECB decide to print its way out of this mess.

US treasuries are now in no-man's-land dependent on the order of things and the reactions of foreign central banks as the crisis plays out. Seasonally, treasuries are generally weak until June (think tax purposes). However, there are so many factors now, including Fed purchases, it is hard to estimate.

2010 was a lull in the global economic crisis. Don't expect 2011 to be the same. Something, indeed many things, are likely to matter in 2011.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

agreed, if your looking outside of KL and KV!

Happy New Year to all! For my Chinese friends just another month to go!

Quite simply there will be a decade of global restructuring. Countries will pull back and re-group and meet back at the table driven by the EAST in 2020.

The challenge at the lowest level as this poster quite clearly describes is that while RE prices rose due to relaxed lending through flexible high ratio mortgages matched with low interest rates the top has been in for some time in Malaysia.

The problem now is affordability and as RE rose, salaries did not! Further to this, you will find higher prices coming your way in areas such as food, water, electricity and fuel.

This my friends is the brutal reality of a false ecomony. All the cards have been played. This is not only a Malaysian thing but a global thing.

There will be finger pointing over the next 2-3 years and volatility not welcomed by the average investor.

As I've described before regarding RE, seriously unaffordable is where KL and selected KV properties sit today. This matched with one of the highest debt to income ratio's in the world are two major ingredients for disaster!

RE at this level is strictly emotional and when turned negative will tank. Interesting enough, I do believe that Malaysia will not fall quickly but at moderate pace will drop 30-40% in the high end, 25% avg in KL and those selected KV hyped props. Best guess is 10% nationally.

Liquidity is KING!

PS - Listings up big time, sales - - - I dont see any!

This post has been edited by Onemorething: Jan 3 2011, 10:26 AM

I would enjoy your optimism while you can - dont worry being young gives you extra time to recover from life lessons!

Define market crash? Some claim 50% over 8 consecutive quarters, others say 30% overnight.

Malaysia is quite simply in unchartered and unprecidented territory my friend. For the Malaysian Centric investor the years have been easy gains, talk to your buddies in HK and SING about 97.98 and views on KL and KV right now. You might take away some valuable advice however I can say with conviction that the paper gains you've seen recently are only that.

I've been a global RE investor and the song remains the same when the fundamentals are all negatively lined up. It becomes not a question of "if" but "when" and how each individual governement can monitize and manipulate the situation.

The ONLY thing going for property right now is the limited market options outside of RE for the average investor in Malaysia specific and the long term view that RE is the only option for the risk adverse. This current situation is new to Asia as it develops and old news for the western world which knows the cycles and why alternative investements form.

What you are clearly seeing is a developing country making the same mistakes known to the developed one's play out the same way. It may be the first time but not the last.

All you need to know is that locally the affordability ranks amoung the highest in the world such as AUS, CAN and CHINA where debt ratio's are reaching 150% income and the writting is on the wall. These three countries will be next but China is the one that will be the overall catalyst for us in KL and KV.

THE GREAT GLOBAL RESET has been underway for 2 years now. Expect it to last another 3years and muddle through for 5 more. Real RE investors win by not being greedy and take profits on the way to the top and buy just somewhere nicely for location long before the bottom.

I leave you with this - There's a first time for everything, and for everything a price!

two other things that are certain, increased cost of living through taxation both hidden and visible and the gap between rich and poor!

Consumers are being consumed by debt!!!!

Look to the West (USA) to keep printing money to hold off deflation and state/fed bankruptcy. No hyperinflation for now just moderate inflation for perception even though the US is in a deflationary spiral!

In Malaysia, the RE correction WILL take place and the future will only force the avg person to work harder for the same amount of pay to afford everyday staples such as food, petrol, ultilities! Look for changes in goverment taxation on properties, cap gains and VAT potentially to cover deficits!

It's the way the game goes!

---

Added on January 7, 2011, 1:33 pmagreed but what percentage of the masses own clear title properties. All new money may have 50% of Malaysia on title but you might be lucky to see 2-3% who actually own property outright!

Strength in RM drives up values in both Property and Stock and these gains can be swept away by simple currency correction from 3.07 - 3.70 to USD.

This post has been edited by Onemorething: Jan 7 2011, 01:33 PM

The gifted few have local knowledge, the masses need clear direction and this is what this blog is for brother. FACT - Malaysia Debt to Income Ratio almost worst in the world at 145%. KL ranks as high as Sydney or Vancouver at unaffordable RE close to 10x income.

AUS and CAN ready to blow based on these fundementals but if you want the catalyst for our correction look to CHINA!

It's true, Malaysia has had a great run, it's about to change for the 1st time in it's developing history! It's less about you and I who may have been in proprerty for decades however the average first time or new buyer needs some realistic perspective today!

Can any long term RE investor in Malaysia actually say they are suffering from the 145% debt to income ratio OR 10x income to purchase a home, not likely!

Step back and consider those who are entering into a peaking debt ridden market today!

This post has been edited by Onemorething: Jan 7 2011, 09:13 PM

All the more reason NOT TO BUY! Inflation and rising rates means lower price (historical globally and indisputable). Look at Australia right now listing in December as follows:

"released data this week showing 22.6 per cent more stock for sale in Sydney last month than in the previous December. Other cities had far more property for sale that month – Brisbane had almost 60 per cent more than the previous year, Darwin 57 per cent, and Perth 55 per cent"

Brisbane and Queensland already popping! This is all due to those looking to inflation and the last interest rate hike. I also see the emotion face of RE going from a smile to confusion.

The game you are refering to only plays out for a short while so that developers grab the last uneducated so-called investors. Just look at Bangsar/Dsara Heights etc right as new listings are up by a huge percentage. NONE SOLD. Look at this pattern and who the sellers are. The cash rich are looking to unload all at the same time and know the top is in. Actually been in for 6 months so those out already are safe!

While a property cannot go to ZERO, your ownership can be taken away through foreclosure at anytime the bank wants to cut losses or puts the squeeze on even high ratio (buy servicing clients) so they can get paid to keep share holders. The game is old, the game is the same!

Stay Tuned!

---

Added on January 10, 2011, 8:23 amAgreed but what we have is a bubble anyhow and it's going to pop in those areas who have seen unrealistic increases. Markets like ours always lag by 18-24 months and the more stimulus thrown just prolongs the inevitable.

A RM180K house in IPOH which hasnt increased in 5 years will stay the same!

A RM7M bungalow in Dsara Heights will shave a min. 30% easy.

3 years correction starting yesterday!

RE long term always strong but this time the west is in for a decade of downturn and a recovery twice as long. There is nothing the global economy can offer us by way of new innovations, new trends, maybe biotech will try to make a comeback.

Best time to buy will be in 2012-2015 in Malaysia as the East finally takes hold IMHO.

This post has been edited by Onemorething: Jan 10 2011, 08:23 AM

May I quote from a book written by Carmen M. Reinhart & Kenneth S. Rogoff.

The books title is THIS TIME IS DIFFERENT. Eight Centuries of Financial Folly.

I will quote just one paragraph. THIS TIME IS DIFFERENT SYNDROME. The essence of this-time-is-different syndrome is different is simple. It is rooted in firmly held belief that financial crisis are things that happen to other people in other countries at other times; crises do not happen to us, here and now. We are doing things better , we are smarter, we have learned from from past mistakes. The old rules of valuation no longer apply. The current BOOM, unlike the many BOOMS that preceded catastrophic collapses in the past (even in our country) ,is built on sound fundamentals , structural reforms, technological innovation, and good policy. Or so the story goes.

There you have it. 8 centuries of the same old crap. Read the book and see what you think. Sounds like the same old FOOLS PARADISE.

Remember, globally it's been low rates and relaxed lending policy from government to banks and banks to you that has driven property prices. Smart investors know this and bought into it via leverage however again when the government shows any sign of reversing the opportunity OR issuing press to warn people it is usually when it is too late.

Interest rate hikes is only one sign. What about the USA which keeps rates as low as possible but cannot contain the RE fallout which by end of 2011 should show additional 15% drop national avg. With rates this low, all you need is a simple 0.25% increase and its multiplier is massive. At least with a BLR in Malaysia being mid market, at 0.25% hike is managable ----- for the short term!!

Tread lightly my friends, 2011 is surely a game changer!

This post has been edited by Onemorething: Jan 12 2011, 09:45 AM

Quite simply the demographic you speak of are being forced to purchase outside KL and key areas in KV and have for sometime. The only way this class has been able to afford RE to date is low interest and flexible loans during the past 3 years.

These are typical developing country trends in which we are in a stage where these areas have bubbled. Expect a correction plain and simple over the next few years in which the government tries to bring back some equilibrium as to not upset the 2020 vision.

This would happen with or without the current global financial uncertainty however with the global unbalances and souvereign debt still not settled and a papered over stimulus via QE still pushing forward the correction can get real ugly.

Governments all around the world in developed nations have imposed forms of RPGT and other forms to control RE from loosing control however it is the developers/banks/investors and/or regional elite who are able to persuade these officials from making it "official".

Sorry folks, it wont be this that forces the correction, this will be saved for down the road for the "what went wrong phase".

High End area listings are absolutely through the roof! My Iproperty searches are showing 4-5x listing increases and nothing has been selling since Sept 2010.

This along with affordability indicators show the top was in last May-Aug!

Tread Lightly!

This post has been edited by Onemorething: Jan 13 2011, 11:27 AM

Guessing he's read my books!

Note in my previous posting on housing affordability where we find KL props and some selected KV props to be at 8.5x income where national avg. is much less as reflected in this article.

Debt to Household Income at 145% for Malaysians also is a major threat in any correction.

Increases in Listing of 400% with little to no transactions should be a major indicator.

It is what it is, to ignore it only means one thing!

Agreed, name one civilized economy where the generational loan was even introduced let alone worked!

Our Government is so focussed on the 2020 goal they are forgetting about the cost to the average resident. It will only end badly!

The appetite for RE on this blog has now become unprecidented like the global debt and the bubble, unaffordability and debt for Malaysians.

Dont worry, 2011 will be known as the lull before the storm.

Until then, let the games continue!

Gold is like RE “perception is more powerful than fundamentals.”