September 2013 – Points to Ponder

What is happening in our economy … How are financial markets doing … And a story on “Think and Plan before buying your Home”

Dear Readers,

Thanks to all of you for accepting our invitation, for accessing our blog, and for your participation and feedback. Your positive feedback inspires me to explore new ideas and topics. We look forward to more of your active participation.

You have read our understanding of the meaning of “Money” and a brief history of its evolution over time – August 2012 Blog – “What is Money” – http://tinyurl.com/lshbsjs
You have read our thoughts on how the concept of money has been distorted and manipulated, over time, and the unsatisfactory “Paper Based Fiat Money” we currently have (Various Blogs – Nov 2012 to April 2013)
You have read our discussion on the most important asset we are likely to buy in our lifetime – “Our Home” – And some thoughts on how to go about decision making – July 2012 Blog – “Is it the right time to buy property?” – http://tinyurl.com/n9x3yqq
You have noted our thoughts on the subtle difference between “Price and Value” of any asset, especially your family home – November 2012 Blog – “What is the Value of My Property?” – http://tinyurl.com/lxu33n8
You are now familiar with the young couple Shaun & Sarah, who share and benefit from our stories and thoughts – December 2012 Blog – http://tinyurl.com/ljl4lke
You have read our thoughts on ‘what to look for’ when buying a property – August 2013 Blog – “True costs of owning your home” – http://tinyurl.com/l7v6ckn

This month’s blog is a response to conversations I am having with clients who are getting impatient while searching for property. But first ….

The Big Picture

Global Overview: We outlined a major concern re; creation, printing and oversupply of ‘Fiat Money’ into global financial markets; we explained how this is affecting us directly – Global impact, National consequences, and damage to your hip pocket – July 2013 Blog – http://tinyurl.com/m3z736t

We do not see any substantive positive change from the July 2013 outlook.
Even a hint, from the US central bank (the FED), of just thinking of reducing the monthly 85 Billion US Dollars (how many zero’s in a billion, anyone?) being “created out of thin air” and dumped into financial markets (to prop up collapsing bond markets), let alone stopping it, was enough to send panic spasms all over the world.
Asian and sub-continent currencies (national paper money prices compared to USD) dropped 10-30%.
Our (Australian) Dollar has fluctuated around 6-8%.
Putting it in a simpler way; it is near impossible to de-addict global financial markets from this “drug” called “Money created out of thin air”.

And one of the ways this has been possible is to keep “official” interest rates artificially low.
US short term lending rate (FED rate) is a mind boggling 0.25%.
Australian short term lending rate, currently 2.5%, is the lowest in decades.
You may be enjoying lower home loan rates for now (5-6%).
But this may have created gross distortion of the ‘risk and return’ balance.

Topic of the month: Think and Plan before buying your Home

Scenario: Let us say you have savings of $100,000; you want secure investment option with minimum risk. Few years ago you may have got a decent return with minimum or no risk to your capital, say 6-8%. Nowadays you get 3-5%; you are not happy; you are now forced to consider other investment options with higher risks.
If you think it is bad enough here consider what is happening to savers in the US. They are looking at 0.5% to 1.5% returns on ‘safe, minimum risk’ investments.

But how does all this relate to the property market?
Good question; have you heard of property market bubbles?
When a lot of people, from all over the world, are not happy with how things are going with their economy; with how their currency value is ‘dropping’; with their governments hounding them, trying to extract more from them, in the name of welfare of the people; with not getting good returns from safe, ‘low risk’ investments; with having to lower their lifestyles or start spending their hard earned savings; and having waited for 2-3 years, or more, to enter the property market.
A lot of people may start looking at ‘Bricks and Mortar’, property, as a safe, ‘risk free’ investment.
And the best option they see is residential property – Homes, units, villas, etc. as investments.
And they would like to ‘diversify’, keep some of their hard earned money from the clutches of their governments.
And you understand how ‘supply and demand’ works; lot more buyers bidding for limited supply of ‘products’.
And remember, many of them are doing it out of concern, or even panic; they may have big sums of money to spend, or ‘park’ safely; they may not consider ‘todays fair value’; they may want to ‘get it’ at any price, hoping its value will go up in the ‘future’.

And remember, there is no one single ‘property market’; there are national markets (different countries), States, Cities, Towns, Villages, Suburbs; each has its own complex dynamics; reasons for different prices for similar properties; even different streets in the same suburb have big variation in prices.
Read our June 2012 blog – http://tinyurl.com/n9x3yqq – for a detailed analysis on this subject.

Are you saying we are in a property bubble?
Yes, we are seeing some irrational behaviour, in some parts of residential property markets, in some suburbs of major cities and towns.

Are you saying current prices do not justify fair value?
‘Beauty is in the eye of beholder’; we have tried to explain, in detail, relationship between supply, demand, price, value, and buyer behaviour in Nov 2012 blog – http://tinyurl.com/lxu33n8

So what should we do? When is the right time? How do we decide?
Good questions; each of our individual circumstances are unique; there is no one ‘simple’ solution;

We have listed some points to keep in mind while buying property;
Property is a long-term investment, not a way to make a quick buck; there is high cost of entry (purchase costs), high cost of ownership (loan interest, fees, maintenance, utilities, government costs, etc.), and cost of disposal (selling agent charges, tax, moving and relocation, etc.)
Property is a ‘lumpy’ and ‘illiquid’ investment; you cannot buy or sell a window, door, garage or room.

First ask yourself; are we ready to enter this market; is our relationship, health, employment, income, etc. stable.
Then ask yourself; are we managing our income and spending wisely; are we saving; how much do we have in funds;
Then ask yourself; do we have a goal; do we have a plan to get there; how much money do we need to buy property; how do we go about it;
Then, find a professional Finance / Credit Adviser; make sure you are comfortable working with them; explain your current situation; discuss your plans and goals; ask a lot of questions; ask for possibilities and options; think carefully and decide an option that suits you, not the lender, bank or broker.
Then, and only then, ask your Credit Adviser to help you get finance approval.
Then, ask your Credit Adviser to assist you; with information; tools; analysis; scenarios; so that you can make informed choices on where to buy, what to buy, how much to pay, how much to borrow, etc.
Then, ask your Credit Adviser to assist you; with information; tools; to help you setup your finance/loans in the best way; to help you manage it efficiently.

Bottom Line: There is no such thing as “finding a bargain”; or, “timing the market”;
You buy property only when you are ready and capable; you stick to your plan and budget; you choose wisely; you look after your property and hold on to it long-term; and you manage debt wisely.

I will leave the forum open to you now.
What are your thoughts on all of this?
What is your experience?
Come, join the discussion, and share your ideas and experiences.
I look forward to your opinion, counter argument, response, constructive criticism, feedback, etc.

Looking forward to hearing from you

Hari

 

August 2013 – Technology and Your Money

Dear Readers,

A brief article on the evolution of technology, money and its effects on us.

Our regular monthly article “Points to Ponder” will follow shortly. Happy reading.

New wonderful technologies and the battle to take your money off you, new and easy ways of spending it, and the future of money itself ….

I was intrigued by Edward Ho’s (thanks Ed) link to an article discussing “Amex wants your phone to be your wallet”. I made a brief comment on LinkedIn on 15/08 (http://tinyurl.com/mb9sdot)  

A few more thoughts came to my mind;

The ‘wave’ and ‘pass’ of your plastic (our Credit & Debit Cards) is now passé

There is now talk of ‘plastic’ itself becoming extinct.

‘Biometrics’ is the new buzzword

Will Iphone5 have fingerprint readers?

Are other phone makers far behind this path, if not ahead?

Your watch, ring, any other ‘accessory’ will do, why just your phone?

We are talking about MONEY here, our ‘Hard Earned’, ‘After Tax’ leftover bits we call ‘Net Income or Salary’.

As we have said in earlier articles (August 2012 Blog – “What is Money”), thousands of years ago there was barter system of exchange (I have surplus cows, you have surplus grain, let us exchange). Over time, barter evolved into a more efficient system where gold & silver become the standard of exchange – The Currency.

Economies evolved from communities, to villages, to towns, to cities, to kingdoms ……Time and distance complicated trade and commerce and eventually political power started to dominate economic power. Rulers, Kings, Emperors and eventually Governments monopolised the creation, administration, supply and control of Money.

This is money by ‘Fiat’, and it soon evolved into ‘Paper Money’ – Currency denominated mostly in paper notes, which we call paper money.

Money, and its sibling, Credit then transferred into electronic ‘Bits & Bytes’, parking itself in ‘ether’ (thin Air) – It can now have no physical form (not even paper) – And unimaginable amounts, Trillions, (how many zeroes in a trillion, anyone?) moves around the globe every hour of every day …..

Money is now ‘Bits & Bytes’, electronic information, embedded into pieces of plastic cards (our Credit & Debit Cards), which are used, and money transacted, by being authenticated (verified) in various forms – Signature, PIN, Wave, Pass, etc.

This is our money, our means of exchange to buy and trade – to essentially survive and prosper – transforming itself from a physical form (first Commodities, then Gold & Silver, then Paper) to electronic ‘blips’ in ether……

We have some contrarian thoughts to share with you;

Many of us are already drowning in debt (spend first, pay later).

The temptation to ‘Have, Possess, Buy, Own’ stuff (things, toys – call it what you want) is inescapable, right in your face, everywhere we go.

The means of exchange (pay money, get goods or services) is becoming almost unconscious.

What damage can this do to our ‘Cash Flows’ and ‘Balance Sheets’?

What about Security, Misuse, Privacy, Fraud, mistaken identity, Disputes, etc.?

Looking at the Macro picture, what effect can these developments have on our ‘already creaking and jaded’ national and global banking systems?

What about long term viability, integrity, feasibility of our current concept of ‘Fiat’ money?

And the ‘monopoly & control’ of money by our governments?

Are we seeing new forms of ‘Money’ emerging?

Will they emerge from ‘We the People’, ‘Private Enterprise’ and the ‘Free Market’?

Will they be allowed to compete with current ‘Fiat’ money systems in place?

A lot of ideas to think about. Let me throw the field open to you. What are your thoughts on all of this?

What is your experience?

Come, join the discussion, and share your ideas & experiences …….

I look forward to your opinion, counter argument, response, constructive criticism, feedback, etc.

Hari