How to profit from the coming Aussie property crash (& banking crisis)?

Warning: Contains uncomfortable facts that you will not want to hear.
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First, will there ever be a property crash in Australia?
See the facts for yourself…

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Why are house prices in Australia rising far above inflation?

Is this a bubble?

Source: Steve Keen’s Debtwatch No. 33 April 2009: Lies, Damned Lies, and Housing Statistics http://www.debtdeflation.com/blogs/2009/04/06/steve-keens-debtwatch-no-33-april-2009-lies-damned-lies-and-housing-statistics/
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Since 2001, house prices are rising much faster than weekly average income

Source: Steve Keen’s Debtwatch No. 33 April 2009: Lies, Damned Lies, and Housing Statistics http://www.debtdeflation.com/blogs/2009/04/06/steve-keens-debtwatch-no-33-april-2009-lies-damned-lies-and-housing-statistics/
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Why are house prices in Australia surging much faster than inflation and wages over the past 10 years?

The reason is NOT housing shortage! Housing ‘shortage’ is a myth!

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Hometrack (www.hometrackaustralia.com), the Australian branch of the UK housing intelligence research group says,
…the widely quoted views of many property market commentators who believe that Australia’s current building levels are not enough to meet the future demand for housing, may be based on inaccurate data calculations. “Our analysis indicates Australia may already have an excess of housing. We estimate there are at least 10 million dwellings in Australia compared with ABS data showing occupied dwellings of 8.3 million. The extra one to two million dwellings consists of a mixture of housing awaiting sale or development, vacant dwellings, second homes, and abandoned homes,” he said. He went on to say that the ABS method for calculating the ratio of people per dwellings is based on ABS census data which in turn is based upon occupied dwellings. However, he said, Hometrack analysis which is based on postal address data indicates that Australia’s current level of housing relative to its population is in line with other Anglo economies. Following on from this, Darcy said that when looked at in the context of population growth, total residential building approvals have been running above demand. “This points to a build-up of excess stock of housing over the past six years, despite the gap between building approvals and demand narrowing over recent months,” he said.
Source: Press release at http://www.brokernews.com.au/news/breaking-news/hometrack-we-have-enough-houses/34665

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Respected economist Professor Ross Garnaut – yes, the same economist charged by this Federal Government to lead our response to Climate Change – described our current housing market in his recent book The Great Crash of 2008. In his book, Prof. Garnaut stridently argues against the typical hype surrounding our housing market. 1. He is unequivocal in his view that Australian house prices have been driven primarily by speculation; and 2. Garnaut is skeptical that there is any actual shortage of housing. By many measures, the housing bubble in Australia is much more extreme than it was in the US before it burst.

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Except for first quarter of 2009, Australia is building homes faster than population growth

Source: Steve Keen’s Debtwatch No. 33 April 2009: Lies, Damned Lies, and Housing Statistics http://www.debtdeflation.com/blogs/2009/04/06/steve-keens-debtwatch-no-33-april-2009-lies-damned-lies-and-housing-statistics/
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If the housing ‘shortage’ is an illusion, then there must be a lot of vacant homes not available for rent. Where are they?

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Map of vacant homes in Sydney from 2006 census data

Source: Sydney Morning Herald, “Empty homes now for all to see” http://www.smh.com.au/news/national/empty-homes-now-for-all-to-see/2008/05/26/1211653939197.html
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Largely vacant and overpriced apartment block in Parramatta, Sydney

Source: Bubblepedia http://bubblepedia.net.au/tiki-browse_image.php?imageId=71#
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There was a housing ‘shortage’ in 1. They had lots of UK too immigrants too! Yet, house prices crashed in the UK.
1Do

a Google search with "housing shortage" site:uk and see for yourself the housing ‘shortage’ situation in UK.
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There was a severe housing ‘shortage’ in crammed full Hong Kong1. Yet, Hong Kong property crashed in 1997.
1http://www.hku.hk/hkcer/articles/v42/wong.htm

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There was a housing shortage in California up till 2006 before the housing crash…
On February 2006, The Acord Online reported1,
“The Californian Building Industry Association (CBIA) continues to express alarm over what it calls an ongoing housing crisis in Southern California. Alan Nevin, the association’s chief economist, projected in a 2006 CBIA Housing Forecast that only 185,000 to 205,000 building permits will be granted this year, far short of the 240,000 new homes needed each year. Southern California has been experiencing a massive population boom in recent years and it’s believed that 6 million new residents will be living in the region by 2020. The population increase, coupled with the housing shortage, has the CBIA worried that it will be increasingly difficult for first-time homebuyers to find a moderately priced unit.”
1http://www.toacorn.com/news/2006-02-09/Front_page/005.html

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There was a housing shortage in Ireland too before the housing crash in 2008…
On February 2003, BBC reported1,
“A severe shortage of housing is predicted if the planners do not release more land, a leading Northern Ireland builder has warned.”

1http://news.bbc.co.uk/2/hi/uk_news/northern_ireland/2759581.stm

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RBA Governor, Glenn Stevens can’t understand how can there be a housing shortage in Australia! “How is it that in a country this big in area and this small in numbers of
people we can't manage to make the marginal price of a dwelling lower than it is? It seems to me quite high.”
November 6 2009 http://www.abc.net.au/am/content/2009/s2734826.htm

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So, who profit from high and rising property prices?
I wouldn’t go into that. You and I know who are the winners and losers. Think: tax, corruption, speculation, incompetence
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So, how can you profit from the inevitable property crash in Australia?

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Be prepared to short the banks! In particular, CBA and Westpac.
“For the investors in the nation's banks - particularly the Commonwealth
Bank and Westpac, which are the most exposed to the housing market - the prospect of a correction in prices is nerve-racking.”
Sydney Morning Herald, “Investors fear housing bubble will pop”, http://www.smh.com.au/business/investorsfear-housing-bubble-will-pop-20100310-pz8q.html

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Let’s compare the banks’ balance sheets

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'Rotten' UK and US Balance Sheets

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'Healthy' Commonwealth Bank Balance Sheet

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How safe is Australia’s banking system?
1. 50% of Australia’s mortgage market is held by CBA and Westpac, 25% are held by ANZ & NAB (see CoreData’s Australian Mortgage Report Q1 2010) 2. As at December 2009, 60% of CBA’s lending books are mortgages. 50% of Westpac’s lending books are mortgage.1 Both figures are set to continue to grow. 3. Look at CBA 2009 annual report—Leverage ratio is almost 20 times (total assets of $620.4 billion against $31.4 billion of equity). Of $620.4 billion of assets, $473.7 billion are loan assets. If around 6.6% of CBA’s loans go bad (any loans, not just mortgages), 100% of its shareholder equity will be wiped out!!2 4. Australia’s banks have $13 trillion of off-balance sheet liabilities, according to RBA’s figures!3
1http://www.theage.com.au/business/argus-pays-out-on-big-banks-20100324-qwvo.html 2http://cij.inspiriting.com/?p=1217 3http://www.rba.gov.au/statistics/tables/xls/b04hist.xls
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What if one of the Big 4 fails?
In 2008, The Australian reported1,
The Reserve Bank of Australia has a dark worry about our banks: they get 90 per cent of their cash from each other. If one bank gets into trouble, the Australian financial system could be snap-frozen overnight.

1http://www.theaustralian.com.au/business/fast-rise-of-round-robin-lenders/story-e6frg8zx-1111116954669

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Will the government bail out the banks Americanstyle when there’s a banking crisis because of property crash?
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Do you know how freaking expensive bailouts will be?
Australia’s budget deficit will soar! Foreigners who lend money to us will stop lending!
Fact 1: Australia’s net foreign debt is AU$648 billion on December 2009. Fact 2: Australia’s personal debt is AU$1.2 TRILLION

Consequence: Australian dollar will tank because unlike America, it is NOT A RESERVE CURRENCY!

Australia will have twin budget and current account deficits & banking crisis!
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What happens if the Australian dollar tanks?
Inflation will soar because Australia imports than it exports! Bank for International Settlements warns in the 79th Annual Report that “Particularly in smaller and more open economies [e.g. Australia], pressure on the currency could force central banks to follow a tighter policy than would be warranted by domestic economic conditions [e.g. falling house price].” That is, Australia will have rising interest rates, rising unemployment, rising inflation and falling house prices!
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Which means to protect yourself, you need to diversify your saving out of Australian dollars!

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Of course, the government will want you to believe that it will never ever happen. Maybe it won’t happen. But if it does (touch wood), most Australians will be stuffed big time.
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What can you do?
Don’t go into debt! Especially mortgage and credit card debts. Diversify your savings into foreign currencies (open a bank account overseas, for goodness sake) and physical gold and silver. If you are a cowboy, be prepared to short the banks.

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There will be too many vested interests who hates what you are reading now.
They will continue to saturate the media with propaganda (e.g. China will save Australia, property always double every 7 years, housing ‘shortage’) Even the government are either held hostage by them for fear of upsetting the applecart. Or perhaps the government (especially state governments) is complicit?

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Ask yourself: who benefits from rising house prices and rising debt levels?
Will you benefit? Will your children benefit? Will future generations of Australian benefit?

Soon, the property bubble will burst.
Will you rather benefit from it? Or would you rather be the victim?
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