[Cindy]

Interesting read. I wonder if this is the beginning of something worse to come very soon.


http://news.yahoo.com/s/ap/20070402/ap_on_bi_ge/new_century_bankruptcy_12

[stu70]

It is really building on the theme that started a few months ago. I do think there is more to come. I also believe US will need to tighten the monetary policy to curb the inflation and that will only mean an escalation in these types of things.

[Super_BQ]

Can anyone recall when the last major bank in New Zealand went bankrupt?

The majority of banks in NZ are Australian owned which in some way, is a good thing in keeping stability.

I also believe US will need to tighten the monetary policy to curb the inflation and that will only mean an escalation in these types of things.

I find it interesting to see here in NZ when the reserve bank raises interest rates, the real estate market treats it as a non-event and the banks continue to dish out the loans.

Was at an auction today and saw plenty of people bidding the price up - we didn't have a chance. On this particular lot, the current tennants paid $440,000 in 2003 to build. Today they got $790,000. With this kind of return, why would anyone in NZ want to invest in the sharemarket? The impression I get is that if you havn't invested in some dirt, then you're simply losing so much in inflation.

[Nathan]

Can anyone recall when the last major bank in New Zealand went bankrupt? ....majority of banks in NZ ... here in NZ when the reserve bank raises interest rates....

New Century Financial Corp. isn't a bank.... and wasn't before bankrupcy. The article isn't about banks or banking. It's about sub-prime lenders and people who made commitments they can't keep because they didn't understand what was going on. :cheers Cheers!

[MarkS]

On this particular lot, the current tennants paid $440,000 in 2003 to build. Today they got $790,000. With this kind of return, why would anyone in NZ want to invest in the sharemarket?

Take a look at Yahoo's data for the NZX 10 gross index (http://au.finance.yahoo.com/q?s=%5ENZ10G). On 4th April 2003, the index stood at 2203.67. On 4th April 2007, the index stood at 4243.99. So if you'd invested $440,000 into an NZX 10 tracker four years ago, you'd now have over $847,000. (That doesn't take dividends, taxes and charges into account, but they should have a overall positive effect in total anyway).

Unfortunately their data for the NZX 50 (http://au.finance.yahoo.com/q?s=%5ENZ50) only goes back to 30th April 2004, but you'd invested $440,000 in an NZX 50 tracker three years ago, you'd now have a shade over $700,000 - $90k less than your house example, but with only three years growth instead of four!

So, with this kind of return, why would anyone in NZ want to invest in the housing market? ;)

(ok, so there's lots of other things to consider, especially including the gearing effects of a mortgage, but I hope I've made the point that statements like the one above about the housing market are a bit lazy and not really backed up by the facts)

[speckythecky]

if only I had $400,000 to invest 3/4 years ago

[Super_BQ]

So, with this kind of return, why would anyone in NZ want to invest in the housing market?

We both know hindsight is 20/20. But what I don't understand is try convincing people in NZ that the sharemarket can provide them greater wealth than investing in dirt.

When ever the discussion of real estate comes up say over dinner , 10 out of 10 always talk about how good the real estate market is and whenever I mention about stocks/shares, all I keep hearing is the negative aspects of buying shares. Makes me feel like a black sheep. When I try to discuss the returns about specific companies and benefits of not having to chase after tenants for rent, they go into denial and put up a big front or how some CEO will fleece the company out.

In fact last week, my uncle's friend told me that share investments does not protect you from inflation. While real estate will always go inline with inflation. He's right in 1 aspect - when the stock returns are less than real estate returns. Or at the most extreme, inflation that kills you is if you bury cash in your back yard. But I probably wasn't sure which angle he was looking at as recently, it's not like current term bank deposits hasn't been paying less than the inflation rate.

My uncle always gave me the example that when you invest in real estate, you get the enjoyment of being able to drive past that lot and say you own it. While a paper statement is only just #s in an account. I suppose a piece of paper doesn't have the flare and gossip that holding property does.

But no one ever mentions the problems with property such as chasing after tenants, outgoing expenses (lawn care, re-carpet and drywall, re-painting, pets etc.). Though with commercial property investing, the tenant pays for all of the outgoings.

Just today my uncle said he doesn't have 20 or 30 years to wait for the returns in the stock market. But I think in his mind, he feels that investing in a commercial property will always have tenants that pay the going bank rate. Though in my mind, wouldn't converting the capital gains return on shares into annuities be even better from a tax point of view? (just sell your shares off each year bit by bit). You benefit from the tax free capital gain whereas rental income is always income taxed.

Perhaps they're more afraid of losing their principal investment. The other day they were looking at locking some cash in that Hanover Finance. I said you could risk losing some of your principal - just like how that Purdential Finance company recently went bankrupt. Why risk it in a debenture for that extra 2% ?

[Nathan]

Cindy, back to your thread....

There are other sub-prime lenders and they're pretty much backed by large Wall St investors who are no longer enamoured with this type of investment. ...and it would seem reasonable that many of the recipients of the loans will continue to default as interest rates eat any reserves they might have. ...so defaults will continue.
On the other hand, there are a lot of home loans made to people who can afford them and which are fixed rate laons. I read the percentage a few days ago but can't remember. The majority of loans are not of the sub-prime type, but there are a lot of sub-prime loans. I remember that I was concerned about the percentage that are, but I can't remember the number...double digits, anyway.

Dow Average doesn't seem to reflect any major reaction. (Probably should look at individual stocks rather than the average to see the effect.) Maybe the big investors have already done their reacting and it won't be a bigger deal. Maybe it will eventually cause a meltdown.

I just wish the exchange rate would get better.... for me!

[Cindy]

Nathan, I feel the same about your remark on exchange rate...wish I could turn back the clock and moved out of the States when I had the opportunity three years ago. I was a Real Estate Agent in Los Angeles, purchased a home for $246,000, sold it two years later for $480,000. Turned around and purchased a service based business in Boulder, CO. Things were going extremely well for us with steady increase in business for more than a year until now and I am starting to see a downturn or things flatting out. Some of my clients own hotels and are struggling as well. With much concern, I've been checking various economic forums and sites to see where things are headed...not so good.

http://news.yahoo.com/s/nm/20070404/bs_nm/usa_economy_dc;_ylt=AmLR7db2fK.07U0jOxD6tVLv5rEF

On the same page, you'll see this...

http://news.yahoo.com/s/afp/20070405/bs_afp/imfeconomyforecastus;_ylt=AsVUKPmtTxnI1TM8zRH_S4Tv 5rEF

I'm not sure what to believe anymore. All I'm sure of is what's directly happening to me as a small business owner and a middle-class consumer. Assessing my current situation, I'm starting to feel the need to cut my losses and jump ship.

The following might interest you.
http://www.youtube.com/watch?v=GE0ORpc5zFg

[Nathan]

I keep stumbling at the ballihoo over the DJI being at 12,500. It was at 11,700 in Jan, 2000. So We have a whopping 1% / yr gain!! Meanwhile, my US$s (isn't that cute how they keep getting smaller!!) were worth ca 1.20 Euro and are now ca 0.75 Euro.... And I'm supposed to feel good about this??!!