Why an Australian Fund Manager Decided to Sell Everything

Spooked by a “housing calamity,” banks, overvalued stocks, and China.

Philip Parker, chairman and chief investment officer of Sydney-based Altair Asset Management, and “proud to have beaten the relevant benchmarks since inception,” decided it’s time to throw in the towel. With 30 years in the industry, he has seen a few cycles, and the “overvalued and dangerous time in this cycle” has spooked him. In light of “the impending crash” that will “assist investors to take stock of the excessive valuations,” he decided to sell everything.

His firm will hand the money back to investors. This includes returning an advisory contract for “over $2 billion for one of Australia’s largest financial planning companies.”

There are “just too many risks at present,” he wrote in The Australian. “I cannot justify charging our clients fees when there are so many early warning lead indicators of clear and present danger in property and equity markets now.” Among the “more obvious reasons to exit the riskier asset markets of shares and property” are:

  • The “Australian property market bubble” that reminds him of the “housing calamity” of the early 1990s
  • “China property and debt issues later this year”
  • “The overvalued Australian equity markets”
  • “Oversized geopolitical risks”
  • And the “unpredictable US political environment.”

He’s not just talking about “sell everything,” as other fund managers have done.

Famously, at the end of July last year, Jeffrey Gundlach, CEO of DoubleLine Capital, told Reuters in an interview that stock investors have entered a “world of uber complacency.” As economic growth looks weak and corporate earnings stagnate, “the stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.” In referring to a word painting by artist Christopher Wool, that says “Sell the house, sell the car, sell the kids,” he mused: “That’s exactly how I feel – sell everything. Nothing here looks good.”

Gundlach didn’t “sell everything.” But Parker’s Altair Asset Management is in the process of actually doing it. And it wasn’t an easy decision:

“Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests.”

His clients were advised of the decision on May 15. Investors in the firm’s managed funds would get the cash proceeds from the asset sales. Investors in managed discretionary accounts (MDA) would get a choice: either transfer the shares to other fund management firms or have Altair sell the shares and return the cash to investors – and this is what happened next:

“Interestingly, 95 percent of our MDA clients took the latter decision to cash up,” Parker wrote. It seems clients weren’t interested in toughing out an “impending crash” or a “housing calamity” and what that might do to the banks.

Parker goes on:

Lack of upside in our models of course leaves an active manager little alternatives but to hand back cash at such an overvalued and dangerous time in this cycle. From a bottom-up perspective Altair’s analysts’ valuations were indicating sells above their target levels or were at best were severely overstretched even after we upgraded our targets several times this year and late last year.

Members of the Altair investment team, including Parker, “have been warning of the overvalued property and financial markets for at least six months.” The firm’s monthly Altair Insights has been warning about an impending housing market downturn since mid-2016. He writes that the sign posts out there – the “specific identifiers that are extremely recognizable” – are reminiscent of the “late eighties and early nineties housing calamity” in Australia.

Parker is among a number of other Australian fund managers to get spooked. Roger Montgomery, chief investment officer of Montgomery Investment Management warned in December of a potential “property implosion” and its impact on jobs and the overall Australian economy, which has become so dependent on the housing bubble [ “A Warning for Property Investors in Australia”].

So why not just ride out that coming crash and calamity and collect the fees at every step along the way, which is the classic approach other fund managers are following? Well, turns out, Parker has developed a novel concept, that “preserving client’s assets is what all fund managers should always put before their own interests.”

He is going to let the markets and the property sector do their thing, and without any client money at risk, he’s going to watch the spectacle, and as he says, “if my thesis is correct and value indeed reappears as it always does after major corrections,” and when he thinks “there to be real value again,” he might re-enter the markets in some way.

So this would be another case of waiting for the next crash and to then plow back into the markets to benefit from the surge following that crash. The “smart money” is preparing for this opportunity. For example, hedge fund manager Paul Singer just raised $5 billion in 24 hours for this event, as “all hell will break loose,” after which he wants “to take advantage of it.” But all this money piling up with the plan to deploy it during the next crash will impact the market itself. Read… Why I think Stocks Won’t Crash Spectacularly but May Zigzag Lower in Agonizing Ups-and-Downs, Possibly for Decades

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  66 comments for “Why an Australian Fund Manager Decided to Sell Everything

  1. Frederick says:

    God bless this man for putting the interests of his clients above his own This is the kind of people we need more of in the financial industry And less Corzinesque creatures of the deep dark swamplands of NY and DC

    • cdr says:

      In other words “all organic upside has left the building. All gains to come can be viewed as artificial and a function of targeted money printing.”

      I have no issue with money managers who hire themselves out to help those who lack financial orientation. More and more of them appearing to be throwing in the towel until the environment changes. Gives me hope for the day when I age to the point I want someone else to look after my affairs.

      To the other extreme, Draghi stated last weekend that the Eurozone has decent inflation but will still need massive monetary accommodation basically until the end of time. How is that not code for ECB QE being synonymous with public finance fraud and the Eurozone will end if ECB QE ends? Maybe Trump told Merkel that he thought ECB financial theory was funny stuff? Is that why she got all huffy … him telling her that they weren’t fooling anyone and he wouldn’t let the Eurozone debt monetization as a matter of sovereign policy drag The US down with it? We can only hope.

  2. Ross says:

    Having the courage of one’s convictions is wonderful to see. Like Phil and John Hussman, our own data tells us that when things go down, they will really go down. The majority of the ‘leading stocks’ today have downside risk in the neighbourhood of 70% plus. Worse, a look at their valuation history shows that this will not be the first time that they have suffered drops of that magnitude. As always, the big question is ‘when’, as clients want to be in right until the very end, and THEN get out. If only!

  3. Flying Monkey says:

    Cash can’t pile up on the sidelines. The cash he got by selling everything came from someone who had cash to buy his securities. It just changes hands.

    Someone always owns it.

    It is always there until the Central banks take it back an retire it.

    • Kent says:

      Agreed. But I think “on the sidelines” is a metaphor for cash being in smart hands and securities being in dumb hands.

      • Jon says:

        There always has been/will be money on the ‘sidelines’ waiting for the crash to happen.. Nothing new here.
        But the crash does not happen overnight… it takes months for the crash to happen..

        • cdr says:

          Money is always on the sidelines. If I buy your shares, the cash went from my sidelines to your sidelines. After you invest in, the cash will be on someone else’s sidelines until the invest it.

          What’s being measured are the number of investors and the velocity of cash. No velocity = no transactions = no change in indices. Also called “animal spirits”.

          Fewer investors = fewer transactions unless compensated for by an increase in the velocity of trades (HFT)

          A big part of the markets today are institutional investors with massive amounts of OPM that has to go somewhere. These are the people being gamed. You and I don’t count as individuals.

          Crashes are a function of missing liquidity. No liquidity = no trades = prices falling until buyers with cash are motivated. The last recession was a function of a lack of business working capital and may have been a massive financial fraud as an incentive for the birth of QE. A lack of working capital is a different form of liquidity, not related to stock pricing, but easily conflated to look that way.

    • economicminor says:

      All the market equity doesn’t represent cash.. There really isn’t enough CASH to equal the asset values. Not even a fraction. That is why people like Phil are very anxious about the markets.

      You guys are right that when I sell and you buy, the *cash* goes from you to me. But when the values are exorbitant , extremely over valued, the risk is that when the sentiment changes and there really isn’t very much actual cash available and the credit markets lock up, then the first ones out get the cash and everyone else gets the screw.. or the edge of the knife.

      So you can chance that there will actually be a buyer for what you want to sell down the road, or you can sell and put the money in the banks and wait until there is much less risk and more to gain…

      The only risk in selling now is that the markets may just stay irrational even longer and go even higher. You might be one lucky fisher and hook that really big one and get it to shore but most people will end up waiting until there are no losers left to pawn off the extremely over priced stock or real estate to. Then you lose because paying 10x the actual real value for something just because it is going up isn’t investing. It gambling!

      Now maybe you have nothing and what you are gambling with is all borrowed and you feel you have nothing then to lose.. You might be right but if you actually earned the money, a prudent person would be very anxious right now with all the risks we have at extreme highs, weird weather, crazy politicians/dictators and CBs.

      • nick kelly says:

        This idea that a loss in a share price is matched by someone’s gain is a misunderstanding.
        In extreme cases a share price can ‘gap’ down 30 percent or more with NO buyers, no transactions and no increase in value to anyone to match the loss by the stock holders.

        The 29 crash didn’t herald the Depression because there was a transfer of wealth from one class to another for no net change, in fact almost all stock market participants were much poorer after that one week in October. (This crash didn’t take months)

        The exception was the shorts, but investigations into the crash (there were many) failed to find big short pools.

        One of the biggest longs was Richard Whitney, Vice- Chairman of the NY Exchange, who went bust trying to support the stock of his distillery. He is just one of the thousands of that era’s one percenters who were wiped out, contrary to the belief that this class always escapes.

        • nick kelly says:

          Total value of US stocks is up to about 22 trillion.
          Total money supply M1, cash plus deposits is about 2 trillion.

          In the event of a 1987 type crash of over 20 %, (when total debt was almost nothing compared to today and the Fed had all kinds of ammo) it will take a lot of sidelines cash to support the market.
          Five billion would be a drop in a bucket.

  4. Dan Romig says:

    I too share Gundlach’s and Parker’s sentiment, and have been sitting on nearly one half cash in my portfolio since March 2016. It’s been a bit frustrating as the markets continue to march higher and higher while I’m standing with one foot on the field and one on the sideline, but if the rug gets pulled out, I won’t tip over.

  5. Martin stewart says:

    A very wise man the wall steet wolves are not going to get this guy’s hard earned cash

  6. Willy2 says:

    – Rents in Brisbane (Queensland, Australia) just have started to fall (a bit). NOT a good sign. Bad omen.

      • Lee says:

        “The rental vacancy rate within five kilometres of Brisbane’s CBD has reached a record 4.4 per cent, driven by a glut of apartments.

        It is pushing rents down, some slashed by an estimated 10 to 15 per cent.

        Up to 60 new apartment blocks were built in inner Brisbane in 2015, but the wave is waning this year, which means the downward pressure on rents is estimated to ease within two years.”

        The vacancy rate here in Melbourne for houses is around 1.2%. Units is around 1.5%.

        The average rate for the USA in 2015 was 5.85% so I guess using that stat that the USA is in a whole heap of trouble compared to Brisbane…………….

        • Willy2 says:

          – And there’s more to come. That slowdown means that in the (near) future building companies will see turnover decline. Leading to more lay-offs with all the follow up consequences for the QLD economy.
          – Vacancy rates in Melbourne may be low but does that take into account that (a lot of) places are empty/not rented out by real estate “investors”/speculators ?

          See these 2 videos (about a year old):

          Melbourne has added some 13.000 apartments in 2014 and 2015. And is forcasted to add in 2017 & 2018 (2016 ??) some 22.000 apartments in both years.

          Just have a little patience and

  7. Willy2 says:

    – One advice for Mr. Parker: Go long US Treasuries. Because my expectation is that the AUD/USD will fall A LOT.

    • TJ Martin says:

      US treasuries ? Seriously ? Try more like Swiss Franc’s if the man wants to bail out of Australia completely . Why ? I mean come on … take one look at DC today … and then … If I still need to explain .. you’ll never understand

      • Frederick says:

        TJ Martin I concur US treasuries are NOT where I want to be

      • Willy2 says:

        – Agree. Washigton DC is “a mess” (Trump’s own words) but this is a play on a falling AUD/USD. And I still think Treasuries have some (!!!) upside potential.
        – Or go “long” japanese JGBs. It’s a play on the expected fall of the AUD/JPY.

        (@W. Richter: when I look (today) at the CURRENT 3 month T-bill rate then I don’t expect the FED to hike in june)

        • Kent says:

          Your’s is the right call Willy2. In the event of a crisis, US Treasuries are the world’s safe haven. They will go up.

        • Willy2 says:

          – @Kent: Somewhere in the (near ??) future US rates will rise (sharply ??). Especially those for the 30 year and the 10 year T-bond. But not tomorrow.
          – The USD is the world’s reserve currency and that’s why foreigners are FORCED to buy T-bonds. But when the US Current Account turns into a Surplus then foreigners will be FORCED to sell T-bonds. What do you mean “Safe Haven” ?

        • Kent says:

          Safe haven in the sense that T-bills will never go to $0. The Euro can go to $0 if countries start exiting. The Yuan can go to $0 if the Communist Party collapses. But the U.S. will be there and the government will always meet its obligations.

        • d says:

          “But the U.S. will be there and the government will always meet its obligations.”

          US federal reserve system is different.

          Even if the US Govt defaults the FED and the US$ can still be stable. As they are separate entity’s. that’s why the chinese people who understand this LOVE the FED.

  8. d says:

    “Interestingly, 95 percent of our MDA clients took the latter decision to cash up,”

    Apt from his sense of responsibility. The above is very interesting.

  9. Maximus Minimus says:

    This would make more sense if the data about Australian (official) inflation, and interest rates was included. Cash on the sidelines is loosing value, so every decision is a bet to loose a little, or a lot. Thanks central bandits.

    • intosh says:

      The way I see it is that crash loses value only if you spend it. But if, say, that cash on the sidelines is later used to buy assets after a crash, then there is no loss of value.

  10. nick kelly says:

    Given the incredible levels of debt, government, corporate and personal. a crash will challenge the Great Crash in severity.
    In that crash, persons who bought ‘bargains’ in the 1930 rally were then wiped out. Then the people who bought them out for 10 cents on the dollar were also wiped out. And so on until the banks began to collapse.

    A big downturn in this situation can’t be a dip, what will Tesla do if it can’t sell stock- sell assets?

    It will be interesting to see what the ‘Fed can stop any downturn in stocks’ or the so- called PPT believers make of this Oz guy.

    Of course, once upon a time there was a kind of PPT, except it wasn’t a secret cabal- it was Fed policy begun under Greenspan to cut the Fed rates at the merest hint of a recession. (Remember the Y2K scare?)

    Then came Bernanke and his rate cuts and bond purchases. These actions were known as the Greenspan and Bernanke ‘puts’, or protection against downturns. But having lowered rates to near zero, and put 4 trillion on its own balance sheet, the Fed is telling us the ‘put’ is off.

    As ‘helicopter’ Ben has made clear- in an emergency the Fed can indeed create liquidity, even if cash had to be dropped from helicopters.
    Although he was obviously joking about the delivery system- I’ve commented, and it seems to have echoed here and there, that the government could e-deposit say a 1000 dollars in every personal account- one deposit per person.

    No doubt the Fed and the rest of govt can do all kinds of things in an emergency, but protecting stock prices won’t be a priority. What happens right now in the normal course when a company can’t continue? Common stock is wiped out, leaving preferred and bonds to fight over scraps.

    In the kind of crash this Australian 30 year vet of successful investing fears, the Fed will have bigger worries than stock prices. The banking system number one, including protecting deposits. Next maybe state and municipal bonds, widely held by pension funds.
    A bond is a promise to pay, stocks are not promises.

    The crash beginning in 1929 is known as the Great Depression.
    Up until WWII, WWI was wasn’t called WWI, it was called the Great War.

    • Frederick says:

      Understood It could get ugly and fast

    • Keith says:

      I agree with the idea of a repeat of the great crash. Those that come in at a perceived low will get wiped out time and again. Cash will be king as assets get destroyed. It will not be the Fed that drops money, it will be the Government as they are they only ones that can create true runaway inflation.

    • Maximus Minimus says:

      Pure stock market bubble might have a different dynamic from a stock, bond, housing bubble. Housing is less liquid to start with, and as the crash unwinds and unemployment kicks in, more and more housing would come on the market due to bankruptcies. A slow moving train.

      • economicminor says:

        “A slow moving train.”

        Or picture this. Liquidity not only dries up but virtually vanishes. Then even housing, which would have NO bids either, crashes just as fast as stocks. A person may owe a million$ on a house or worse only owe a few thousand on a milliion$ house but when there is no liquidity what difference would it make? The only possible buyer would be a cash buyer and how many of those would you find for million$ homes?

        FRE and FNM would blow up. Massive unemployment virtually within a few months.

        I just don’t think most people realize how fragile our economic system is much less the distribution systems which relies on lots of foreign trade.

        I am hoping that we will have the slow fade Wolf wrote about earlier (also Lacy Hunt) but with the current politics adding to world tensions. A lot of racism and a little group think with a total herd mentality, I could easily imagine a run away train off a cliff.

  11. Lotz says:

    Watch him first get eaten alive by inflation and then trying to “call” the bubble timing too soon. Everything in the money changers/printers time.

    The shock when this year proves to defy the odds and the addicts borrow even more !

  12. Kent says:

    “Philip Parker, chairman and chief investment officer of Sydney-based Altair Asset Management,”

    I hate the “Chief Investment Officer” moniker. Risking your capital to start and build a business, hire employees, and make sales is “investing”. Picking stocks is “speculating”.

    Should be Chief Speculating Officer.

    • nick kelly says:

      OK, and this chief speculating officer has decided to stop speculating.

    • Bouden says:

      Typically an asset manager is not day-trading – which is speculation. Taking a position in a corporation that spans several years, if not a long-term cornerstone, is investment. I think CIO is an honest term.

  13. bandini says:

    I’m a little confused by the statement, seems more likely he’s just interested in retiring.

    IF you’re a Funds Manager, its your job to manage risk and seek the best return. So what if the entire world looks like one big Ponzi scheme, do you throw in the towel never to return? I’m sure all of these people have no idea what to do with the cash other than find someone else or sit on it. He could have just said, I can hold your money with low/no return, until I see something in the future changes. This still upholds your reputation if that’s what he’s really concerned about.

    • Wolf Richter says:

      I don’t think you want to charge fees on investments that are so conservative that their returns don’t even pay for the fees. Investors can do that better and cheaper on their own.

  14. Lee says:

    “late eighties and early nineties housing calamity” in Australia.

    Totally different market and totally different circumstances.

    Tired of being a parrot, but the housing market will fall when, as I have stated before:

    1. Immigration and population growth in Australia slows or

    2. The government or the banks undertake action to undermine the market.

    I haven’t seen any data on item number one, but as I have posted before the state and the Federal government have moved to increase costs to foreign purchases of RE in terms of taxes and fees and other restrictions.

    You’ll see the direct impact of those actions over the next six months to a year as sales fall and projects are put on hold thus decreasing supply to that portion of the market.

    Building data yesterday showed a YoY decrease of 17% in construction with a monthly increase of 4.4% (better than the 3% guessestimate). However, almost all of the increase was in multi-family dwellings with single family houses lagging.

    With the new government restrictions and costs that will hit future construction and restrict supply in the multi-dwelling market. With single family housing that won’t be the case. Any growth the government expected from the switch from the so called mining boom isn’t going to be coming from the construction industry in this area.

    They have shot themselves in the foot. Remember state governments in Oz get a huge amount of revenues from RE transactions taxes.

    The banks have increased rates on interest only loans again this past week again. Anything to pad the bottom line. The ‘excuse’ this time is ‘regulatory’ environment………..

    A well known financial information service provider recently published research that since the GFC banks here have increased the spread on variable rate mortgages from 1.8% to 3.8% over the RBA discount rate. (Been ranting about that for a long time as well.)

    That means for every $100,000 in a mortgage the spread is bringing the banks an extra $2,000 a year. An average mortgage of A$300,000 will hand the banks A$6,000 a year or $500 a month.

    That is A$500 a month that can not be spent on other items in the economy.

    Ever wonder why retail sales are slowing and bank shares have been some of the best performers in the share market since the GFC?

    So to sum up:

    1. The government and banks have turned the corner on actions toward the housing market and it will affect the huge multi-dwelling market aimed at foreigners.

    2. Demand for single family dwellings is still hot and will react to changes in demand from immigration and in turn population growth.

    (By the way there are only three houses for sale in my neighbourhood area:

    1. One came on the market last week and is listed as a possible townhouse development on 1/2 acre. No price given in the ad, but I guess that it will go for around $A1.75 to $A2.5 million depending on the type of buyer. On a main road.

    2. Two other houses one of which has a 1/2 acre lot as well, but I doubt that they could develop that one. Price is A$950,000. That house is quite a bit further out from the village than the above one. Its been on the market about three weeks.

    3. Another one just listed under A$985,000 – not sure how long that one has been on the market. Small lot and not suitable for development. IIRC around 500 square meters of land.

    Further away there are more properties on the market and quite a few of them are in the $A1 million to $A3 million price range with them selling in a short period of time. Last ‘big sale’ was around $2.45 million last week.

    So nothing has changed in my area; properties are still selling, time on the market is short, and prices are still going up.

    • d says:

      “That means for every $100,000 in a mortgage the spread is bringing the banks an extra $2,000 a year. An average mortgage of A$300,000 will hand the banks A$6,000 a year or $500 a month.”

      State Levey’s the banks.

      Banks will Levey the customers ..

      The States plea/demand that banks absorb the Levey from their bottom line, will not happen and the State knows this.

      Its just political posturing to make the banks the bad guy in a State tax grab.

      The only way to make the banks absorb, it is to make it progressive on bank pre EBITA profits.

      The higher their GP % the higher the tax quickly going to 100%.

      Australians also have this Tax the rich tax the banks mentality, that does not work long term.

      Just because somebody earns more, or has more, does not mean the state has the wright to tax that person at a higher rate that other earners.

      • Lee says:

        The banks are screaming bloody murder about the 6 basis point levy.

        Maybe they should remember all times they:

        1. Increased rates more when the RBA increased rates;

        2. Increased rates out of cycle;

        3. Increased rates when the RBA left rates unchanged;

        4. Decreased rates by less than when the RBA cut rates.

        These previous actions resulted in the spread increasing by 200 basis points. A huge difference between the 6 basis points the government is taking.

        The head of ASIC said that people don’t like banks and that is one reason why.

        The problem with Oz is that there are too many oligopolies and not enough competition. That may be a structural problem given the size of out market, but for the consumer it doesn’t make any difference.

        I can hardly wait until Amazon shows up and starts to belt some of the big retailers that are behind the push for the 10% GST to be put on all imports.

        Too bad that we can not get some real competition in the banking sector though.

        One more article out today:


        “Skidding car sales

        Sales of big-ticket items such as cars are also suffering as prices rise faster than pay cheques. Passenger vehicle sales fell 7.8 per cent in April from a year ago.”

        And again remember that our population is increasing by over 2% a year of which over half is from immigration.

        Should immigration fall then car sales are going to get hit even harder than RE.

        • d says:

          “That may be a structural problem given the size of out market, ”

          Its an attitude problem in your population to much of it is still inherently republican irish or other militants ,that view the rich as “owing them”. leading to a serious entitlement mentality.

          “Should immigration fall then car sales are going to get hit even harder than RE.”

          As they are almost all imported now, that’s not really an issue.

          As for bashing bank’s banks will maintain a profit margin and when times improve they WILL recover lost profit AS THEY CAN.

          If the state is unhappy with this, its up to the state to apply tax policies that discourage it.

          Not tax policy’s, that the banks can, and so will, pass the cost of on to the consumer.

          The State is blaming the banks for passing on the cost of tax (which the State full well knew the banks would) and you along with to many other Australians as lapping that BS up.

          If you dont like the bank’s, dont borrow their money, or give yours to them. Remember any money you put in a bank ceases to be your property.

    • Lee says:

      Article in The Age at 1:32PM AST about fall in construction going to result in fall in employment……………..

      Gee, now who would have thought that would have if the government and banks start pounding on the sector!!!!


      • Lee says:

        “As they are almost all imported now, that’s not really an issue.”

        The issue with car sales in Australia is the same as in the USA:

        1. The government here gets lots of revenue from the sales of cars: registration, GST, stamp duty, import taxes, and luxury tax(probably something you don’t have in the USA). The luxury tax is a huge cost on such cars as BMW’s, Mercs, and Porsches which many of the new, rich immigrants drive.

        2. Employment – car sales and repair/servicing employ a large number of people. More loss of jobs should the buyers disappear.

        By the way, there was an official of VicRoads on the radio yesterday morning that stated we had around around 100,000 new cars a year on roads in Victoria every year.

        The roads here can not handle that number.

        • d says:

          When we built cars in Australia it was a lot bigger issue, and had a much greater economic effect then, than now.

          The 100 k number is not unrealistic you have not closely considered how many leave the state and leave the road permanently every year. Australia is a used car exporter, in realistic volumes.

          The Authority’s in Australia, will condemn vehicles at the slightest excuse , to force the new sales volume. They do it multiple times everyday.

          When a worker can be dismissed instantly, for not putting one hand on each hand rail, when descending a flight of stairs (If two handrails are provided). Due to OHSA regulations, that country has a massive over-licencing and Over-regulation problem.

          That country, is Australia.

  15. chris Hauser says:

    5 billion? paul singer is a little four eyed twerp punk. there, i said it.

    sell up? after 30 years of hard work, and buy a boat, go sailing. about right, says i.

  16. John Doyle says:

    Lee, you missed other compounding factors that can spook a market. Yes to points 1) and 2) but there’s a point 3) which is confidence. Mr Parker is not confident now. It will be interesting to see if he starts a run. Sometimes it doesn’t take much for it to happen. We know eventually it will happen, we can’t say yet which will be the trigger, resources, the debt overhang etc.

    You do touch on one important issue, the lack of spending power in the community due to the financial economy’s draining of people’s ability to spend, which is the lifeblood of the real economy. In Sydney we read of complaints that creative people are moving out as the cost of rents and expenses is too high. Other world cities are also in this boat.

    Plenty of citizens here are doing well. Restaurants generally are struggling, but not those with wealthy clients. These people are mostly baby boomers who own their houses outright and have spare cash to travel etc. About 30% of citizens have to care about financial survival every day. The young cannot buy a house without a lift from their parents. Wealthy overseas buyers are choosing Sydney to live, one of several destination cities around the world, so that keeps the pumps primed.

    So, is Mr Parker premature in his actions? We’ll know soon enough.

  17. Willy2 says:

    – What about this: A LOT OF australian owners of a mortgage are already struggling and can’t afford when rates go (a little) higher. Just imagine when both rates and say council rates rise at the same time.


    • Lee says:

      I for one don’t believe that story or stat one bit. IMO ‘fake financial news’. If people are that short of money then they are short of money for everything else as well and that would mean 1/3 of country is in dire circumstances.

      If that many people can’t afford a $100 a month increase in their mortgage payment then how in the world do they cope when the price of petrol here jumps by 20 cents a litre in one day?

      Electricity prices have surged over the past year and NG prices have also gone up. How can they afford those increases?

      Pay rates haven’t increased by much as all either over the past year.

      By the way, increases in rates are now capped in Victoria.

      • Kaz Augustin says:

        Well yeah, Lee. It doesn’t even have to be a rise in interest/council rates. A friend in MEL has three mortgages between himself and his wife: one the family home, the rest their “portfolio”, bought to rent. He tells me he has AUD1.5million+ in mortgages, borrowed on 90+% loan amounts. (Actually I know another guy in MEL who borrowed 120% loan value because he couldn’t even afford the stamp duty, but I digress.)

        It won’t need a rate rise to do my friend in. All it will take is a few bad renting months. There’s negative gearing for the tax return, sure, but the mortgage payments to the bank are something else.

        (* I advised my friend to get the HELL off the RE carousel, downsize, and spend time with his small children and wife (both white-collar professionals), instead of the both of them chasing every high-paying job they can, but I fear my advice fell on stony ground.)

  18. Chris says:

    Here in the states overall our property bubble is less severe than our counterparts in Australia and Canada. With the exception of areas like California and some other coastal areas.

    If you are right and it is a slow zig zag decline how do you forsee it impacting the housing markets here in the states?

  19. R Davis says:

    Wolf Richter, you write the best articles & this one is no exception.
    Thank you man.

  20. Lee says:

    “NSW will double its foreign investors stamp duty surcharge to 8 per cent as part of a series of tax changes designed to make housing more affordable for Australian residents, according to the AFR.

    The annual land tax surcharge on foreign home owners will also increase to 2 per cent from the existing 0.75 per cent.

    The NSW government is also poised to widen access to its first-home buyers bonus, offering it to buyers of existing stock rather than just new homes.

    NSW Premier Gladys Berejiklian is expected to announce more details after a cabinet meeting today, the AFR reports. NSW hands down its budget on June 20.

    Berejiklian made improving housing affordability one of her top priorities when she came to office in January and appointed former Reserve Bank governor Glenn Stevens as an adviser on the package which cabinet is now considering.”

    Might as well bite the hand that feeds you – hit the foreign buyers of RE harder.

    Might as well reduce jobs, income, and investment at the same time.

    Oh, and don’t forget to throw more of other taxpayers’ money at the “First Home-buyers” – that special group of people that need help to buy a house.

    No wonder taxes are so high here in Oz.

    Another nail in the coffin of house prices.

    • d says:

      “Might as well bite the hand that feeds you – hit the foreign buyers of RE harder.”

      Foreign speculators are the people making it impossible for ordinary young Australians to ever buy a home in any of the major city’s.

      They are not an advantage to Australian they are in fact it’s enemy.

      Australia and New zealand need the same laws for land ownership as the Philippines. Not born there, With a least 1 Philippine parent, cant own more than 40%, of any piece of land.

      In the whole of Asia. The Philippines, is the only place, that has not had an, Agricultural, Residential Property or Industrial land bubble. EVER.

      Australian and NZ would need to make an exception for citicens who were not born there, due to their immigration numbers.

      When piratically ever street in every major city has at least 1 vacant dwelling owned by a foreign speculator there is a problem. When those city’s also have housing shortages and housing bubbles, there is a HUGE FOREIGN SPECULATOR PROBLEM.

      The state has to make these bubbles hiss down, otherwise they WILL BLOW up.

      The State is acting, which means it is actually way past time for them to do so.

      Yes some Australians are going to loose Job’s

      You seem to prefer the, explosion, implosion, and may more Australians loosing job’s option.

      • Kaz Augustin says:

        Not quite right, d. Land ownership laws in Thailand are similar, but that didn’t stop them crashing along with the rest of the Asian Tigers. I’m not saying your broad point isn’t correct, but if a country also happens to be in the sights of some influential state raider, something like land ownership isn’t going to stop them killing a country’s economy. Foreign speculators aren’t just an RE issue.

        (Yay, I’m off moderation!! Thanks Wolf!)

        • d says:

          At least the Thai, land implosion, was mostly, Thai speculators.

          Australai and New Zealand is predominantly chinese offshore buyers. They are making impossible for the ordinary native people to own or keep homes in the major centers.

          The answer of the chinese speculators, if you cant afford to live here, move away.

          They stole our jobs, and our industries, now they are taking our homes.

        • Kaz Augustin says:

          Excellent point. Which begs the question: why are you blaming the Chinese when it’s your government’s fault?

        • d says:

          It’s not the Govts fault, it’s the WTO, World bank, and IMF’S fault, they demanded NZ and Australia, open their markets to foreign investment. And allow the unrestricted GLOBALISED moment of capital.

          They also demanded NZ relax what were the restrictive property lending laws. and regulations. The last of these still apply to some Agricultural land, Same in Australia.

          Before the WTO, IMF,and World bank stepped in and dictated policy. In NZ you could not get a first (Bank) mortgage for more than 70 % of the state valuation (Which was always below retail) of an existing house.

          This OPEN YOUR LAND MARKETS, OPEN ALL YOUR MARKETS, dictation from the WTO, IMF, and World Bank backed by the US, has been a disaster, for Australia and NZ. Regulations are creeping Back in both country’s to curtail this slowly, they will become stronger. In time.

          This does not resolve the speculation related problems now.

          Its taken over 40 years for the Foreign speculators to cause the problems it will take as long to unravel.

          Why blame the Government when the government was forced to bow to the evil Globalistion policy’s directed by the WTO, IMF, World bank, And THE US.

          I say evil as 40 plus years on we see clearly china and America gained and NZ lost. A LOT, and NZ lost much more than those nations gained. For NZ citicens on the street, this market liberalization free trade agenda, has been a HORRENDOUS disaster.

          Wages on average have increased 300%, house and car prices have incensed 2000% in the same time frame.

          In 1970 nobody was sleeping in the street, they would arrest you and get you a room or a house. Now family’s are living in vans on the street, in every major city. Every shopping center has people sleeping in shop doorways.

          Than you china and America.

          NZ in particular, has been used as a experiment in globalization and market liberalization, by the forenamed entities. Some very bad things have happened in that country, due to that. It is still an OECD nation Just, It used to be a top OECD nation.

        • Kaz Augustin says:

          I do apologise for being flip in my last answer, d, but there’s method in my madness. You see, I’m (Eur)Asian and, quite frankly, I’m sick of being blamed for all ills. If you recall, Bernake also tried to blame “Asian investors” early on in the piece for the 2008 MBS debacle, so I’m rather sensitive to being the reason for everything that sabotages a Western economy.

          For the past couple of centuries, Asia was where Western “entrepreneurs” went to “leverage” local conditions, regardless of the effect on the people living there, so now that the shoe is on the other foot, I’ll admit feeling less charitable than I should be under the circumstances. I readily admit to that failing; it’s a character flaw I’m working on. (Personally, I think the Chinese are insane for investing in ANZ real estate…I wouldn’t…but, hey, their yuan!)

          Having established my less-than-charitable intentions then, I do have to ask my question again. The Philippines was able to stand up to the WTO, World Bank and IMF. So was Thailand. So was Malaysia. Oh, and not to forget Singapore where you can fuhgeddaboudit if you even *attempt* to buy landed property as a foreigner. If we go further afield, I’d warrant that a lot of other countries haven’t succumbed to the very real pressures you have described. My question then becomes: how could some pissant little country like the Philippines (or Malaysia for that matter, where I currently live) do what “top” OECD countries couldn’t?

          In my readings, I also note that Oz has NOT opened up all its land markets. It’s my belief (and please correct me if I’m wrong) that foreign buyers are restricted to buying only brand-new houses in estates planned by developers. Second-hand homes and sole newly built houses outside developer estates are ineligible for purchase by non-resident investors. If buyers are circumventing the rules (and I’m sure they are), they are doing so with the collusion of *Australian* realtors and financial advisors, so it’s hardly an issue of this being ALL due to the Chinese and WTO/World Bank/IMF. I further note that, from what my Kiwi friends tell me, the majority of high-roller RE buyers in NZ are USian and not Chinese.

          My studied indifference can also be explained by recollection of the Great Japanese Horror of the 80s where the headlines screamed that the Japanese were buying up Australia and soon (white) Australians wouldn’t have any homes to live in! Oh, the humanity! But Oz managed to get over that, as well as the 70s magazine spreads that showed how “Asians” were going to “invade Australia” and turn it into a brown ghetto. Do you remember those articles (with maps!)? I do. But somehow everything returned to equilibrium and the Good Ship Oz managed to continue its way on an even keel.

          What I’m trying to say is, if it happened before, then what was stopping the government from preventing it from happening again? The terrible power of the Dark Side (WTO, World Bank and IMF), you say. And that’s fine, but if other countries can maintain some small semblance of sovereignty, then why can’t ANZ? A dearth of political courage on their part doesn’t automatically mean the next most obvious target is to blame, no matter how juicy a particular ethnic group may appear. And no, I’m not Chinese.

        • d says:

          “I further note that, from what my Kiwi friends tell me, the majority of high-roller RE buyers in NZ are USian and not Chinese.”

          As A Realestate professional I have to disagree with that most strongly.

          Most American buyers are taking resort or larger rural lifestyle properties, this does not cause an urban issue.

          The Philapines has had much trouble getting international funding as it would not bow to the land, banking, and company ownership, requirements. And being Honest Filipino politicians as a whole do not like the levels of transparency demanded by these entity’s, so consider themselves first. Just like Thailand.

          The good ship OZ has fumbled on since the Japanese over investment bonfires of The 80’s but now has a growing housing affordability issue. Due to foreign (Mostly chinese) speculators driving the market.

          housing affordability issue are hard to alleviate without much investment of State funds.

          In Oz they are now taking more regulatory action against foreign speculative ownership as you may be aware.

          NZ which has the larger problem is very much behind in this.

          As most NZ poloticians have been riding the property wave themselves.

          Helen Clark the Hypocrite being a prime example which is why there is no Capital gains tax and no stamp duty. Still

          Some small short term ownership taxes have been brought in but in general the market is still way to hot.

          In NZ the housing affordability issues in the major centers where there is work are much worse than OZ.

          The difference between the haves and have nots is increasing at an alarming rate. Due to the influences of chinese foreign land speculators.

          The fact that some of them may loose their ill gotten gains is not the Issue NZ property has not seriously corrected since the 1970’s at the lower end of the scale which means this level of restricted housing affordability.

          Is going to be a big problem for along time as it is not possible to buy a $1,000,000.00 house and feed a family on $50K pa. In Auckland that’s where your averages are.

          Thank you china and America.

        • Kaz Augustin says:

          If you’re an RE pro, then I’ll take your word for it, d. That comment was just based on convos with my (white) Kiwi friends. Pure anecdote.

        • d says:

          The US buyer and the Mainland chinese, buyer hit completely different sectors.

          https://en.wikipedia.org/wiki/Peter_Thiel brought in Queens Town, and brought Permanent residence at the same time that’s, a completely different sector from Auckland family housing.

          NZ cant go super high-rise due to earthquakes unless they move into the eyewateringly expensive Japanese high-rise building styles.

          I dont Pick on the Mainland chinese because it easy I simply state these buyers are making a problem.

          NZ did not have the Japanese issues Australia and the US did.

          Japanese Investors like highrises.

  21. Flying Monkey says:

    May this reason when poor profitability companies are the hit today.

    Any cash flow is much more valuable under zero or negative interest rate as they are are not being discounted. Assume you have a 5% discount rate an a cash flow of $1000 per year for 10 years. This cash flow is worth NPV of $7,721.

    When the interest rate is zero the NPV is $10,000.

    Whether it throws off cash flow in 5 years or 20 years is irrelevant when the interest rate is zero.

    When the interest rate is negative the cash flows, increase the current value.

  22. Lee says:

    And another result of taxes on foreigners:

    “New apartment sales in Brisbane have collapsed by more than 70 per cent in a year, according to analysts Urbis’ latest market report.

    The rapid contraction in the apartment market saw just 302 sales in the March quarter down 37 per cent on the previous quarter and well down from the 1032 sales in the previous corresponding period last year.

    The results reflect a range of problems including tighter and more expensive financing for both buyers and developers and taxes on foreign buyers. There are also suggestions of oversupply.

    Urbis associate director of property economics and research Paul Riga said that fewer sales were expected with the first quarter of the year traditionally lagging.

    “This quarter we saw some survey results which the market didn’t anticipate, in addition to others we knew were coming,” Riga said.

    He said that although sales had dropped away there had also been a reduction in supply.”

    Source: The Age

  23. R Davis says:

    Sell up –
    Leaving your reputation intact –
    Allowing you the capacity to borrow & purchase as a clean skin –
    Wait for the crash –
    Then buy up at rock bottom prices at the inevitable Fire Sale –
    Laughing all the way –

    Will the sale of assets fetch enough monies to afford a cash refund to ALL the fund investors – ? – the average Joe in the street as well – ? – or to just the select few – ? – AND a small profit margin for the fund itself .

    With compulsory superannuation which is forced upon the average Joe in the street – will the government of the day ALLOW a cash refund – or DEMAND that the monies be shifted to another Fund Manager – to be lost when the crash HITS THE MARKET – ? .

    What usually happens is the crash hits & everyone declared bankruptcy – then they reconstitute in the name of the Mrs. & The Little Woman buys up all the assets owned by it’s previous owner – Her Husband – for the price of a song.
    Leaving the Banking Sector HIGH & DRY – to be bailed out by the PUBLIC PURSE.
    It begs the question – is the public purse empty & therefore this new approach – to sell up – ?.

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