Cooking a frog....

Been away for a bit but nothing has changed.

Looks like we have a decent chance of the stock market correcting finally. Suspect the key question to ask is what is your view on 2010 ? Maybe it is a buying opportunity if you believe 2010 is going to be fine. If you think otherwise, the current downturn may just be a prelude to another gut wrenching ride. It is important to have a firm view these days because valuation no longer affords much protection.

In the local real estate scene, nothing has changed either. We went to see 7 houses today. They were packed. Maybe everyone is trying to find their dream home before Christmas.

I have finally worked out what is so tricky about the local property market. If you look at enough houses within a short time, you start to frame the valuation of each house relative to a recent comparable sales. You will then lose track of the fact that valuation is an absolute concept. It is like cooking a frog really.

Good luck to all.....

Houston.....We have a problem.....

You have to be living under a rock not to see the property market heating up. Haha guess I have been very wrong so far. Two stories to recount.

First, the whole family went to see an auction today in Cremorne. Price guidance/expectation was $1.65M+. Open bid was $1.8. It was eventually sold for $1.98M. 5 active bidders slugged it out. The house is quite old and probably need some work and is located on a main road. However, if you build a second floor, you can probably see the CBD from the second floor. Land is big for the area (over 700 sqm). The house next door was for sale last year and only "got" a vendor bid of $1.8M.

Second, a friend went to an auction in Chatswood last week. A few months ago, a similar house on the street was sold for $1.2M. The house last week was in far better condition. Open bid was $1.2M. Second bid was $1.4M. Third bid was $1.6M. Needless to say, it was over quickly.

It would not surprise me if prices are now higher than the peak in some cases. Thinking back what went "wrong"....Suspect the key supporting factor behind the LNS property market has been the lack of supply. Other factors have also contributed to the "happy" market. The first home buyer grant has allowed lots of property owners to trade up. The rapid recovery for the local investment banks does not hurt. Low interest rate definitely improves affordability for most folks. The list goes on and on and on....

What is our plan ? Looks like it is time for Plan B. We have given up on the LNS property dream. Supply so far is not picking up there. We are now looking further north. Sad to report but it is not getting any easier. Same story...Crowds everywhere. The good news is supply is picking up in the area but prices are comparable (if not higher) than even LNS if the houses are close to station and on the East side.

My strategy is simple. We have a set budget. We are only prepared to pay that price. If we like a place, we would just offer what we think the house is worth (subject to that upper limit) and see if it sticks. So far, no luck. I figure this is a compromise of sort. If successful, I suspect while we would be over paying relative to other alternative investment opportunities out there, at least we protect ourself from future financial distress. If not successful, suspect my next blog title would be "Houston....We have a BIG problem.....".

Turning to the stock market, tricky times. Looks like consensus is the world is on the mend. Just look at the strength of the AUD. Stocks have rallied globally. Seemingly, a lot of folks are so far refusing to believe and have not adjusted their asset allocation accordingly. While it is hard to believe, the proverbial "money on the sideline" may still apply. My scenario and my time horizon are very short term now. Maybe there will be a short term correction and then if all stars are aligned stocks may melt up towards the end of the year. I really don't have a clue what 2010 will look like.

In the meantime, if you are a distressed buyer like us, keep your fingers crossed and pray for more houses to come on the market. We really don't want to have to shift our property aspiration to include the Central Coast area....

Radioactive zone

Due to a various things, could not find the time to blog in the past 2 weeks. Strangely, the world suddenly has acquired this healthy glow. Stock markets could not drop for even a day. And the Sydney property market is getting into full swing as Spring approaches.

Officially, I hate to say it but we are rolling over to a limited degree. We are looking to buy a property seriously now. The decision was sparked by a lunch with an ex-colleague. He told me the Sydney property market had all the reasons to tank but it held together. While the world is still not well at its core, the next downturn may take some time to brew. And Number 2 is growing every day......We do need to buy our house at some point.

We actually submitted bids on 2 properties in the past 1-2 months. Needless to say, we missed out on both properties. A bit sorry to miss out on the first one but the other buyers were just willing to pay more. The property ended up going for 15% more than our bid. So fair game. We threw in the towel to participate in the great property game but at least we did not throw caution to the wind.

The second property was a more interesting story. For those who have been looking at the LNS, it is somewhat odd that there is this part of Greenwich that seemingly is very cheap. A reasonable house in that part of Greenwich (4-5 bedrooms + decent land) can be bought in the low to mid 1 range. The catch is it is quite close to a broadcast tower along the Pacific Highway. We put in a bid and thought maybe the broadcast tower is not such a big deal. Luckily, a friend told me to search on the web to see what I could dig up. After I saw a study specific about that issue in that area, we decided to pull our bid. I am not a scientist but, with our two little kids, we just did not want to risk it. Just before we called the agent, the agent called us and told us that the vendor was not prepared to sell at our price so we had a relatively graceful exit.

Talking about the agent......I just have to vent. The agent for that Greenwich house was a total jacka@@. Arrogant to boot. He is an out of area agent. One of the big agencies. We all know the tune..."Thank you Mr %$#@er". Instead, I would say something else less thankful to Mr %$#@er if I ever see him again. By the way, he operates in the Northbridge area. When my Better Half told him that we were not prepared to raise our price. He asked was it because we just could not afford to in a condescending manner.... I know how hard we have to work to save what meagre sum we have. Admittedly, he saw our bomb of a car when we went and saw the property the first time. He was just plain RUDE. Seriously, what real economic function does a real estate agent serve ? For God's sake, the vendors even pay for their marketing campaigns. I guess this is how a capitalist society works. The "Haves" get to laugh at the "Have-Nots".

Guess my strategy going forward is to put in bids for properties that we like. I figure, with our budget, for a property that ticks all the boxes, we are not really over-paying by that much. We will see.

Place your bet

The US market was just about bullet proof on Friday. Microsoft came up short and the stock tanked. Amazon tanked 8%. Broadcom dropped 7%. The market ended up flattish. In the meantime, both the transport and the Dow index are now above their recent highs. The so called Dow Theory is now bullish....Time to turn bullish ? Maybe but be agile.....

The property market ? It is winter. Not a lot of new listings. Prices are holding up. What is there to tell ? The only good news is some houses (seemingly asking too much in my opinion) remain unsold.

Watching paint dry

What is there to say about the Sydney property market ? It is certainly good to have my Saturday back. Not a lot of choices. Prices remain high. We have gone from focusing on the LNS market. And now we are even widening our search to the Upper North Shore. Prices in Lindfield and Roseville are certainly not especially affordable either. The way things are going we will be looking at Newcastle next :) Just plain boring. I figure it will be more exciting watching the Masterchef grand final today. I love the show. It is a different kind of reality show where the hosts come across as genuinely trying to help/teach the contestants, instead of creating a snake pit. By the way, hate to say it but I suspect property prices may not come down in a hurry either. The other day I saw this article about how investment banks in Australia are really doing well this year. They have benefited from all the placements earlier in the year. 2009 is shaping up to be a very good year relative to 2007-2008. No wonder the more expensive houses are starting to move.

Turning to the stock market, same story....The US market has gone back from the edge of the abyss and is looking to challenge the recent high. The so called "head and shoulder" topping action has been averted. We will see how sustainable is it. Volume on the decline and the recent surge has been quite dismal. Suspect we are still in the middle of no where despite more confidence about the global economy pulling out of this mess relatively soon. Now there is this emerging idea that we are looking at a "square root" recovery. What will happen next year is NOW the BIG question ?

How does one cope in this environment ? One common mistake people make is they think they have to act all the time. Sometimes it makes a lot of sense to just stand on the sideline and observe. My philosophy with investing is one can make very good investments during crisis. It is almost guaranteed that something will go amiss over the next 4-6 years. The period in between is more about maintenance and protecting capital. Maybe now is such a time....

An interesting trade

I am just about bored by the property market in Sydney. Not a lot of stocks out there. And owners are still expecting good prices for their properties. Just so boring.....

One suspects the stock market is far more interesting right now. The big bet is will the world recover next year ? Basically, I suspect no one has a clue.

One interesting trade idea is to go long volatility in USA. The VIX index has come down from the high. Think it was 60-70 at its peak and has since declined to around 25-30. For a long time before the current mess, volatility was hovering around 20 for quite some time.

I suspect going long the VIX index is not such a silly idea. Or maybe think about ETF like VXX. If you tell me the world is the same as 5 years ago, I suspect you are not going to be TOO right in the future. The world is on the cusp of a lot of changes (inflation or deflation, the start of the secular demise of USA/USD, is the miracle of China/Australia a mirage etc etc...). I don't know anyone who will get all these changes right. But what I know is a lot of people are going to be wrong at some point on one of these big upcoming changes. A little protection is not such a bad idea.

Serendipity

I haven't blogged for a few weeks now. A few things happened. Who says life is not full of surprises. My old PC blew up and I have spent the past few weeks trying to buy a new PC. I bought a Dell and it was supposed to be delivered around 12 days ago. It did not arrive. I spent the past week trying to sort out the mess. It was one VERY frustrating process. Spent hours on the phone with Dell's delivery agent (Schenker). It was a truly awful experience to say the least. Finally, Dell got onto my case after I sent several emails to the customer service representative who sold me the PC. While I am feeling a bit better, it is a lesson in brand/marketing. A lot of good will/brand can be blown up by the little things. The lesson is, when there is a problem, it is far better to proactively manage the case. Even if it involves making a call and say we don't know where is the PC but we are looking into it. A little effort makes a huge difference.

I must say I am feeling quite fishy about the stock market these days. Be careful out there. If green shoots don't grow into something else, it is going to hurt. I find it amusing that everyone is now counting on China to crarry us through this mess. The little problem is, even if we assume China can run its own race, China only accounts for some 40-50% of certain commodity demand. I had lunch with some of my friends last week. One of them is a management consultant. One of them is a tax hotshot in a large firm. They told me that internally they are all planning for a slow 2H. Btw do you notice that everyone now expects the stock market to stay above its recent low ? We may have a bit of a dip and then resume the ascent. It feels a bit too neat for me. If we assume the market is always wrong, maybe there are two distinct outcomes that will totally surprise all folks. First, a raging bull market. Second, we tank below the recent low.

Can the property market do its own thing ? We made our FIRST ever offer 2 weeks ago. We came across this property totally unexpectedly. We went to lunch in this new restaurant. We haven't looked at this suburb before. It is a bit further from the City but manageable. Anyway, after spending years looking at the Lower North Shore area, everything else outside stacks up well (big land, big house etc etc...). When we heard the price guidance from the agent. We thought it seemed low so we put in an a bid. Subsequently, the agent found another interested party. It went to auction which we did not attend. A third party came in and won. We missed the final price a fair bit. So a "good" loss I guess. Still, it is quite interesting to me that only 3 parties were interested in that property. Everyone knows this is a tight market in terms of supply, what happens if we get more houses coming onto the market ? Despite all signs of life in the property market, I still suspect we are not out of the wood yet.