All about Investments!

[Paxter]

On 3/20/2023 at 10:48 PM, Jeor said:

Believe it or not, in Australia it's commonplace to have variable rate mortgages and most banks only offer to fix rates for 1-5 years. In terms of the efficacy of the Reserve Bank raising rates, it does mean that it flows through the economy much quicker. But the historic pace of these rate rises has caught a lot of Australians off guard. We fixed ours for 3 years at 2.09% but in August 2024 we'll roll off onto an adjustable rate and who knows what that will be.

Differences in the the flow-through effect for mortgage rates are interesting.

On the one hand, around 80% of mortgages in Aus are variable (compared to around 30% in Canada, 15% in the US). On the other hand, only around 30% of Australians have an owner-occ mortgage (everyone else either owns outright or is renting). In Canada and the US, this is more like 40%.

In addition, while countries like Germany and the US tend to have very long-term fixed rate mortgages, other countries like Canada or NZ have much shorter fixed periods (similar to Australia). 

Probably the worst case is Sweden, with 43% of households being mortgagors and around 70% of those being on variable rates. Tough one for the Riksbank. 

ETA: I was reflecting on the low-ish Australian number of 30%. As an anecdote, none of me/my siblings nor the two generations above have ever had a mortgage. We all rent or (in my parents' and grandparents' case) bought property outright. 

Edited March 22 by Paxter

[Jeor]

12 hours ago, Paxter said:

ETA: I was reflecting on the low-ish Australian number of 30%. As an anecdote, none of me/my siblings nor the two generations above have ever had a mortgage. We all rent or (in my parents' and grandparents' case) bought property outright. 

That's a much lower number than I would have thought. I think a lot of it is a function of the recent market. I got into the property market as an owner-occupier mortgage in 2009, which was probably the last realistic time that prices were at a "reasonable" level after the fallout from the GFC.

I bought a 2-bedroom apartment for $400K on a salary of about 70K and had saved like a demon for an initial 100K deposit incl 14K first homeowners grant back then (I lived with my parents throughout university and my first year of full-time work), so the mortgage was only a touch over 4x income. Albeit the interest rate back then was around 7% on my mortgage I think.

And back then, before I was dabbling in shares, it was pretty easy to put any extra salary into the mortgage as it was a risk-free "earning" of 7%. Plus I was single so disposable income was much higher (than having our family of five now on my income - wife, two kids and mother-in-law living with us).

Ever since the GFC, property affordability in Sydney has only headed in one direction. Even now with property prices stalling (or slightly falling), the fact that interest rates are higher actually crimps any affordability advantage because prospective homeowners' borrowing power is reduced.

I suspect it's the same in the major cities of most developed countries.

Edited March 23 by Jeor

[Jeor]

Markets seem to have calmed down over the past week and the banking situation has remained quiet. There are still a few challenges though and much will depend on central bankers' responses - we're entering that awkward period where no one quite knows when or if "the pause" will come, while bond markets are still pricing in cuts at the end of the year (which I personally think is unlikely unless there's a major financial crisis, and it would have to be a big one for the Fed et al. to cut while inflation is still high).

I've doubled my position in a major gold miner (Newcrest) in my portfolio now. The price may dip a little as people realise the banking situation is stabilised, but I think gold is positioned well in the next 12 months - whether it's a financial crisis (safe haven) or an interest rate pause, gold ought to benefit from both. And central banks have been buying a lot of gold lately, perhaps as a reserve buffer for a rainy day. With my gold producer (Newcrest) also having copper account for 30% of revenue it's also positioned for an economic recovery, so they have most bases covered.

[Paxter]

I’m still sticking with my hypothesis from January - bounce to start the year and then hopes of a soft landing dissipating. Market P/Es aren’t looking that attractive right now. Cash/bonds look good (especially if in a tax-free or concessional position).

Of course, the bulls will tell you (somewhat persuasively) to get invested now as we’re unlikely to have two down years in a row and a lot of puff has already come out of the market. *shrugs*

Edited April 2 by Paxter

[Jeor]

9 hours ago, Paxter said:

I’m still sticking with my hypothesis from January - bounce to start the year and then hopes of a soft landing dissipating. Market P/Es aren’t looking that attractive right now. Cash/bonds look good (especially if in a tax-free or concessional position).

Of course, the bulls will tell you (somewhat persuasively) to get invested now as we’re unlikely to have two down years in a row and a lot of puff has already come out of the market. *shrugs*

Yes, to be sure I still have a generally defensive position with 30% cash. My portfolio is now very slimmed down and concentrated, and geared towards the defensive - in addition to the cash, I have the large-cap gold miner, a telco, and then a Vanguard Global ETF, a Big Four bank and a large-cap iron ore miner (pretty much a given in the ASX).

[mcbigski]

On 3/20/2023 at 10:48 PM, Jeor said:

Believe it or not, in Australia it's commonplace to have variable rate mortgages and most banks only offer to fix rates for 1-5 years. In terms of the efficacy of the Reserve Bank raising rates, it does mean that it flows through the economy much quicker. But the historic pace of these rate rises has caught a lot of Australians off guard. We fixed ours for 3 years at 2.09% but in August 2024 we'll roll off onto an adjustable rate and who knows what that will be.

What sort of down payment do you need to bring to get a variable mortgage there?  30 plus years ago in the states, you typically put 20% of the value in a down payment and got a fixed rate mortgage for the rest.  And then they started with second mortgages for the next 15% or so at a higher rate and then 20 years ago they stop underwriting at all.  How did that not work out?

My point being, if you only get a mortgage having 20 to 30% down at the start, a variable rate mortgage is less of hazard than if you're financing nearly everything.  Presumably one is less likely to default if one is already 20% into the game, even if the rising rates means you're worse off.  Until the rate goes so high that your equity is worthless in comparison to the payments.  

So I'm assuming the system there works usually, just wondering how it differs from not having 30 year fixed mortgages, which is the US standard.

[Paxter]

There are quite a number of underwriting hurdles you have to pass at origination before getting the mortgage in Aus (e.g. a rate stress test), in addition to a minimum deposit of typically 10-20% depending on your circumstances (you could get away with a lower deposit but you’d probably need a guarantor). Any mortgage with less than a 20% deposit requires the buyer to purchase default insurance to protect the bank. The borrower is of course potentially in trouble if interest rates rise - that’s the why the stress test is in place and hopefully most are able to cope.

The US and German systems are of course pretty great for borrowers for the most part but can be awkward for banks if they don’t manage their interest rate risk…

Edited April 3 by Paxter

[BigFatCoward]

Expect the market to surge, I just had to cash a significant amount of my stocks and shares ISA to buy a new car. 

[DireWolfSpirit]

Im pretty bearish on the overall market.  I just dont feel like weve seen that sort of market capitulation that puts a real bottom in.

The correction of last year (-8.8% djia) didnt seem to me to price in the full measure of negative headwinds we face going forward with still higher than normal inflation, rising interest rates, likely tightened credit, supply chain issues, lower profits, likely slowing of consumer spending as the layoffs increase, worsening consumer sentiment, supply managers polling negative, inverted yields, banks with under water assets.

Its just a littany of negative indicators. I dont trust any rallys here, I think its more likely we see a 2008 type capitulation this year than a sustained Bull rally. Im just surprized how stubborn and resilient the upside/long has managed to remain hanging on thier greased rungs, because its look out below.

Edited April 3 by DireWolfSpirit

[Jeor]

On 4/3/2023 at 6:46 PM, DireWolfSpirit said:

Its just a littany of negative indicators. I dont trust any rallys here, I think its more likely we see a 2008 type capitulation this year than a sustained Bull rally. Im just surprized how stubborn and resilient the upside/long has managed to remain hanging on thier greased rungs, because its look out below.

I agree, the fundamentals point towards much lower valuations when you see the risks that don't seem to be priced in. However, markets are in a bit of a Wile E Coyote moment where they've run off the cliff and they're still airborne - the question is whether another bit of land will appear on the other side that they can run to in time, or whether we'll take the plummet.

I'm still 30% cash in case of a big downturn. And another 30% is in defensive stocks (gold miner and telco) so you could say I'm positioned bearishly.

[Paxter]

Nice inflation print in the US today.

The Fed is starting to get what they want.

[Fez]

Yesterday I moved everything I had in the stock market to cash in preparation for a debt ceiling-related crash. Fortunately, the tax implications of that will be pretty minor for me. If I'm wrong, I'll sheepishly buy some new index funds in a couple weeks. And if I'm right, at least I'll be able to "buy the dip" while the economic chaos unfolds.

[Jeor]

On 5/25/2023 at 12:03 AM, Fez said:

Yesterday I moved everything I had in the stock market to cash in preparation for a debt ceiling-related crash. Fortunately, the tax implications of that will be pretty minor for me. If I'm wrong, I'll sheepishly buy some new index funds in a couple weeks. And if I'm right, at least I'll be able to "buy the dip" while the economic chaos unfolds.

I have wondered myself on how to handle a possible debt ceiling disaster in the equities markets. In my one-page investment manifesto I do make reference to avoiding single-issue investments (i.e. don't invest in a biotech company that is dependent on one drug being approved) which is what this debt ceiling feels like. 

My largest positions are in (roughly equally) cash, gold miner, telco and a Vanguard Global fund. Apart from the global ETF, the others are quite resilient in a default disaster, and I am comfortable holding onto the ETF as it's always been a long-term buy with no intended exit point.

What I'm a bit more worried about are my middle-weight positions in BHP (diversified iron/copper miner), a lithium miner, a rare earths miner, and bank. All of those are susceptible to a market crash.

[Jeor]

Will be interesting to see how the debt ceiling deal affects the markets. I suspect it's only going to be a light and short-lived bounce, if any, given that there hadn't really been any major market drops in the past few weeks. It seems everyone was expecting a deal, so I think a couple of days of exuberance before resumption of normal service in the equities markets?

[timmett]

Just received notice TIAA will be shifting my traditional IRA account from their TIAA (FSB) entity to a newly-created TIAA National Trust Bank. Should I be concerned about this move? Is TIAA (NTB) gonna burn my retirement money on blow and dogecoin? Will the new SCOTUS wipe out the OCC along with the whole Chevron Doctrine, leaving National Trust Banks without legal basis?

Actual notification reads like this:

Quote

As announced on November 3, 2022, TIAA entered into a definitive agreement to sell TIAA Bank which operates
through TIAA, FSB. In connection with this transaction, TIAA is restructuring how it offers fiduciary and custody
services for IRAs by transferring these activities currently conducted by TIAA, FSB to a new TIAA subsidiary, TIAA
Trust, N.A., a national trust bank.

 

[Fez]

On 5/24/2023 at 10:03 AM, Fez said:

Yesterday I moved everything I had in the stock market to cash in preparation for a debt ceiling-related crash. Fortunately, the tax implications of that will be pretty minor for me. If I'm wrong, I'll sheepishly buy some new index funds in a couple weeks. And if I'm right, at least I'll be able to "buy the dip" while the economic chaos unfolds.

Happy to sheepishly be wrong and I have bought some new investments instead. And in the case of my Roth IRA, I literally just rebought some of my old positions that I had previously been happy with. All in all, since it had such minor tax implications, it actually was a decent opportunity to rebalance my portfolio anyway, and I think things really were dicey a couple weeks ago, I have no regrets.

[Jeor]

3 hours ago, Fez said:

Happy to sheepishly be wrong and I have bought some new investments instead. And in the case of my Roth IRA, I literally just rebought some of my old positions that I had previously been happy with. All in all, since it had such minor tax implications, it actually was a decent opportunity to rebalance my portfolio anyway, and I think things really were dicey a couple weeks ago, I have no regrets.

I still moved about 40% to cash in the last month (not consciously because of the debt ceiling, but a couple of my stocks had started to enter a downtrend and triggered my stops). Now looking to redeploy it. I'm still relatively cautious but now looking into an Asian ETF as I don't have any exposure there and in the long run they might not be a bad investment, even though lately they haven't been travelling well. I don't think the Chinese economy is going to be going all that well in the future but some of the other Southeast Asian economies are looking better.