Thread: 7:30 report tonite...

Originally Posted by DiscoStew

Thanks, that makes sense. From memory the market would need to crash by about 80% for my margin loan to be called. I have a line of credit against my house which could pay that anyway. Some quick sums say that the housing market would need to drop by 60% from prices as at a year ago before the house value dropped below the loan amount even after paying out the margin loan. So I am not feeling invincible but not nervous yet.

Anyone who has a business should be doing a Capital stress test.

Anyone want to take a stab at todays market performance?

Over night the score was...

UK -5.18 % down despite big gov intervention and euro rate cut.
Germany -5.88%
France -5+%
Russia CLOSED!
US -2% Good result but amazingly volatile.
Asia up to -10%!

I'm predicting a quieter day in Aus. Pobably only -3% It could go either way, but the dow closed on a down not and I think Asia will scare them down. Still that will be close to 10% in two days

EDIT: I could be wrong about the above but it probably doesn't matter now. The recession (at the very least) cometh

I saw that guy and admit was surprised at the negativity of his predictions : but given the last few weeks anything is possible.

Getting out of debt is a good policy but many people will find it immensly and increasingly difficult to do so.

I'm surprised when asking casually around friends and colleagues on how pervasive debt is in our community. Seems they borrow for everything including new cars, furniture, holidays.

I suspect getting out of debt will involve a reality check and more modest lifestyle choices for many. If not done by choice it may be forced upon them.

Originally Posted by Captain_Rightfoot

Anyone want to take a stab at todays market performance?

My guess (guess at best these days)

Start really badly (-4%) and then recover late afternoon ending about -1.5% down.

Originally Posted by Captain_Rightfoot

How much debt do you have? If you have more debt than equity you might be on the receiving end of a Margin Call. That is a US example.

Margin calls are normally associated with shares but they can also happen to property. Say you borrowed 100% to buy a 500k property late last year. Say the property market crashes and goes down 40% (probably worst case but plausable). You're making payments so all is good you think.

However a number of people loose their jobs and stop making payments. The banks take their houses but they don't get what they are owed. All of a sudden the bank needs money.

So, you're making payments and are a good customer. You owe 500k but your house is now only worth 300k. The bank thinks you're good for it. One day your bank manager rings and asks for you to provide some more capital as they are feeling a little exposed. They could ask for between 0 and 200k from you. You have to find the cash instantly or they will fore close and get what they can get. Remember that even if they only get 300k for they house they can still sue you for the other 200.

Thats not much fun at all, but it has happened in Australia before. It's already happening with shares and if things go bad it could happen again with houses. This is the closest it's been for some time. If a 40% drop in price could have your house being worth less than your loan than you could be at risk if things go bad bad.

I'm no finance expert but just did some research on margin calls. Its seems they only apply to margin loans which typically only apply to borrowing to buy share portfolios, and arent relevant to the average mortgage.

I'm not aware of anything in my home loan contract which would give the bank the right to sell under me or demand more capital, as long as my payments are up to date - I would expect they factor in market risk when they make a decision to issue the loan.

Originally Posted by mark2

I'm no finance expert but just did some research on margin calls. Its seems they only apply to margin loans which typically only apply to borrowing to buy share portfolios, and arent relevant to the average mortgage.

I'm not aware of anything in my home loan contract which would give the bank the right to sell under me or demand more capital, as long as my payments are up to date - I would expect they factor in market risk when they make a decision to issue the loan.

i have or should i say had pretty healthy buffers with my portfolio but with the current markets it has narrowed......solution was to borrow more to increase the buffers so that a margin call won't be made which hopefully works out good for me as i have brought when the market is low

btw......don't know what everybody is talking about re: no money available to lend, i'm right in the middle of buying/upgrading to another house and borrow to invest in the marketsno problems with my lender

Although its hard to remember that the task is to drain the swamp when you are up to your **** in alligators, we should remember that these things pass.

Already Bank Of Queensland has come out with a profit reduction of wait for it 2%.
I am convinced that the big four in Australia are still HIGHLY profitable (CBA pays 2.1 Billion for Bankwest) and will recover their price quickly when the panic subsides. They can get money no problem. For example I bought Westpac and ANZ in about march, thinking they would not go much lower. They are down a little from then but not much.

BHP will go up again, as the drop in the AUD mirrors the drop in commodity prices so profits stay up in AUD, although the rocket scientist analysts do not seem to have realised it yet.
When the market starts to recover it can go up 30% in a short time and it will recover.
I guess my biggest problem will be some companies I have which may not survive ( Eg Rubicon Japan Trust touted by Hot Profits), but the trick is to be diversified with< 10% in each company.
Look at the headlines
"Employment PLUNGES to 4.3%". This is the highest employment outside of the recent lows EVER. Miners are still crying out for staff.
"Housing loans off 4%". The banks have picked up share of 20% or so from the non banks. They are laughing.
IMHO, the recent reactions by the world central banks is setting the stage for the biggest boom with inflationary side effects ever.
The recent 1% drop by the RBA is really a draw back from their two incorrect rate rises at the start of the year, which most commentators said then were not necessary.
Don't panic the world is not ending( I hope)
BTW, I am almost certain that banks cannot place a margin call on housing. The bank risk is solidified by the LVR at the start of the loan and over 80% the bank is insured for any losses by the insurance that you the borrower pays up front. Do you really think the banks would like to foreclose on houses in a down market?
Regards Philip A

we should all go for a ride in a taxi, ask the driver what he thinks the answer to the economic problems are, stay in the cab long enough to listen to his suggestions, stop and buy a loaf of bread, a litre of milk , some fruit and veg and beer and the resultant cash bouyancy generated by everyone going for a taxi ride will be enough to stimulate the economy and avoid any recession. Who needs to be an economist?