A look at the Cape Town property market.
Ok here goes.We all know,and I agree, as Goldilocks mentioned in a previous post, that the big South African Banks ARE indeed "too big to fail".ABSA FNB,Standard Bank etc.(all the biggies)carry business and private accounts,loans and mortgages.Therefore the SA Reserve Bank (via us,the taxpayers) will bail out any of these BIG institutions, because letting any one of them crash would destroy too many entities.SO - given this background, what is everyone's opinion about CAPITEC ?Would the Reserve Bank protect Capitecs' depositors in the same manner as the 'too big to fail" instituitions, or would the Reserve Bank wash its' hands, and allow Capitec depositors to take the losses ?Bear in mind that Capitec bank holds no mortgages on properties, they have no business accounts, just personal loans with private individuals.Because of the small repercussion a Capitec failure would cause, the Reserve Bank might just be tempted to cast Capitec, and its' Investors, to the wind ?Does my reasoning make sense ? Or will the Reserve Bank protect any South African bank, small or large, at any cost ?PS - Bear in mind that Capitec uses ABSA vaults and cash in transit infrastructure, so ABSA and Capitec might be tied at the umbilical cord ?Would a Capitec Crash be an ABSA loss or an ABSA gain ?Your opinions to these questions much appreciated, thank you all.
I would think that Capitec would also be protected by SARB.My reasoning is that if Capitec should fail, it would give the 'indication' that the Big 4 are also vulnerable thereby portraying them in a vulnerable light which won't be good for share prices.Any thoughts?
Anon,I dont think any SA bank will fail outright, just not enough leverage there. Remember Lehmans was leveraged up to 70:1. SA banks are capped at 10:1. This doesnt mean they arent going to go through a world of pain in the next few years and yes they would be bailed by the SARB to prevent contagion.Funnily enough Capitec is levered 3:1 making it the safest bank in SA in terms of leverage. In a global financial meltdown I would rather be in Capitec than anywhere else if I believed in paper savings, which I dont. Paper is there as a means of exchange so I get paid, pay the bills and any savings are put in gold.The point here is with your own gold reserves you will be recapitalized in the event of any failure. Secondly you will increase purchasing power whereas with any SARB bailout your paper will be debased [which is currently happening but in much slower motion]Gold brings complete peace of mind and I sleep very well. No counterparty, no leverage, no inflation tax, hedged against the mismanagement of the republic, a global currency redeemable and understood everywhere.
Not to take anything away from waht has been written in these comments, but gold is about to tank in a BIG wayRegardsThe Oracle
Concerning the arguments for gold.How does a normal person like myself actually invest in gold?Do I buy Kruger Rands? Obviously I don't want to pay for decoration i.e. jewellery premium on raw material.Is it highly marketable? Will I get fair value for my gold if I want to sell it? Where do you sell it?Where do you keep it? At home? In a safe deposit at the bank? This cost must be factored in surely.Also, in terms of the R1m p.a. forex allowance, I don't think you can walk out of the country with a bag full of gold.
Oracle,When the whorehouse gets raided even the piano player gets thrown in jail.The present bearish sentiment is too widespread imo. The only time as widespread a bearish sentiment preceded a crash, was in '08. It will happen eventually yes but I think it will be more black swan.To be clear, I think property is a good investment as I do gold. However one needs to be on the right side of a trend first and foremost. I can clearly see the trend to austerity and saving and away from debt over the next decade. If anyone would like to flesh out some bullish long term trend drivers for property I would love to hear them. Last anon,Gold is very misunderstood by the West presently. This will not last forever due to sovereign default, and saleable for paper will be their last concern. Gold is money and as liquid as.Gold has given returns of around 18% p.a for the last decade. That covers holding costs/inflation plus some profit.
Goldilocks, are we perhaps seeing a switch in the status of gold and property? I reckon property is now going to become the boring, stable "buy-and-hold" wealth store (once the bottom of the current slump is reached) while gold will become the volatile flavour-of-the-decade get-rich-quick commodity.
If the big banks fail, there will be no money to save them. People are living on borrowed money. In 1927 when the banks failed in the USA they refused the customers to take their money out and furthermore they open customers' private safe looking for gold etc.... The next world economic crisis is going to be worse than the one of 1927. So keep your gold under the mattress. Do not trust the banks. Investors are going to take their investments away from South Africa considering the bad image it is getting worldwide with Nationalisation of the mines, land grabbing, whites being murders etc....
BeanCounter,It is possible but here is my thinking.I see the equity in property worldwide that existed in decades past has been drained and leveraged up. What else is there to tap into that will fuel more credit growth? This is an endgame.At some point property will be great to buy again. For me though its not speculative, its a home first and foremost. I think we will return to that type of thinking yes.We as South Africans are used to talk of gold as we were the primary producer for decades. How many of us still hold krugerrands as we did in the seventies and eighties? Worldwide investment in gold is estimated at less than 1%, sound like a bubble to you?Its not that a bubble cant happen, but I see a change in the worlds financial system coming down the pike. Like houses will again be viewed as a place to live so gold will be seen as the store of value money component.
Hello again - first anon here.I have a question for goldilocks please.Is it not true that you lose paper money when you buy a gold ingot and you lose paper money when you resell that ingot?So you lose twice - something to do with Spot Price of gold I believe ?
Hi GoldilocksThe % invested in gold worldwide does not determine if the price of gold is subject to a bubble.A better measure of whether a bubble is forming is if people start to speculate with gold e.g. buy it because the price is rising in the hopes of selling to a greater fool.This is separate motive from people buying gold as a hedge against inflation.Basically when the price of anything becomes sufficiently decoupled from its production cost then the price is based on what people are willing to pay for it.For example if the US dollar were to begin a sustained appreciation then many Americans would start pulling their money out of US dollar denominated commodities e.g. gold and oil. It's currently a big if but if you think about it that behaviour is obvious (self serving and working to maintain capital and returns).L.S.
I would like to add the following comment to the discussion thanks to Zero Hedge. "Gold and real estate are durable assets that should keep their value. They cannot be printed or otherwise replicated. Its entriely appropriate to compare the two." This pertains to discusions I've had with CJ around, gold housing and inflation. Zero Hedge today have a chart that shows that housing priced in gold is very close to the all time low of 1979. This is housing in the US of course. One has to ask, how low will it go, and how does this pertain to SA. My suspicion is that if or when we see an upswing in US real estate SA should follow shortly after. But this is just a guess. See http://www.zerohedge.com/article/priced-gold-median-home-price-down-80-past-decade
Gold is not really an investment, more a of a value store. It’s only really delivers returns in a bubble; otherwise it’s just an inflation hedge. (Actually the same can be said for property, although gold has much lower holding costs)BUTI reckon once the trillion dollar bailout money starts loosening up and spreading through the system we're going to see hyper inflation and sky high interest rates very soon.So buy any real assets like gold or even property you can right now, because paper (or bits and bytes in a bank computer) is going to lose a lot of value. I think in 5 years time 2 bar (ZAR) will probably buy you a Hyundai, so suddenly a 2 bar flat in the city bowl doesn't look so expensive.(Or I could be wrong)
All,Lets get down to brass tacks then cause we will argue for hours.Where did the increase of our standard of living come from over the last 50 years? Credit, paper money, China, technology, medical breakthroughs? No, it was cheap oil. The flow of cheap oil my friends. The dollar was once as good as gold, until Nixon in '71. So where did oil and gold go in the 70's? To the moon. Where did the dollar go? To hell. Think about the ramifications of that for a second and what was going on. Could that have carried on, what was at stake? Was that an oil and gold bubble? What changed in 1980? Where did oil and gold go? Where did the dollar go? Why? There are 2 currencies in the world; oil and gold. The rest is paper.
@ GoldilocksIt is my perception that the so called increase in living standards is a "mirage" everyone speaks about it but there's very few facts to substantiate it. From my personal experience: my father was less educated than me but had a better lifestyle and raised 3 kids, my grandfather owned farms with the lifestyle that comes with that. I say there's been no improvement in lifestyle over the last 50 years generally, I suspect overall everyone is worse off, even the very poor. This so called "raise in the standard of living" is political lie. Just because there's more paper money and one get's more of it in your paycheck does not mean you earn more for your labour. The price of oil has stayed surprisingly constant if your measuring stick is gold: see http://www.goldmoney.com/commentary/the-best-year-so-far.html So oil is still cheap in gold. But if you buy it with your labour using fiat paper as the barter mechanism you pay a lot more than your father did and he probably paid more than grandad.So with the destruction of paper money by the political system has come a decline in the quality of life generally. (this might not be true everywhere but I believe that if you measure this fact against the inflation one would get a truth.And I see no end to this slide in our immediate future. Only a "major" event will stop the slide.So priced in gold housing is the cheapest in 50 years except for one brief dip in 79. Unfortunately that's the conclusion that one come's to. We've all been fooled!
froggy the standard of living has drastically decreased for white South Africans due to the end of Apartheid. In the so-called "good ol days" it was easy to live like a king because of things like slave labour and a government that channeled all it's resources towards a select few.My grandparents also had farms and my parents had successful businesses. None of them had a tertiary education. Those days are gone.
Cant argue with that froggy. I showed in a post some time ago on here that if one had of bought a house instead of gold in '72 you would have lost around 35% of your purchasing power. This was after a property bubble and using 2008 prices. Upkeep costs, rates etc were not even factored in.If you work out inflation on many things in SA over the last 40 years you will see that it is above 10% pa. We are talking 9000 to 10000% inflation since then.However if you had of held gold you would have doubled or tripled your purchasing power. That means you had deflation in gold terms. Thats the standard of living increase right there measured by something stable. Prices should fall as our productivity and technology increases.So where did it go? It has been confiscated. By the US for one through the dollar as reserve currency and by the SA government past and present. There is an economic war on all of us while they and the oligarchs live the highlife; you are a cash cow and a slave. Protect your savings and wealth from these thieves; hold gold.
@ Anon:Not sure why you are dragging apartheid into this, pre 94 there were plenty of poor white SA's as there are today. But I sometimes wonder when I drive down the N2 if the ave black SA'n is better off living in a shack where he was lured away by false promises of paper wealth from the green fields where his father lived, where wealth were measured in cattle. The phenomenon I describe is worldwide, quality of life/ living standard depends on more than how much paper you earn and wealth is not money. The important factors that defines living standards are: security, clean water and air, enough healthy food friendly caring neighbors etc. In most of those areas people today are much worse off. The question I ask is: were there really an increase in living standard and how is this measured. Did the Flower people of the 60's have a better life than their kids? Did the native that lived in the forest have a better life than their kids that now live/squat next to the National road in africa. Is the Indian person today better off than his forefathers. And I ask this question from a financial aspect as that is what this discussion is about. Did paper money that replaced the measurements of wealth before raise peoples living standards. Inflation today is an international phenomenon and touches everyone, I suspect the poor mostly. @ goldilocksspot on. The wealth has been confiscated. The thing is people in general don't see it this way and even when you talk to people they get that glazed over look in their eyes. So people love to invest in house's and I for one agree that in a sense it is a great way to protect wealth from inflation, especially if the timing of the purchase is right. The thing is and that's what I would like to discuss on this forum, the wealth can not be hidden if it's in bricks. So our "overlords" can easily confiscate all or part of our wealth as it's out there in the open. They will not always be content to just skim the top off the paper money, eventually the masses will wake up and start investing in alternatives. That's when the property owner will by squarely in the sight of the tax collector. We can already see it with the re-evaluation of existing properties values and the increases in property tax, we are going to get much more of that. It's seldom that this extremely negative aspect of property ownership is mentioned to property investor's.
Things are only going to get worse if the world doesn't address the root cause of all it's ills... overpopulation and too many consumers chasing a finite supply of resources.Why should we all be reduced to eco-shoeboxes and electric noddycars because people feel they "need" children? Every child being born is another lifetime's worth of consuming and polluting and putting strain on resources.I know what I'm saying isn't popular but it's the truth. Having babies is not a right, it's a privilege and should come with a huge price-tag. Number of children per household should be limited or at least taxed heavily.
Everyone still misses one important factor about Gold that no one has touched on:If I buy a Krugerrand it costs me R 10500.00Now if I sell it back to the same dealer one minute later, how many rands will he give me for that very same gold coin?What is his paper profit and my paper loss.Any ideas ???
Anon,Lets put this to a real world test. First make a list of all the things where the dealer will buy it back a minute later at the same purchase price. All gold coins are sold with a small premium so there is something for the minting and dealer. They should rather work for free like you and I do in our socialist utopia. In addition to this, paying a few percent above spot and tripling your purchasing your power vs losing 99% of it over 40 years just doesn't make economic sense does it?Another thing is you cant eat gold either so think very hard about throwing your money away on a no yield and currently in a bubble investment.Oh and Warren Buffet and his sidekick Charlie Munger think you are a jerk if you buy gold. Rather buy some Berkshire shares.
Now is the time to invest in property. Balinrobe in Sea Point is going to be a phenominal investment! BUY NOW!
I get the distinct impression that whatever needed to be discussed has been discussed here ad nauseum. Even the blogger has apparently lost interest - maybe time to close up shop?
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