The Day The Bubble Bursts??

[essence]

With reference to Olly Newland's book (and I must admit it's been a while since I read it), didn't he say something about looking out for the developers getting into trouble??

I noticed this on "stuff" this a.m.

Bridgecorp in default talks

http://www.stuff.co.nz/4114369a13.html

[muppet]

Bridgecorp placed in receivership
By DENISE MCNABB - Independent Financial Review | Monday, 2 July 2007

JOHN SELKIRK/Dominion Post

MONEY WORRIES: Bridgecorp is run by former 1980's high flyer Rod Petricevic.

The collapse of one of the country's major property financiers Bridgecorp - the fourth finance company to go to the wall in a year - could be one of the biggest to affect mum and dad investors since Equiticorp went bust in 1988.
Collapse bad news for investors - David Hargreaves

How do you feel about Bridgecorp going into receivership? Send us your feedback and we'll publish your comments.

Bridgecorp and its subsidiaries were placed in receivership at the request of its directors after defaulting on loan repayments five days ago, breaching terms of its trust deed.

The company raises money from the public and lends it to property developers who have generally failed to get funding from banks.

Bridgecorp claims it is the second-largest property development and commercial finance company in New Zealand by asset size, and the seventh-largest finance company overall.

There are more than 18,000 investors with term investments worth close to $600 million in New Zealand maturing continuously over the next five years.

Sydney-based parent company, Bridgecorp Holdings and its finance arm Bridgecorp Finance, also have a swag of investors.

Receiver John Waller, of PriceWaterhouseCoopers, said it was too earlier to assess the shortfall in the company accounts.

There is market speculation that it could be tens of millions of dollars. It is understood that capital notes the company issued have also not be repaid and that interest on investments is outstanding.

Bridgecorp's collapse follows National Finance, Provincial Finance and Western Bay Finance.

In February last year The Australian Securities and Investment Commission (ASIC) blocked Bridgecorp Finance from raising funds in Australia after investigating a capital raising prospectus that it said "raised significant concerns" about its financial position.

By Christmas that finance arm was in the red to the tune of $A1 million and is winding down operations after never reissuing a prospectus.

Money was sent to the company from New Zealand. Discussions are underway over the appointment of receivers for the Australia business.

Bridgecorp is run by former 1980's high flyer Rod Petricevic, a former partner of Sir Michael Fay and David Richwhite. He was chairman of public-listed investment company Euro-National before selling out in 1988. He was subsequently embroiled in a legal row over partly-paid shares in the company.

The NZX blocked repeated efforts by Petricevic to list Bridgecorp in New Zealand so he set up head office in Australia though lived in New Zealand. The company was eventually put on the New Zealand Unlisted internet trading platform. Trading was suspended this morning because of the defaults.

Bridgecorp's woes over its inability to raise funds in Australia were compounded in December by the stalling of one of its major investments, a resort development at Momi, south of Nadi in Fiji, following a military coup.

Building of the resort was never resumed after that even though a tax wrangle with the Fijian government over the sale of residences at the resort was sorted.

The Fijian government is owed at least $F12 million, borrowed for the resort, by a party related to Bridgecorp.

Bridgecorp has said previously that it has a $50 million exposure to Momi.

Word is that financial advisors and consultants have been pulling their clients out of Bridgecorp at an escalating rate over recent months.

The company has been trying to raise $350 million through term investments with rates as high as 10 per cent.

Investors can go to www.pwc.com/nz/Bridgecorp to find out more information about the receivership.

http://www.stuff.co.nz/4115687a10.html

[Commercial Dan]

This is not the beginning of the end, but merely the end of the beginning.

The bust phase has begun, the property cycle is slowly unwinding, be damn careful if you are developing or trading right now, be as conservative as possible at this stage of the economic cycle.

We live in a 'free market economy' remember, this has booms, busts and plateaus, don't think for a second property is immune to this.

A conservative and defensive approach is the best strategy right now.

[Libertas]

Housing Bubble

A fun little video:
http://video.google.com/videoplay?do...arch&plindex=0

[muppet]

Hi Dan

Do you get the Daily Reckoning email? They have been saying the same thing in America for many, many months.

Regards

[Commercial Dan]

Hi Dan

Do you get the Daily Reckoning email? They have been saying the same thing in America for many, many months.

Regards

Not at all muppet.

I realise I rant and rave a bit and rub a few posters up the wrong way, but I'm just trying to look after a few people here; things have the potential in NZ more than any other country to go pear shaped just like 87.

It concerns me so many people on this site are so bullish still...they could lose their shirts and it would be terrible to sit back and listen to them without giving some kind of warning.

[muppet]

Hi Dan

There is a lot more money sloshing around at the present time both in New Zealand and world wide, that has never been there before.

And the higher the price of oil goes the more money there will be sloshing around looking for a home.

Questions:
If Dr Bollard dropped the OCR would:
1. the dollar drop?
2. interest rates drop?
3. the price of house go up?
4. be easier for the young to buy their first house?

If the interest rate continues to up would:
1. the dollar continue to go up?
2. overseas money continue to pour into the country?

Regards

[Commercial Dan]

Hi Dan

There is a lot more money sloshing around at the present time both in New Zealand and world wide, that has never been there before.

And the higher the price of oil goes the more money there will be sloshing around looking for a home.

The money sloshing around is a real concern. People tend to borrow money and use it like it is their own, this will come home to roost shortly.

Questions:
If Dr Bollard dropped the OCR would:
1. the dollar drop? yes
2. interest rates drop? yes
3. the price of house go up? no, damage would already be done
4. be easier for the young to buy their first house?
could be, though there maybe economic uncertainty which may deter them; economics is about people and emotions, not stats

If the interest rate continues to up would:
1. the dollar continue to go up? absolutely, more overseas funds will be attracted by our higher yields
2. overseas money continue to pour into the country?
Yes it would and the bubble would grow larger. It will be a matter of time until that comes home to roost. We can't borrow forever, particularly if incomes become uncertain and there is panic about. Once that happens money will leave the country, the kiwi$ will weaken and interest rates will drop.
Regards

Things will come home to roost
CD

[muppet]

Hi Dan

Even Robert Kiyosaki gets in on the action.

http://finance.yahoo.com/expert/article/richricher/37414

Regards

[muppet]

Hi Dan

More on the money sloshing around the world:

When Poor Countries Get Rich
By Chris Mayer

"There is no precedent for such fortunes suddenly finding their way into global financial markets" - The Economist, May 26, 2007

When you hear the phrase, "There is no precedent," you should sit up and take notice. As this world totters on its way to some veiled future, it is in such small phrases that you will find big clues as to where the trade winds of the market might blow next.

In this case, your clue is the massive pool of money building in a way that has never happened before. It's bigger than the hedge fund industry - which makes so much noise and inspires so much comment. In total, these funds run into the trillions of dollars. Yet it is almost like a secret club. Few investors are even aware they exist.

Traditionally, this money has been content to sit on low-risk, low-paying investments – like U.S. Treasuries. That is changing. And where this money is heading next could have a huge impact on market prices - and on your investments.

"How and where this massive - and often secretively managed - pool of funds is deployed," opines the Financial Times, "will be one of the big investment themes of coming years."

On May 21, China announced its intention to invest in Blackstone, a U.S. buyout firm. China has $1.2 trillion piled up in reserves. It is the flip side of the U.S. trade deficit, you might say. That pile of money grows by about $1 billion every day.

Before May 21, China had been content to invest in highly liquid and "safe" investments - such as U.S. Treasury debt. Now, China let the world know that it would set aside about $300 billion this year to invest in things other than Treasuries.

Stratfor, a consulting firm, adds this: "That amount represents the single largest pool of cash that any government has thrown at anything, ever. Adjusted for inflation, the U.S.'s largest effort, the Marshall Plan, comes in at just over $100 billion."

China controls one of the world's largest stacks of foreign currency reserves. Yet there are other stacks of similar money out there – the excess foreign currency reserves of other foreign nations.

Andrew Rozanov, writing in the scintillating journal Central Banking, named them sovereign wealth funds(SWFs). As Rozanov says: "These are neither traditional public pension funds nor reserve assets supporting national currencies, but a different type of entity altogether."

Sovereign wealth funds control about $2.5 trillion in assets worldwide, compared with about $1.6 trillion in the hedge fund universe. And money continues to pour in. By some estimates, these funds could control $12 trillion in assets by 2015.

Where did these enormous funds come from?

Many of them were set up decades ago. But they've come on our radar only recently for three reasons, as pointed out by Rozanov: There are a lot of new ones coming online (such as China's); they are growing rapidly; and they are getting so large - on par with the largest public pension plans.

Governments created many of them with surplus revenues from oil, gas and other natural resources. The UAE and Norway and Russia all got the bulk of their dough from oil. Chile's funds came from copper revenues. Even Botswana has a $5 billion fund (the Pula Fund) flush with the proceeds of diamond sales. Not all of them are commodity related. Singapore and Hong Kong are exceptions.

So these governments are flush with cash and have set up sovereign wealth funds to invest the money. Today's unmistakable trend is to invest more and more of that money in private enterprise, stocks and real estate.

Norway recently upped the amount it will invest in the stock market. In the past, about 40% was set aside for stocks. As of last month, it became 60%. Norway runs a giant $300 billion fund. That's a lot of buying power. Russia, India and others are also in the process of setting aside more money for riskier assets.

As The Economist notes, "Sovereign wealth funds could soon become the most important buyers of such assets, and many others besides."

Consider China. For China to put its money to work in the U.S., it would, says the Financial Times, "have to become the biggest player in the U.S. market." To put even 40% of its staggering fund to work, China "would have to buy more than 10% of the capitalization of the Dow Jones Industrial Average."

Putting that kind of money to work could be politically impossible. After all, when China's CNOOC, a partially state-owned oil company, tried to buy Unocal, an American-based oil company, there was such resistance that CNOOC called it off. That may be why China's first purchase is in a private firm that does not own any "strategic" assets.

Still, China's appetite for natural resources is extraordinary. Just last week, China deployed some of its cash horde to acquire exploration rights in the oil sands of Canada. China National Petroleum Corp., the parent of NYSE-listed Petrochina, paid the Province of Alberta for the rights to explore 104 square miles in the oil sands. Two years ago, this same state-owned oil company paid $4.2 billion to acquire PetroKazakhstan. Clearly, many of the powerbrokers in China believe that their country's growing currency reserves ought to be used to acquire vital supplies of natural resources. The flourishing Chinese economy desperately needs many other commodities - aluminum, steel, copper, grains, clean water and more. So it would not be surprising if China put some of its money to work in these areas.

The Blackstone deal was just the first little spoonful behind an enormous appetite. Look for more headlines as China and these other giant sovereign wealth funds put their money to work in a history-making buying spree.

[Libertas]

Telling it like it is.

Hi Dan

Even Robert Kiyosaki gets in on the action.

http://finance.yahoo.com/expert/article/richricher/37414

Regards

Thanks Muppet, this is a good read. Here is the full article for all:

Booms Were Made to Go Bust
by Robert Kiyosaki

Posted on Monday, June 25, 2007, 12:00AM

During the height of the real estate bubble, I wrote a column saying that the crash was coming and suggested selling any piece of real estate that was overpriced, questionable, or non-performing. As expected, I received angry replies.
Today, I'm predicting the next crash, what I believe will cause it, and why it'll be a severe blow to the global economy. The signs are already here.

Busts Beat Booms

First of all, it's no big deal to predict booms and busts. All markets boom and bust. It's just easier to predict a bust because the signs are so obvious -- like excess euphoria, easy access to money, huge profits, and scores of happy amateurs entering the market.
Booms are harder to predict. They start silently, like oak acorns buried in the ground -- you don't notice them until they're towering trees. For example, few people recognized Microsoft or Google for the giants they were until after they'd become major players and the big profits had been made.
Paradoxically, that means busts are better because we can see them coming. This gives us time to prepare, and makes it easier to capitalize on them.

The Year the Dollar Died

The coming bust started in 1971. That was the year Richard Nixon took the United States off the gold standard, thus converting the U.S. dollar from money to currency -- that is, from an asset to a liability, and an instrument of debt. That was the year the dollar died.
After Nixon was forced out of office, the U.S. economy went into a slump under presidents Ford and Carter. We had high inflation and low growth, otherwise known as "stagflation," before Ronald Reagan and his dedication to supply-side economics -- Reganonomics -- came along.
Reagan cut taxes and started borrowing money, increasing the national debt. As a nation and as a people, we began borrowing and spending to spur the economy. And the economy boomed until 2000.

A World of Debt

It began to sink after 9/11. We lowered interest rates and began printing more money. In 2003 and 2004, the Bank of Japan created 35 trillion yen to save the dollar and their economy. It was like a loan of $320 billion to the United States, and probably prevented a run on the dollar.
This loan kept interest rates low, which prolonged the boom with easy money from cheap debt. The problem is that interest rates are now beginning to rise, and the mountains of debt will have to be paid back. If interest rates rise and the economy slows, a severe crash could occur -- a crash caused by years of accumulating debt in order to spur the economy.
The world has never been in this position before -- and the whole world is involved. That's because Nixon's actions in 1971 made the United States into a virtual empire. As an empire, we began dictating the terms of world trade: If you wanted to do business with us, you had to accept our new dollar as gold. Unfortunately, the world complied.

The New Money

Today, China ships us products and we ship them dollars. The problem is that the Chinese can't spend those dollars. If they do, the price of their currency, the yuan, would go up. Why? It's simply a matter of supply and demand.
So instead of spending their U.S. dollars in China, the Chinese buy our assets, especially U.S. bonds, with them. Because they buy our bonds, interest rates in the U.S. remain low, and low interest rates encourage Americans to borrow more money. This causes bubbles in real estate and the stock market.
The problem is almost as bad in China. The Chinese are using U.S. debt as collateral in borrowing yuan to finance projects within their country. With the Chinese economy booming and in preparation for the 2008 Olympics, the Chinese have gone shopping -- they want to look good for the world.
Using Chinese debt collateralized by U.S. debt, they've been buying natural resources from all over the world. Consequently, countries that are rich in natural resources -- such as Canada and Australia -- are booming. Real estate and stock markets in those countries are hot.
But the global boom is clearly built on a mountain of debt.

A Familiar Cycle

This type of boom has happened before. In 1971, Japan was finally emerging from the effects of World War II and becoming a world economic power. The Japanese were exporting cars and televisions to the United States, and because we were importing more than we exported, the Japanese took payment in U.S. gold. In fact, one of the reasons President Nixon converted the dollar from money to a currency was to stop this hemorrhage of gold.
In the 1980s, instead of using gold to finance their economy, the Japanese used U.S. debt as collateral for Japanese debt. This caused the Japanese economy to boom just as the Chinese economy is booming today, and it made the Japanese look like geniuses. Business books and magazines trumpeted the magic of Japanese business management.
Then, in the early 1990s, the Japanese boom busted. Their stock market crashed and the most expensive real estate in the world became cheap. Today, the Japanese economy continues to struggle.
China Isn't Japan
China's advantage is that it learned from Japan's mistakes. That's why the Chinese stubbornly refuse to revalue their currency -- they don't want to make it more expensive the way the Japanese did theirs.
Currently, the Chinese yuan is pegged at 7.6 yuan to one U.S. dollar. This makes the United States accuse China of being unfair; we'd like to see the yuan float the way the Japanese let the yen float. This would make it easier for us to reduce our balance of trade, as well as pay back our debt with cheaper dollars.
The problem is that the Chinese know from the Japanese experience that we can talk tough but not act tough -- they simply hold too much of our debt for us to take measures. And if the Chinese started dumping U.S dollars and bonds on the world market, the world economy might well crumble, just as the Japanese economy crashed nearly 20 years ago.

Time for a New Standard

While it's tough to predict the future, one thing is for certain: The U.S. dollar will continue to go down in value, and savers will be losers. With people all over the world piling debt upon debt and spending like fools, it might be best to follow the Chinese.
They've never trusted banks, but have always trusted gold. Maybe it's time we started doing the same.

[Commercial Dan]

Great article and along the lines of what I'm going on about; so many amatuers and so called 'experts' who have been around for a couple of years in the boom have been lucky, now all of a sudden they are gurus?

You have to be kidding me, that is why I am going on and on about being aware of some seminars out there, presenters are much like developers, they are the eternal optimists that the market only ever goes up and lack the economic knowledge and experience.

Don't forget the JBL collapse in the early 70s, they were optimistic and men of god/the psychic powers of being positive ilks. As I have said before, where was god or the psychic force when they needed them because they certainly weren't there when the roof caved in!!

Be aware, consolidate, box with caution and be defensive at this stage of the cycle. Trading property with uncertainty on the horizon is a very very dangerous game...

[John Galt]

Trading need not mean that you ever own or intend owning the asset. It certainly works for me.

I am not doing this because it ensures profit. I am doing this because it eliminates risk. Trade trade and use profits to accumulate the metals. Real estate with little or no debt for cashflow purposes serves well. Once youve taken care of your costs though there appears better places for your capital to grow presently. Namely the pm's.

As for RE and capital growth. Not here in general.
Argentine real estate, Panama and Malaysia In my humble opinion. Possibly Fiji too but with more risk attached.

I could be wrong of course as I've expected a crisis for some time now and it hasn't eventuated. The ball has begun to roll though. There is far to much liquidity washing around the globe at present and as unfortunate as it may be we are tied in to the problems facing the USD. That is of great concern.

All I can say is watch the greenback and rig for stormy weather.