Double Shot Interview: Olly Newland argues hard assets such as property are better than stocks in an era of possible hyper-inflation. Your view?

Double Shot Interview: Olly Newland argues hard assets such as property are better than stocks in an era of possible hyper-inflation. Your view?

Property investor, author and consultant Olly Newland explains in this Double Shot Interview why he thinks investors will turn to property at a time when stock markets are so volatile and many investors are looking for 'hard' assets that are immune from inflation, including possible 'hyper-inflation'.

"The share market is a den of thieves and is not for the small investor at all," Newland said.

"They're tired of having their share portfolios messed around with and they'd like to get into something hard that they can see in the morning and is still there and has the same value from one day to the next," he said.

I asked Olly if property as an asset class could fall just as well as rise, as it had done in America, Britain and Ireland.

"It does, but it's much slower and its very  localised. In the sharemarket if some gnome in Zurich pushes a button and sells a million shares, all the shares across that company are effected. It doesn't mattar here if someone sells a house in Hari Hari for half price, it doesn't mean that all the houses in New Zealand drop in value," he said.

Olly acknowledged that no asset prices were safe if the global economy was hit very hard.

"But this is why people are moving into alternative, hard assets because the main problem is the governments of the world are printing more and more money," he said, pointing to the sharp rise in the gold price recently.

"The elephant in the room is that we might have hyper-inflation coming," he said.

I asked Olly about the prospects given countries such as Japan had been printing money for decades, but had actually seen deflation and very low interest rates.

"We've got every option on the table at the moment. Hyper-inflation is one of the options that could have. You're right that the Japanese market has been flat or deflating over the last 20 years," he said.

"You have to realise that the Japanese mentality is a little bit different from the rest of the world. Hyper-inflation is one of the risks we're taking. You see the the beginnings of hyper-inflation in the gold price and art markets," he said.

"People are definitely shifting out of volatile share markets where they have no control into areas where they have some control, and property is one of them and the hard assets I mentioned earlier."

I asked Olly about diversification of investment and how liquid property investments.

He agreed that some property may be illiquid, but investors still looked for stability.

Olly Newland is a property investor, author and consultant and has his own website.

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Sounds reasonable and reasoned.

But he's wrong I think....

Ppl are jumping out of shares and other risky investments and into cash. Sure some are into bullion and art because of the risk of an event, be it depression and deflation or inflation.

Olly has this thing that property is the best bet so only sees what it protects him against, which is principly inflation.....trouble is its one huge bubble a decade long.....who will pay the higher prices? this time he's wrong IMHO....

He also comments on the singular event or localised scenario....the is a global event with a nationwide context.....One thing thats sure for me is I dont think its going to be a minor event or a short term one. For me we went over peak oil, so we are now in a period of unknown and its looking like a rough time and a shrinking economy and in a deflationary period cash is king......

 

regards

sounds reasonable and reasoned

It will be the underlying debt that sinks property in  New Zealand; just as it has elsewhere. Hyperinflation  ( is that 26% p.a compounding; or 50% per month?) will push mortgage rates to astonomical heights, regardless of what any Central Bank tries to do their 'OCR', and the debt servicing capacity will destroy any debt holder long before any asset price rise that can offset that burden.Any sort of asset inflation is the last thing The West needs right now.  It's a generational pay-back of debt that's going to occurr, and it has started - everywhere ( "I'm just going to pay as much as I can off the motrgage" etc Countries Ireland, UK, Greece, Italy - all are embarking on austerity. The States will follow). . Yes, consumer price inflation is going to happen, but that's a mean-to-an-end to repress debts The offset will be lower asset prices; stocks as well as the 'safe haven' of property.Because the alternative is 'more of the same' from the last 50 years, and that has got us to...here. And it's not a good place to be...Lower interest rates ( for NZ to match The Rest) will allow our buisness to recapitalise. Then it's a subdued economy....for years.

I dont think we will see even moderate inflation myself ie 8~10%....its looking like an implosion, so deflation. look for comparisons, the Great Depression was such as credit/debt event as this....only this time its looking way worse....debt will hurt as its the real effect of earning less but still having the same debt that will hurt...

CPI can only go up and take core inflation with it, with low employment and high demand.  We have the opposite in both....certainly way too much excess capacity.....

regards

Sounds reasonable and reasoned

Well reasoned

Continually amused that in this environment people still fret about high inflation.  We all agree there is a huge wall of debt, yes?  The amount of income sucked out of the economy to service debt amortisation and interest payments dampens retail spending and keeps inflation relatively low.  This huge load of debt serves as almost a ceiling on possible inflationary expansion.  We have more issues around stagnant prices or deflation in the near term then we will have with inflation. 

The share market is a den of thieves and is not for the small investor at all

Pot calling the kettle......

Yes, maybe and yes....

If you know your subject and are in it for a good term you can make money on shares.....not a killing but a reasonable return it was after all a bull market, you just have to not be greedy. 

The beauty of shares is you can jump out quickly which in a volitile market is a godsend.....property takes months to sell......

regards

 

unreasonable - check average sell times

For selling shares v houses?

In normal circumstances shares I sell in a few days at worst.....housing in a few days?

regards

Same old bollocks from Olly. Share markets don't "push people around!" They move up and down, but here's old "Oily" spinning the same old wheel stating property NEVER goes down over the long term. Well Olly neither does the price of milk and bread funnily enough and why is that you think? duh

See what the US Fed have been up too here: they have some serious explaining to do after this freedom of information release.

http://www.huffingtonpost.com/2011/08/22/federal-reserve-12-trillion-loa...

sounds unreasonable and unreasoned

Olly has a point on share markets i think......its all buy, force a short term attitude on the company to boost the price, load it with debt and sell the shares at a profit and move on....

Property I think he's wrong on, you just have to look at the Great Depression to see how far houses fell in value.....if you accept the 3:1 ration then a fall of 50% (or more) is on the cards.....only fools play in that market me thinks.

Interestingly he comes across as a lot more balanced view here unlike his written pieces....

regards

Dunno about this argument.  Superficially it looks plausible.  And certainly in a hyperinflationary environment, cash, bonds & term deposits will lose their entire value

But is it reasonable to assume that property will hold up in value while the sources of production (as reflected in shares) crash in relative value? 

Why should property effectively go up in value in hard economic times relative to businesses?  Is that what happened during the Weimar republic?

I would like some confirmation of this from a credible economist rather than just accepting Olly's assertions, which always favour property.  I'd believe Neville Bennett if he said it, but not Olly

Cheers to all.

 

Leave orf poor old Olly...he's only working his book...the thing is Bollard has decided to repeat his earlier mistake..staying low for too long...porking the happy numbers to fake the growth...pure Bernankeism to the core.

This property based economy is totally dependent on the credit flowing and will not begin a real growth phase until the mountains of debts have been washed away by the ongoing debasement.

It is going to need a total replacement of the RBNZ leadership and a real policy shift toward saving and away from debt, before we see any real improvement bar just fresh waves of BS and spin.

Currently the big banks are farming the country and are doing very well thank you..there will be lots of payback to the pollies in the years ahead. CEOs are creaming it as boards strive to outdo the madness displayed by other company boards. Fee rises for directors will follow.

Property is a safer bet than cash in a bank if the property is at 05 or earlier prices and if it is quality...not much of that in most places.

You will note the media splurge of spin about oh so much effort going into making housing affordable and working out why it isn't......expect that BS to be trotted out right up to the day after the election...then all will go quiet. There isn't the saved capital to afford the bloated costs and the banks are determined to keep things that way... Hence the pisspoor deposit rates and the pressure on Bollard to keep the cheap credit flowing. The one thing the bank bosses will prevent is a policy change to saving and thrift. 

 

 "Singapore’s inflation accelerated to the fastest pace since January as transportation and housing costs increased, maintaining pressure on the central bank to allow the currency to strengthen even as growth falters."

 http://www.bloomberg.com/news/2011-08-23/singapore-s-inflation-quickens-to-5-4-adding-pressure-for-currency-gains.html

You can see in this article why OllyN is likely to be right.

Don't mean to be rude, etc.

But that article is a complete crock of rubbish.

Saying that shares won't rise with hyper inflation... If hyper inflation comes along, it will be good for businesses because:

- if they owe debts, these will inflate away

- if a can of coke was sold for $1 by the business and it cost $0.50 to make, they have a profit of $0.5, if hyper inflation comes along and makes everything 10x more expensive, the can will sell for $10 and will make $5 profit.

So if anything, the investor that owns the business will see their capital gains grow 1000%

 

Elliot,

The share-market has had an inverse relationship with inflation over a longer period. If you look at periods of higher inflation over the last 100 years, you will note that stock markets have not performed as well as other asset classes.. i.e hard assets such as commodities and precious metals.

In nominal terms, the markets may rise, not so in real terms. 

As you say, It's all relative. 

 

 

Don't mean to be rude, etc.

But that article is a complete crock of rubbish.

Saying that shares won't rise with hyper inflation... If hyper inflation comes along, it will be good for businesses because:

- if they owe debts, these will inflate away

- if a can of coke was sold for $1 by the business and it cost $0.50 to make, they have a profit of $0.5, if hyper inflation comes along and makes everything 10x more expensive, the can will sell for $10 and will make $5 profit.

So if anything, the investor that owns the business will see their capital gains grow 1000%

 

Will it really sell for $10?  Don't know about you but I won't be paying $10 for a can of coke.

If hyper inflation kicks in:

Your $40,000 salary will be $400,000

A loaf of bread will cost you $30 instead of $3

It's all relative!!

"If"  hyper-inflation sets in, which frankly from my point of view is very unlikely....the biggest risk is deflation....that is highly probable....

In which case your wages will be $20,000, if a can of coke isnt 50cents its out of luck if it costs 50cents to make you are doubly out of luck.....Those that have jobs on 20k will be the lucky ones.....unemployment will be 20~30% they wont be buying much coke.....

regards

Hyperinflationists are a bit like those 'end of the world' forecasters that climb to the top of a mountain with their cans of tinned food. They have been forecasting this since the start of the GFC, but to date we have had pretty low to moderate inflation in consumer prices, and deflation in assets such as houses and stocks. But they keep shifting their forecasts to... 'it's coming soon, trust me' - they have been wrong so far and will continue to be wrong as their assumptions are based on "Weimar Republic" style flawed logic.

The definition of inflation is an expansion of credit in the economy. This chart shows that total household debt (credit) in NZ has been falling since 2007 - we are in a deflationary (deleveraging) economy.

The reason that we still get 'inflation' as measured by the CPI is that this includes a lot of things that people MUST have.. food, energy etc. A lot of those things are commodities (rather than services) and we are in a commodity bull market due to China and other emerging economies going on a spending spree and spending all those surplus US dollars they have built up from running surpluses for the last 20 years while the Western world ran deficits.

Gold is both a commodity and also acts as 'money' (an alternative to currency). What happens to the value of money in a deflationary environment? It goes up! Gold is being powered higher by both inflation, the commodity bull market, and the fear of government defaults (loss of faith in currency) - a triple whammy. I expect it to go parabolic.

Real estate has had its day. It was stocks in the 90's, real estate in naughties, and now.. who knows... Gold? As more baby boomers retire, and downsize, the tide will turn against property and probably stocks too. This won't last forever, eventually the baby boomer's children (a secondary population bulge) will get into their 50's and have surplus cash to buy second homes with. Everything goes in cycles. Property has had its day .. for now....