20-year loans at a fixed interest rate of zero (in Denmark)

Again, it's Jim Rickards working in a recent podcast. But something along the lines of: 2% rates minus 1.5% inflation rate, minus about 7-8% as the impact of tax deductibility. When I think it through, the impact of tax deductibility should be more like another -2%. But you get the point that real estate investors are being paid to borrow via inflation and tax deductibility.

 

Yes on my actual metrics, Tax deductability is 2.%, plus inflation of 1.5%= negative 3.50%, . My tax is averaged out. My average cost per R I P not including interest is .7.5k . Depreciation and capital works is 4.5k Average loan is 200k, 7.5k/tax rate/2 = 2k=negative 2%. If I had to pay down capital down@ 5% my outflow is 10k p/a -2k tax refund =8k Now I only have to pay 4k for interest payments after tax, and and only 2 k after deduction for all costs., Interest free principal repayments would cost 4x more annually,. and the benefits of inflation would be reduced. It is better not to pay for something that is better than free, 2.8% p/a interest cost, v 3,5% in benefits.

 

Agree, rates won’t go up, they can’t, no one wins. This is no longer a financial problem, it’s a social problem. It is so systemic now it’s about what would happen to society, not the industry, and its far too big to fail.The government will artificially suppress rates with a multitude of vehicles and made up things.

In general, I suspect people are failing to recognise they can be right about all this but still lose. This has never been more evident than now, assets are over valued, and yet, system participants win even if they overpay.Being right means nothing, this is men and systems, not physical law.The rules will just be changed when needed because men made them up to begin with anyway.

Have you heard anything on governments repricing gold? Something lately was mentioned about governments being buyers of last resort and just buying gold to set the price, it would effect their sovereign debt somehow (favourably).

 

Ah, you got me on my favourite topic - the precious metals. Gold and real estate very similar actually, except for portability of course.

Again, Jim Rickards was asked this question on a podcast this week, and he said that governments could get the inflation they want simply by adjusting the gold price higher (as FDR did in 1933) - which is a de facto currency devaluation. But he said it was unlikely to happen until later in the cycle.

Gold should go up over the next few years in my view, as the free market (not the government) tries to re-monetise gold. Same thing happened in 1980.

There is a lot of speculation about gold price manipulation by governments to indirectly manipulate the USD, but I don't personally have a view on whether that is true or not.

 

@John_BridgeToBricks these topics are far outside my level of expertise but interested to hear your thoughts on the effect of Bitcoin now when you talk about governments being able to manipulate gold prices?

I think it’s clear as day now that bitcoin is not a bubble and is purely becoming a store of wealth (the uneducated still think of it as everyday currency which it isn’t at all, just like gold isn’t).

 

Hi Albanga, I was aware of Bitcoin very early on, and it's one of my big regrets never buying any. I distinctly remember a chat around the dinner table with my wife debating whether to buy at $30.00. We didn't.

In truth, I don't really understand bitcoin. I understand the arguments around scarcity and efficiency as a payment platform, and I get block-chain. But I just don't understand the store of value argument, nor the intrinsic value argument.

So as far as bitcoin goes, it's a "currency:, but I am not convinced it's "money". It's one of those asymmetric trades that could go to zero or $100k, and I am just not smart enough to know which way it will go. Well done to those who have had the foresight to invest though.