Well he better watch out we dont become the next Hungary.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3243058...

Andrewj

Re:Telegraph article
I had to laugh at the term wild off-track betting.

It would seem after the dust settled O/N in the counterparty bank accounts the on-track Dow Jones priced the loss and the potential of more to come.

Well.... We are not quite a "Hungary".....

Does show that we are walking a bit of a tightrope..... The plunging ravine of a falling $NZ on one side... and a deep black hole of banks needing to refinance short term borrowings on the otherside...

Thank God our Current account deficit is less than 10%..... !!!!!! HA

AND I really do wonder if inflation will be back in its "target range" by the middle of next yr...???? I don't think so.

Yep Stephen - coming off a 7.99% fixed rate in November and worried a few months ago about refixing in the 9.25% range - so bye bye Westpac - looks like I will be off to Kiwi Bank at 7.79% fixed for 2 years unless it drops a bit further - maybe I will wait till the next OCR cut in December. Such a relief to know rates are rapidly heading down!

Rossi - if the mortgage is significant and/or dependent on two incomes to service (even at a lower rate) - I'd take advantage of the possible short boost in property investor confidence and put the place on the market - with the goal of reducing outgoings to a level that a potential halving in income could comfortably support. If you're already capable of covering the mortgage on half your current earnings, then no worries.

In terms of property, it's a good market to downsize in.

Predictions - even if cash rate cut is fully passed on by the banks (haha) the real estate graphs on interest.co.nz will show:

Housing confidence graph will continue to show sharp downwards movement
Volume of sales graph will flatline over summer
Housing affordability graph will improve markedly
Median price graph will continue to sink - decline worsens
Mortgage approvals graph will show a dearth of activity

The relative value of real estate will rage on depending on the incumbent's current obligations.

But lets not be mistaken, there is a rush to purchase and park money in the suppposed safety of government debt. A quick review of our own government Treasury Bill tender statistics shows a heightened desire to own this sort of paper.
View here: http://www.nzdmo.govt.nz/publications/data/tbills-history-2008-10-21.xls

There has been a dramtic fall in the yield investors are willing to accept and the bid volumes are significantly higher.

This type of investor action starves businesses of much needed capital to maintain operations. Eventually, businesses will find the going too tough and declare bankrupty or just shut up shop and dismiss employees.

The outcome over time will be a shortage of goods in direct contrast to the overcapacity of manufacturing output and cheap prices we have enjoyed over the last 10 years or more.

At this time money will reverse out of government debt seeking to secure what goods are left. Hyperinflation is the term commonly termed to describe this sort of behaviour.

Inevitably the velocity and size of the stampede out of government debt into goods at some point will be determined by the size of national deficits.

The US is certainly racking up sizeable fiscal imbalances in it's bid to secure the safety of it's banking system. We may have to wait until after the election to see what level of deficit spending is proposed by our incoming government.

Andy Hamilton

I wonder though if we can expect a mass of returning Kiwis coming back from Asia Australia and the UK as these economies worsen? While simultaneously a weakening NZ dollar does offset the loss of wealth of overseas tourists and NZ farmers are flat out feeding the hungry world using the abundance of cheaper labour flooding back home just loving it that they are not embedded in economies that might be experiencing the worst depression in living memory:-)

No worries mate!

Jill, depends on the term you intend to invest.. i.e. 1 year, 2 years, 10 years, 25 years?

If you don't foresee the need to make your investment liquid in a hurry - then go with property (and particularly vacant land with horticultural potential) - but drive a very hard bargain, as cash is king. Pay no more than a 2003/04 valuation equivalent price.

Raf, why wait for prices to fall - if you've got cash, it's pretty easy to name the price here at the moment.

That Martenson chapter 20 was sooooo boring and the chapter on peak oil zzzzzzz!

Well Kiwibank just cut their online call rate to 6.5%, a 100bp cut whilst fixed mortgage rates were cut 20bps.

Just watch that curve steepen.

Another 150 bps off the cash rate and we are heading towards negative real rates.

What savers - ? There aren't any !
The stats all show that we don't save.
Everyone is calling to pay off debt- thats's not saving thats paying back what was borrowed.
Those with any cash left are looking to invest somewhere safe & are prepared to accept low returns in exchange for that safety.
Those that had money invested in companies or stocks are wanting out due to the high risk of loosing their capital.
Even in this very thread there's a reccomendation to invest in property- that generally comes with more debt !

Savers aren't going to help get the country running again, it is only investors who are prepared to put money into companies or shares etc that will make a real difference.
Putting money in the bank at the moment just takes it out of circulation, since the banks are now holding onto everything they can to cover their losses.
They won't even lend it to each other, so why would they lend it to the productive sector ?
Don't worry about a few savers, drop the interest rate even lower so people can afford to live, rather than be crippled by the spiraliing cost of debt & rising prices.
If there's less debt, thats less cost the businesses have to cover, so less pressure to increase costs, so the few savers we have that will be getting less return, won't be needing the higher interest as their costs won't be increasing.

Andy,

[quote]
Yep penalize savers and come to the rescue of those who got us into this mess in the first place. Odd that absolutely no-one in the political/finance establishment has had the balls to stand up and point this fact out don't you think?
[/quote]

That's because they call this 'the economy' and they want it to grow (again) and not shrink, LOL. Smoke and mirrors... in some countries less, and in NZ some more...

And, the more linked articles I read, the more sick I get by the day! In fact, all I can see now is lots of zero's, and am seriously considering buying a little hobby farm somewhere in the deep south island, with no internet, radio or tv :)

One of the foreign debt enablers looks like it's jumping ship. GMAC sheds staff:
http://www.abc.net.au/news/stories/2008/10/23/2399732.htm?section=australia

KeithW,

You are right to a degree - we do need investment to drive the economy. But most of the debt taken on in the recent past has gone to houses and consumption. What you fail to see is that we need a cooling off period so we can get back to a sustainable base from which to grow .. hopefully productively so that our investments will bring RETURNS that pay for the debt burden (unlike housing where the return is < half the debt payments).

Debt has to become manageable again, and the best way to get rid of it is to pay it off, NOT to inflate our way out. Excessively low interest rates does not encourage people to pay debt off, rather it makes them think that it has suddenly become manageable so they divert their funds elsewhere .. but then at some point rates will rise again and we will be back to square one ... but with a bigger bail out required.

Andrew in Ngaio Says on October 23rd, 2008 at 12:45 pm:
"I wonder though if we can expect a mass of returning Kiwis coming back from Asia Australia and the UK as these economies worsen?"

Why would anyone living in the UK or Australia want to head back to New Zealand where the economy is in even worst shape? New Zealand is already in recession, the UK and Australia are not.

I think I'll be sticking to the more pay, less tax UK economy thanks very much. New Zealanders living in New Zealand can bail themselves out of their own self imposed mess. If you're silly enough to vote for a Labour government then it's only fair that you also suffer the consequences of your own actions.

Have a happy recession.

Why don't you guys follow KeithW's plan and say hello to high inflation.

But these guys are saying keep your powder dry hold onto cash

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3247878...

US$
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/324292...

OECD Kiwi,

I wouldn't be too smug about living in the UK. The exposure of UK and Euro banks to emerging markets is some 5 times that of US banks. The City has contributed hugely to the UKs economic performance over recent years.

It wont be pretty from here as banks cut 25-30% of staff. The reverberations throughout the economy will be hard felt. The stories I'm getting from friends back home confirm that there are very tough times ahead.

NZ may be up the spout on its debt binge but its a more flexible economy.

We (savers) are certainly getting Fukd. Bloody reserve bank kept our interest rates low for years and created a housing boom and punished the savers. Now that the idiots who borrowed too much are hurting they drop the rates to help them and punish the savers again. Pisses me off that Bollard can ignor the 1-3% inflation band. He should have put rates up. Bollard should be fired as he has failed.

Nouriel Roubini: Crisis could lead to a "massive, ugly war."

The world is heading for a nasty, protracted recession that marks the beginning of the end of America's dominance of global finance, according to leading economist Nouriel Roubini.

"It's the beginning of the decline of the US financial empire. The Great Depression ended in a massive war. I hope that's not going to happen but it's pretty ugly now," said Professor Roubini, an academic and former US Treasury adviser. He expects a global recession to last for at least two years and said the current crisis could lead to a "massive, ugly war."

"We're now paying the price for the biggest asset and credit bubble in history," Professor Roubini said at a hedge fund conference in London. "The bail-outs have not worked because the markets are no longer rallying, and the policymakers have run out of options."

The global financial meltdown accelerated this month, with the UK and US governments being forced to take stakes in some of the world's biggest banks. Stock markets around the world have fallen sharply this month as investors' concern switches to the impact on the wider economy.

Professor Roubini, who is known for predicting some of the trouble engulfing the financial system, said he would not be surprised if the US and other countries soon had to close their stock markets for more than a week. "It's like we're walking blind in a minefield. Every situation has become risky and no-one can trust each other," Mr Roubini said."The banks are too big to be allowed to fail, but they're also too big to be saved."

He said that the problems were not just caused by the US sub-prime market, but all kinds of risky lending the world over - from mortgages and cars to student and commercial loans. Investors, according to Professor Roubini, should stay clear of risky assets and keep their money in cash.

Roubini Says 'Panic' May Force Market Shutdown

Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.

"We've reached a situation of sheer panic," Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. "There will be massive dumping of assets" and "hundreds of hedge funds are going to go bust," he said. Group of Seven policy makers have stopped short of market suspensions to stem the crisis after the U.S. pledged on Oct. 14 to invest about $125 billion in nine banks and the Federal Reserve led a global coordinated move to cut interest rates on Oct. 8. Emmanuel Roman, co-chief executive officer at GLG Partners Inc., said today that as many as 30 percent of hedge funds will close.

"Systemic risk has become bigger and bigger," Roubini said at the Hedge 2008 conference. "We're seeing the beginning of a run on a big chunk of the hedge funds," and "don't be surprised if policy makers need to close down markets for a week or two in coming days," he said. Roubini predicted in July 2006 that the U.S. would enter an economic recession. In February this year, he forecast a "catastrophic" financial meltdown that central bankers would fail to prevent, leading to the bankruptcy of large banks exposed to mortgages and a "sharp drop" in equities.

The comments preceded the collapse of Bear Stearns & Cos. and Lehman Brothers Holdings Inc. as well as the government seizure of Freddie Mac and Fannie Mae. The Dow Jones Industrial Average, a benchmark for American equities, has lost 37 percent this year, including its biggest daily drop in more than twenty years on Oct. 15. Italian Prime Minister Silvio Berlusconi roiled international markets on Oct. 10, first saying world leaders were discussing shutting down global financial exchanges, and then saying he didn't mean it.

"In a fairly Darwinian manner, many hedge funds will simply disappear," Roman said, speaking at the same event as Roubini. The hedge fund industry is stumbling through its worst year in two decades and posted its biggest monthly drop for a decade in September. Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

"Things are getting very ugly also in the emerging markets," Roubini said. "The usual saying is when the U.S. sneezes, the rest of the world catches a cold. Unfortunately, this time around the U.S. is not just sneezing, it has a severe case of chronic and persistent pneumonia. It's becoming a mess in emerging markets."

Developing nations' borrowing costs jumped to the highest in six years today as Belarus joined Hungary, Ukraine and Pakistan in seeking a bailout from the International Monetary Fund to help weather frozen money markets and a slump in commodities. Argentina risks defaulting for the second time this decade. "There are about a dozen emerging markets that are now in severe financial trouble," Roubini said. "Even a small country can have a systemic effect on the global economy," he added. "There is not going to be enough IMF money to support them."

Roubini, a former senior adviser to the U.S. Treasury Department, earlier this month said that the world's biggest economy will suffer its worst recession in 40 years. "This is the worst financial crisis in the U.S., Europe and now emerging markets that we've seen in a long time," Roubini said. "Things will get much worse before they get better. I fear the worst is ahead of us."

Business Owner
We just dont want to be earning below the rate of inflation. I still have 2 businesses. Im worried about the cost of doing business here, I think we need to get rid of our deficit and get business friendly. I pay a lot of tax both local and national. I dont like getting dicked around by Bollard. I have dual nationality I can move.

Ditto on that AndrewJ - except that I only have one business - but at least its productive not sales.

I have also put money into NZ venture capital to help grow NZ business. And the returns on that have also been below the rate of inflation over the past 10 years, despite it including companies which have won awards for innovation etc. during the period.

There aren't many savers here. And the more you favour the majority borrowers, the fewer there will be. Borrowers need savers. Savers need borrowers. You have to keep the benefits balanced between the two.

I also have dual nationality - I can move and take my assets with me. And NZ would lose a fair-sized chunk of tax, too...

A bit of advice required please, do you think it wise to fix a home loan at the 7.79 rate that kiwibank has offered since the ocr rate cut yesterday or hold off for a month or two on floating rate for the next rate cut? As a first time home buyer about to take the plunge, advice would be much appreciated.

Bernard replies;
Kelly,
All the latest mortgage rates from all the banks and others are here
http://www.interest.co.nz/mortgages.asp?20
At the moment the 1 and 2 year fixed rates still look more attractive than the variable rate mortgages. Even Kiwibank's variable rate of 8.7% is still 91 bps above the best 2 year rate. You'd have to see the OCR drop another 150 bps at least before Variable became attractive and I doubt you'd see a 5% OCR until midway through next year, and that's not a sure thing. Some of the 6 mth and 1 year rates on offer from ASB and National are looking attractive though. Gives you a bit of flexibility.

cheers
Bernard
Current

Thanks Darryl. I just needed to poke a bit to get the real truth about how most people in this forum feel and you summed it up brilliantly for us. Hopefully I will be in your situation at some stage in my life (thats why I started this business) but when I get there I certainly wont be so crude as to forget how I got there!

Gail M you are spot on -

'Borrowers need savers. Savers need borrowers. You have to keep the benefits balanced between the two.'

The RBNZ is trying to balance - why cripple the assets that pay your interest!

Andrewj

www.goldmoney.com

I am coming rapidly to the conclusion that in the next few months there will be a run on the NZ $ - and I don't mean the 30% fall we have seen in the past 6 months versus the US$, but a proper 10% a day slump.

Bollard would then be forced to jack up interest rates to protect the NZ$ (a la Iceland, Hungary etc). It is only a matter of time in my opinion before the Forex markets get around to dishing this 'medicine' out to us.

As usual I am amazed that this possibility is not even being raised by the mainstream media/pundits.

Bernard replies;
Andy,
Welcome back. I agree. There's a risk of a run. There's about NZ$8 bln of Uridashis due to mature before the end of the year which will put pressure on. Also, S&P and Moody's are reviewing all country sovereign ratings because of the raft of government deposit schemes, which increase the risk of big government bond issues. That's where the trigger point might be.
A credit rating downgrade, or the threat of one. cheers (i think) bernard

andy

Any where pray tell will this money run to? NZ at least has robust commodities not an economy run on smoke and mirrors. We may think it looks grim here but its worse elsewhere, Wait to Chrysler, Ford & GM fall over and the European Car manufacturers all so to the Govt for a bailout

Neven

Neven 911.

Yes, NZ will be still have a 'little bit of butter for its bread' (A A Milne) ...although it may taste a little rancid and the farmers may have to resort to bartering. Problem is, so many maufacturers shut down there NZ production and had their price inflated product manufacturered ofshore......

Japan suddenly has a big problem it did not anticipate ..as a safe haven for the trillions hurriedly deposited from abroad...the yen has rocketed skyward with dire consequence added to the already diminishing world market on which its domestic economy depends... suddenly, the Nihon manufacturers are now making dire predictions...the electronic industries alone are predicting 30%+ falls...sony is looking at over 50% for the next year. Then there is the vast motor and shipping industry. Not to mention the vast ski industry this winter...... just noted while writing ...the Nihon stock market went below 8000 !!!!!!!!

Just got a txt message from my son who also works in Japan. He makes great succinct quips.....' the world is in slavery... the world runs on debt'

The Russian shows how perverse economies are, the worlds second biggest oil exporter and with Europe at its knees begging for its gas and its now its now near default. I Think I'd rather have a commodity you can eat.

Dairy smeary, Cantab can grow wheat, you guys obsess over the price of milk and the fact is as fast as we changed we can change back.

Dairy tho will not crash whatever the number crunching journo say

Neven

Silly move by the Danes.........its never worked in the past and just creates more fear.

I don't think too many will worry about the falling NZ$. It's what we need to correct the current account deficit.

at the end of the day if anyone on this forum knew what they were talking about they wouldn't be posting on a forum. we would be reading about andy hamilton raising the OCR on the front page of the herald.

as far as i can see no one on this forum has lost their job or house. although given the small number of posters and high number of posts it appears that the majority probably didn't have either to begin with.

Re dairy collapse, I have to say that I think it would be good to see the industry smashed on account of its overall disgusting attitude to environmental issues - particularly water.

Across the country water quality is plummeting as effluent is carelessly discharged into waterways. In Canterbury there are concerns that, if left unchecked, it will cause the aquifers to break down. An Environment Waikato report that has been struggling to get released (at one stage copies ready for release disappeared and were shredded overnight!) indicates that 90% of dairy farms are in breach of resource consents.

Like so many others, dairy farmers have been compromising the wellbeing of Kiwis in pursuit of self-interest. No amount of export receipts can justify the industry's filthy ways. It is time a price was paid.

world famous on the internet aye?

House prices "Sure to rise" eventually http://www.reuters.com/news/video?videoId=46895