Taking the temperature

Adopting a 'heat map' approach, Roger J Kerr assesses whether the 'heat' is coming on for interest rate trends to reverse

Bonds

Adopting a 'heat map' approach, Roger J Kerr assesses whether the 'heat' is coming on for interest rate trends to reverse

16th Feb 15, 3:36pm by Roger J Kerr

By Roger J Kerr

An assessment of the likely forces and influences on the future direction of New Zealand interest rates from the current record low levels is best summarised through a “heat-map” approach that scores each variable relative to the others (higher, no change, lower):

Daily swap rates

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Source: NZFMA

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Roger J Kerr is a partner at PwC. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com

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6 Comments

by steven | 16th Feb 15, 10:01pm 1424077298

Long term, post peak oil, shrinking economy that cannot function without cheap and plentiful energy. The attempted compensation will be low interest rates.

interesting how that is and will blow lots of asset bubbles by the look of it, which will in turn pop, losing a staggering amount of wealth.

by Hamish | 16th Feb 15, 10:16pm 1424078164

What do you mean losing a staggering amount of wealth? It was never really there to begin with was it? Just numbers on paper proposing the worth of assets.

by steven | 17th Feb 15, 8:34am 1424115285

Yes and no, yes it doesnt exist, there is too much of it to be translated into something real. However like the Emperor and his new clothes people are choosing to believe the non-existance and that means you can purchase real assets and power with it. Which I think is happening, the wealthy are converting the vapour money into real assets which gives them control into the future when only real things will count. Those assets will revert to their true value, a fraction of what they now are worth but the vapourcash will be worth a fat zero.

My hope is in a democracy we the people will take those assets back, otherwise we will be looking at fuedalism again. Greece is starting down that road I think, many others will follow.

by steven | 17th Feb 15, 9:03am 1424117004

"paper proposing the worth of assets"

delusion, an asset is worth what the real return on it is.

As an example of how Im thinking. Say a farm's true value today is worth 10million in a BAU scenario. We have a x2 bubble so people are willing to pay 20million for it. Its productivity however is based on fossil fuels and large energy and materials inputs that are all derived from oil. By 2050 at the latest oil is completely gone ( in fact that a symetrical Hubbert's curve so I suspect that is a lot sooner). So using organic production a farm's output is 40% lower by the look of it (could be more). So teh farms true value by say 2030 is 6million. The people who have paid 20million are looking at a 14million loss based on the returns.

Most of that will be debt of make believe 1s and 0s invented on a spreadsheet. The above owners of that debt default and the owners of the make believe 1s and 0s end up owning a real asset via financial smoke and mirrors. No wonder really that some people see gold as a store of real value, it cant be invented, it either exists or it does not (hence why I see bitcoins as a joke).

I also suspect that the (NZ) people will eventually not tolerate this, hopefully it will be 'fixed" via the democratic process (vote in a new Govn and nationalise production) and not via violence (ie revolution).

by Mark L | 20th Feb 15, 4:37pm 1424403468

In what century will this 'post peak oil' occur ?

by steven | 20th Feb 15, 5:32pm 1424406751

It was this century. It already has for conventional crude, around 2005/6. Since then condensates and shale oil has boosted the total oil. Currently its looking like when the US shale production declines that will be total world liquids, this year or next.