What happened Thursday

Business / news

A review of things you need to know before you sign off on Thursday; Kiwibank among those changing rates, commodity prices fall, a2 Milk wins in the US, NZGB yields slip, swap rates rise, NZD firm, & more

3rd Nov 22, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).

MORTGAGE RATE CHANGES
Unity Money and ICBC both raised fixed rates today.

TERM DEPOSIT RATE CHANGES
Kiwibank raised its term deposit rates today, but none are market-leading although their 6 month 3.85% is better than any other main bank, and their 1 year rate is now 4.60% and also better than any big Aussie bank.

COMMODITY PRICES FELL
Commodity prices fell again in world price terms, but the basically held unchanged in NZD terms in October because the NZD fell in that month. Falling shipping costs helped. Meat prices fell sharply in the month, dropping -5.8% overall. Lamb prices fell the most (-7.1%) while beef (-5.2%) and wool (-2.9%) also dropped. Lamb is being impacted by weaker economic conditions in Europe and China, the main markets for this product. Beef pricing is being pushed down due to plentiful supply in the US as drought conditions result in more cattle being culled than normal.

ACCESSING ANOTHER LARGE MARKET
a2 shares (ATM, #9) jumped about +7% after the company said the US Food and Drug Administration has approved a2's application to send infant milk formula products into the US market. Synlait (SML #32), their supplier, got a bounce as well.

SOLID DEMAND, BUT LOWER YIELDS
There was another well-supported NZGB bond tender today with $400 mln offered and attracting $821 mln in bids. The $200 mln May 2028 went to 24 of 44 bidders at 4.57% which was less than the 4.75% two weeks ago. The $150 mln April 2033 went to 9 of 45 bids at an average yield of 4.44% which was also less than the 4.80% at the prior equivalent tender a month ago. The final $50 mln attracted $81 mln in bids from 24 bidders and was won by 12 of them at an average of 4.80% pa, down from 5.05% a month ago.

WE'LL NEED MUCH MORE OF IT
New Zealand is entering a period which will require substantial and bold investments across a range of sectors, from building more renewable energy sources to support the pursuit of net zero targets to development of technology sectors. KPMG has released new analysis of the flows of foreign direct investment coming into New Zealand to provide an overview of recent trends. Between 2013 and 2021, foreign direct investment has grown. The US and Australia are still the main sources of gross foreign direct investment, when measured over the last three years. Transaction activity was strong through the pandemic post the initial outbreak, as evidenced by high levels of M&A activity in 2021.

CONTINUING GIANT SURPLUSES
Australia recorded a +AU$12.2 bln goods and services trade surplus in September, up +AU$3.8 bln from August and up +AU$2.2 bln from the same month a year ago. It isn't their best month ever, but is the fifth month in the last 12 where the surplus has exceeded +AU$12 bln. Surging mining exports drove this result, of course.

SWAP RATES FIRMER
Wholesale swap rates may possibly be firmer again. NZGB yields certainly are again. Our chart will record the final positions. The 90 day bank bill rate is up another +1 bp at 4.17%. The Australian 10 year bond yield is now at 3.90% and up +15 bps. The China 10 year bond rate is unchanged at 2.69%. The NZ Government 10 year bond rate is now at 4.58%, and up another +19 bps from this time yesterday and now just above RBNZ fix for the NZGB 10 year which was up +25 bps at 4.56%. The UST 10 year is now at 4.12% and up +10 bps from this time yesterday and all due to the US Fed signals.

EQUITIES FALLING
In New York, after the US Fed announcement, markets cheered and rose on the basis that the Fed seemed to be easing off its rate hike program. Then commonsense kicked in. Shifting from +75 bps hikes to +50 bps hikes still means aggressive hiking. Equities then packed a sad, diving -2.5% to end the day for the S&P500. The Dow fell -1.6% while the tech-heavy Nasdaq dived -3.4% on the same realisation. Tokyo is closed for a public holiday (Culture Day). Hong Kong closed early yesterday on a Typhoon warning but is back open today, opening down -1.7%. Shanghai has opened -0.7% lower. The ASX200 is down -1.9% in afternoon trade. The NZX50 is down -0.8% in late trade.

GOLD LOWER
In early Asian trade, gold is at US$1639/oz and down -US$11 from this time yesterday.

NZD SOFTISH
The Kiwi dollar is a little softer at 58.2 USc. Against the AUD we are firmer than this time yesterday at 91.7 AUc. Against the euro we unchanged at 59.2 euro cents. That all means our TWI-5 is at 68.9 and a -20 bps slip.

BITCOIN SLIPS
Bitcoin is lower today, now at US$20,201 and down -1.5% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.8%.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

This soil moisture chart is animated here.

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72 Comments

by realterms | 3rd Nov 22, 4:10pm 1667445050

> Equities then packed a sad

Or, as happened on interest.co.nz this morning, people actually looked at what the Fed said and couldn't find any evidence of the supposed easing bias in the initial headlines.

by Retail shop | 3rd Nov 22, 7:58pm 1667458706

“What I’m trying to do is make sure our message is clear: we think we have a ways to go,” Powell said. “Rates have to go higher and stay higher for longer.”

by Carlos67 | 3rd Nov 22, 4:12pm 1667445160

Things are not looking good, even worse I'm turning into a DGM. Personally thought it was all going to hit the fan next year but got this Goblin inside me telling me it could all happen this year.

by Independent_Observer | 3rd Nov 22, 4:25pm 1667445900

Welcome to the doom goblin club Carlos - I’ll add you the Xmas card mailing list

by HouseMouse | 3rd Nov 22, 4:34pm 1667446441

Send him one of your t shirts.

do it, do it, do it….

by Independent_Observer | 3rd Nov 22, 4:45pm 1667447131

I'll see if Carlos is like Yvil where one day he tells you the world is ending and we're going into a depression, and then the next day tell people to stop being so negative and just have a positive mindset.

by Foxglove. | 3rd Nov 22, 4:57pm 1667447848

Possibly the answer to those swings, might lie in the bowels?

by Yvil | 3rd Nov 22, 5:52pm 1667451159

Thanks for making stuff up out of thin air IO. Why do you have a problem with me changing my view of the economy late last year? I think many circumstances have changed and I have adapted my view, until late 2021 I was bullish, since then I'm becoming more and more bearish. Get over it.

by Independent_Observer | 3rd Nov 22, 6:53pm 1667454832

You can be the doom goblin with the positive mindset

by Passerby | 3rd Nov 22, 7:25pm 1667456733

Asking IO to get over it when you couldn’t get over it when commenters did not share your singular, narrow viewpoint. Constantly trashing them for having an opposing view and can’t handle being called out. Happy to dish it but can’t take it.

by Retail shop | 3rd Nov 22, 7:50pm 1667458246

Geez. Why don't you guys get a room?

by Pa1nter | 3rd Nov 22, 8:57pm 1667462252

Holding a belief about an overall approach to commerce doesn't preclude someone from identifying adverse market conditions.

This is generally a fairly unpredictable environment at the moment, so anyone making any serious financial moves will want to be increasing their margins or be well funded. Some schools would actually promote being prepared for such environments.

by Smudge02 | 3rd Nov 22, 5:38pm 1667450281

Welcome to the doom goblin club

So when this all actually happens can we then call ourselves "Realists"?

by HouseMouse | 3rd Nov 22, 5:43pm 1667450593

Haha

so Carlos joins Yvil in being doom goblin-ish

That just leaves TTP and HW2 to convert to the ways of the Prophet

by Yvil | 3rd Nov 22, 5:52pm 1667451133

I think many circumstances have changed and I have adapted my view, until late 2021 I was bullish, since then I've becoming more and more bearish. If/when economic indicators improve in a few/many years, I'll be bullish again, I don't see a problem with adapting my views to changing circumstances.

by HouseMouse | 3rd Nov 22, 5:57pm 1667451454

That’s fine. Apart from the fact that you were sometimes quite rude to people who held bearish views a year or two ago ( and have been proven right).

by Foxglove. | 3rd Nov 22, 6:16pm 1667452601

A question of foresight vs hindsight? Often, in terms of opinion and as a matter of convenience, the gap between the two can become indiscernible.

by Passerby | 3rd Nov 22, 7:29pm 1667456974

Very rude and constantly harassing others for having a differing view. You just don’t forget the constant trolling Yvil subjected many to.

by Yvil | 3rd Nov 22, 7:51pm 1667458287

Ohhh poor Snowflake, sorry I mean Passerby, have your feelings been hurt?

by Foxglove. | 3rd Nov 22, 4:25pm 1667445931

Lamb prices should be at their peak for the European Xmas chilled trade, sea freight for which is now getting towards closing off. It is of course a great product but pricey to go with it. Sounds like though there is consumer resistance to those prices which will be belt tightening for obvious reasons. It’s a worry though, this a trade period vital for good revenue.

by J.C. | 3rd Nov 22, 4:38pm 1667446697

Japanese beef exports doing quite well to China and South-East Asia. Quite high margins for the exporters and the declining yen helps. Aussie and U.S. beef exports to Japan must be under pressure.

by Pat.T | 3rd Nov 22, 5:14pm 1667448896

We manufacture a piece of farm equipment used by sheep farmers, have had the business for nearly 22yrs, we ride the ups and downs of sheep meat prices, sheep and beef farmers have had a really good run for many years.

A leg of lamb here has been up to $40, too expensive for the average household.

by GV 27 | 4th Nov 22, 7:11am 1667499101

I just avoid lamb. Will do so again this Xmas even though it is my favourite meat and had become something I look forward to.

$50 for a single piece of bone-in of not-quite-export quality with a decent amount of fat removal required to get the taste of the meat coming through is really not something I can justify. Incredible to think that when I grew up, this used to be the default Sunday family roast.

by rolande | 4th Nov 22, 7:27am 1667500043

I was a kid in the 80s. I remember Chicken was a luxury and we weren't well off so hardly ever ate chicken.

But mum often bought an industrial size bag of frozen lamb chops and she poured them into the oven dish like cereal. Must have been affordable back then.

by Pa1nter | 4th Nov 22, 7:31am 1667500290

Propped up by the state, I believe.

by rolande | 4th Nov 22, 9:00am 1667505636

Yeah, was probably at the end of the era of subsidies and when farmers were getting rid of their high country flocks. But man I could eat a lot of those lamb chops.

by Audaxes | 3rd Nov 22, 4:38pm 1667446733

KPMG has released new analysis of the flows of foreign direct investment coming into New Zealand to provide an overview of recent trends. Between 2013 and 2021, foreign direct investment has grown.

Does Foreign Direct Investment Generate Economic Growth? A New Empirical Approach Applied to Spain

It is often asserted with confidence that foreign direct investment (FDI) is beneficial for economic growth in the host economy. Empirical evidence has been mixed, and there remain gaps in the literature. The majority of FDI has been directed at developed countries. Single-country studies are needed, due to the heterogeneous relationship between FDI and growth, and because the impact of FDI on growth is said to be largest in open, advanced developed countries with an educated workforce and developed financial markets (although research has focused on developing countries). We fill these gaps with an improved empirical methodology to check whether FDI has enhanced growth in Spain, one of the largest receivers of FDI, whose gross domestic product growth was above average but has escaped scrutiny. During the observation period 1984–2010, FDI rose significantly, and Spain offered ideal conditions for FDI to unfold its hypothesized positive effects on growth. We run a horse race between various potential explanatory variables, including the neglected role of bank credit for the real economy. The results are robust and clear: The favorable Spanish circumstances yield no evidence for FDI to stimulate economic growth. The Spanish EU and euro entry are also found to have had no positive effect on growth. The findings call for a fundamental rethinking of methodology in economics.

by Independent_Observer | 3rd Nov 22, 4:43pm 1667447005

This afternoon I thought I would investigate the following statement:

"the increase in interest rates would be covered by the increase in rents"

So I ran the numbers on this in excel using a Net Present Value of cash flows model.

If your investment property starts with an initial rental income of $30,000 (for example..) and it increases at 8% inflation a year and the lending is arranged for a 20 year term (for example), if the discount rate applied to this is investment is 3% (i.e. say current lending rate), the Net Present Value of the cash flows is $948,395. Roughly the average house price in NZ.

If the discount rate increases to 8% as the banks run the new stress test rate, this reduces to $555,555.

So even though your income on the property is increasing at the rate of inflation, the higher discount rate erodes this, and the value of the asset drops by around 40%.

I can see why the banks are getting nervous around lending in this environment.

What it could also mean, is that unless interest rates drop soon, the crash has already happened based upon the numbers, but it isn't visible yet as it takes time for the market to adjust to the new financial conditions. Unless conditions change, there are people in the system holding bad debt that is soon going to get exposed i.e. unless inflation and interest rates drop, we're playing a game of hot potato with bad debt.

by Independent_Observer | 3rd Nov 22, 4:53pm 1667447594

Also to expand on this, if to contain 8% inflation, mortgage rates go up to:

10% - then the NPV of the cash flows falls to $460,000

12% - $388,000

15% - $306,000

If mortgage rates peak roughly where they are now around 6% then the value of the cash flows falls to $680,000 - still a 30% decrease in price.

by fortunr | 3rd Nov 22, 5:09pm 1667448591

If you add inflation to the picture, the decrease in prices would easily turn into 40-45% in real terms, even in a relatively conservative scenario. The loss in value of the housing stock is going to reach epic proportions. It was all nothing more than a gigantic Ponzi anyway, and the next year or so will clearly reflect it.

by Independent_Observer | 3rd Nov 22, 5:11pm 1667448696

Yes but who knows what the future may hold - central banks may pivot to reduce the discount rate or come up with another way of supporting the current system.

Although it would appear to me that the only options that they have at their disposal risk creating even more inflation.

by J.C. | 3rd Nov 22, 5:01pm 1667448087

Money post IO. Nice and simple.

by Independent_Observer | 3rd Nov 22, 5:39pm 1667450393

Interesting that the ishares 20+ year treasury exchange traded fund (ticker TLT) has priced in this change of inflation/discount rate to that similar series of cash flows already and its down approx 45% this year.

So with that, you get the immediate market pricing - as opposed to real estate that takes time to catch up as mortgage holders move to the higher rates of interest.

by Audaxes | 3rd Nov 22, 6:34pm 1667453685

Unlike their underlying instruments, bond ETFs do not have a maturity date.

I guess this makes the pricing different to the underlying coupon bearing bond instrument which has a defined maturity, generally less than 30 years.

Perpetual bonds are priced thus :

Present value = D / r

Where:

D = periodic coupon payment of the bond

r = discount rate applied to the bond

A discussion about perpetual pricing versus coupon bearing defined maturity bonds has arisen before on this discussion board which caused me to challenge the editor at the time.

You could compare the outcomes using the NZDM office formula: https://debtmanagement.treasury.govt.nz/sites/default/files/media/media…; (Page 8 of 18)

On the run US Treasury securities details can be found here. Redemption value is normally par, $100.

You could try my bond calculator : www.omo.co.nz/NZ_BOND_CALCULATOR.xls

by ACB | 3rd Nov 22, 6:24pm 1667453092

A bond ETF is just like a packaged bond portfolio managed against a benchmark which has a duration. Whilst the ETF has no set maturity itself, the underlying instruments have a duration at any point of time which changes from day to day (usually slightly), so I don't believe that you are correct here in terms of the calculations. Just use the portfolios duration.

by Audaxes | 3rd Nov 22, 8:17pm 1667459876

Duration is not a pricing formula suitable to determine the discounted present value (purchase value) of a bond.

Fixed-Income ETFs: Understanding Duration

Still, duration provides a common framework for evaluating interest risk. In fact, duration is sometimes expressed in years. You can think of duration as the weighted average of all the cash flows from the bond over time; that is, all the coupons and the return of principal paid by the bond issuer to the investor.

For example, a duration of 4.3 means a bond's value will decrease 4.3 percent given a 1 percent increase in interest rates, and vice versa.

by ACB | 4th Nov 22, 7:47am 1667501223

Yes duration is shorthand for determining change of value given change of interest rate, it is not the same as a DCF, but your view that a bond portfolio held as a ETF is therefore a perpetual is incorrect. Would the valuation of a 0-1 year bond ETF be the same as a 20+ year bond ETF.

by Independent_Observer | 3rd Nov 22, 7:21pm 1667456508

Good points there Audaxes.

"Unlike their underlying instruments, bond ETFs do not have a maturity date."

I guess neither do the bank's mortgage book - it is just a continuation of new loans and maturing loans - perhaps similar to bonds in the ETF that are being bought to market and those that mature from the market. - but the cash flows for each bond issue are being discounted for 20+ years (for the TLT) as the inflation and interest rate environment changes and the real time pricing gives an indication of the present value of those collective cash flows.

It is possible it's not representative at all - but it is the closest real time pricing asset I could think of to compare to a 20 + year mortgage where it will take time for the impact of the change to the discount rate being applied to expected future cash flows to be revealed to everyone in the market.

by Audaxes | 3rd Nov 22, 9:31pm 1667464314

Now you can price a NZ twenty year government bond with the same YTM price changes you employed in your original examples. My calculator formulas work for real time trading. Certainly with ANZ's institutional trading desk in past times.

The interest rate risk management function of a large NZ mortgage bank's book is beyond my knowledge. In my own time in London the bank employed a warehouse risk manager to real time mark to market the book and employ duration/convexity analysis to manage the trading room US Treasury portfolio risk. Basis adjusted cheapest to deliver futures contracts were the hedge of choice. My job was to buy low, sell high and/or short sell high to buy low. Easier said than done.

by fortunr | 3rd Nov 22, 5:05pm 1667448323

" the crash has already happened based upon the numbers, but it isn't visible yet as it takes time for the market to adjust to the new financial conditions".

Exactly right, the only reason why this is not visible yet is that the housing market is not as liquid as other markets, therefore it is slower in reflecting the new reality. Moreover, there is significant upside risks to the OCR peak level, given the tardiness of the RBNZ in tightening monetary conditions. The only result of their softy softy approach to OCR raises will be a higher OCR peak than otherwise necessary. This is what happens when we give the levers of the NZ economy to incompetent muppets, both in Government and at the helm of the RBNZ.

by redcows1 | 3rd Nov 22, 5:14pm 1667448868

There is another reason it's not visible and it was noticeable listening and reading media today. Many simply refuse to look.

by HouseMouse | 3rd Nov 22, 5:22pm 1667449378

Wilful ignorance.

by Independent_Observer | 3rd Nov 22, 5:38pm 1667450337

Yes the ishares 20+ year treasury ETF gives more immediate feedback of the pricing of a similar series of cash flows with the changes occurring in discount rates.

Down about 45% so far.

iShares 20+ Year Treasury Bond ETF (TLT) Stock Price, News, Quote & History - Yahoo Finance

by Justa comment | 3rd Nov 22, 4:48pm 1667447322

Those long term swaps have turned back up strongly again the last 2 days. Kiwibank looks like they dont want any long term retail funding going by their new TD rates today, the 4 and 5 year well below the market. I would have thought the banks would be looking to sure up their 3 to 10 year book ofter RBNZs statement yesterday.

by phalanax | 3rd Nov 22, 7:08pm 1667455697

North Korea seems determined to celebrate Guy Fawkes early this year by launching missiles ... Begs the question. Whats RE worth if war breaks out in the Pacific ?. Tackling inflation might be tougher than the RB ever thought. Have we blinded ourselves to a potentially severe threat? Hard not to notice the Ozzies are getting B52's and already have a few B2 Stealths ,F35's... We come in peace... I guess that will stave them off.... apologies for the distraction.

by GV 27 | 4th Nov 22, 7:31am 1667500275

You're goddamn right, then it's got nothing to do with the B-3 Bomber.

by Zachary Smith | 3rd Nov 22, 8:06pm 1667459215

If houses become less affordable would it be fair to say they have in a sense become more expensive?

For example if house prices stayed the same but borrowing costs went down then houses become less expensive. Yet we observed that lowered borrowing costs caused house prices to inflate. Increased borrowing costs should cause house prices to deflate all things being equal. If they don't deflate then in a sense the bubble is continuing to inflate.

...just thinking out loud...

Interest rates could go up and a stall rather than a decline in house prices could be viewed as houses continuing on their inflationary trajectory. A restricted supply could work this way. It's not necessarily certain that house prices would go down. If their natural propensity was to double in price every ten years then that pressure should still be there but just suppressed by higher interest rates. Higher interest rates haven't punctured the bubble they have put a steel band around it.

by Independent_Observer | 3rd Nov 22, 9:06pm 1667462808

The cognitive dissonance must be a real headache ZS when decades of confirmation and recency bias suddenly no longer appear to make any sense.

House prices must double every 10 years!

$2,000,000 average by 2030 with FHBs taking on $1,600,000 mortgages at 8% interest rates! $128,000 in interest alone annually before paying any principal.

Possible in nominal terms but if true, inflation is going to be far bigger issue than what we expect, and wages will need to more than double to make it work.

by Zachary Smith | 3rd Nov 22, 9:17pm 1667463430

Doubling every ten years sounds dramatic but isn't really only 7% per year compounding?

That 8% interest rate will stop the doubling but not necessarily crash the price.

by malamah | 3rd Nov 22, 9:33pm 1667464398

For sustainable house prices, the real price should barely change. In some ways this would be the effect of DTI. As wages rose, prices would adjust accordingly.

For house prices to rise 7% nominally, that 7% needs to be offset elsewhere otherwise the housing market is consuming a greater and greater portion of the economy as a whole. Until it’s an all consuming beast and the slightest hint of inflation would send it tumbling.

Theres no more money for it. It all dried up overnight. People gotta eat, houses aren’t going anywhere.

by Audaxes | 3rd Nov 22, 9:38pm 1667464700

Where's the NZ domestic rental source income to support such capital value adjustment. Cash flows are the only wealth.

by Independent_Observer | 3rd Nov 22, 10:03pm 1667466187

You’re still completely missing the point of my post/s. Will further simplify.

A number (house prices) 10x the size of a smaller number (incomes) both cannot both sustainably grow at 7% when the price of one is valued by the other. The smaller number will need to grow far faster than the bigger number to make this possible if the discount rate that is used to price the asset increases. It’s only been possible in your adult life by falling mortgage rates. It doesn’t work if mortgage rates regulate or rise over the long term.

I’ve come to the realisation (again) that a 40 year bond bubble and falling interest rates has destroyed peoples ability to think rationally about asset pricing.

by malamah | 3rd Nov 22, 10:22pm 1667467376

I wish I could @pragmatist.

The required 7% wage inflation is a net calculation. That is 7% more dollars in the pocket to service the debt (And 7% more deposit). Due to the progressive tax system, you’d need more than 7% increase to cover it.

e.g if you’re earning 100k, you’ll need an 8% pay rise to get 7% increase in net pay.

Provided that interest rate changes weren’t at play.

by meh | 3rd Nov 22, 10:27pm 1667467631

Could be that our belief asset prices magically increasing equals real wealth has been irrational all along.

by spacecadet | 4th Nov 22, 8:19am 1667503197

Seems to me that the outsized capital gains on property are mostly the result of the discount rate continually dropping for the last 35 years...(and direct manipulation from QE in the last 14 years)

Eg what specuvestors are essentially doing (without realising it) is leveraging huge amounts of money and betting by proxy on the bond market, that is to say the denominator in the equation has had the largest impact on pricing because the nominator has not changed at the same rate (stagnant wages etc).

It should be noted a discount rate change from 2-3% has a far greater change in price than a change in discount rate of 8-9%

by malamah | 3rd Nov 22, 9:16pm 1667463371

Serviceability is reported as being harder for FHB now than last year once the price drops and interest rate increases are factored in. That is in some way, as you say, more expensive. There’s still a lot of downward pressure in the market with interest rates going up, and affordability “getting worse”. Interest rates have a stranglehold on the credit needed to fund the market.

If prices stall and interest rates are still going up then chances are inflation is still present and the real price is going down still. Though indicate there is some support in the market. It’s hard to tell where that price point may be. Part of discovery.

Finally, a lot of the previous ~15 years housing pressure has come from lack of supply and highly competitive investors pricing owners out of the market. Though see IOs post above as to how the numbers just aren’t adding up for investment right this minute. And supply seems to be coming onto the market, a few days ago interest had a column on Auckland housing supply clearing the shortage this year.

by Zachary Smith | 3rd Nov 22, 9:27pm 1667464077

Yes, we have to stop the building frenzy or import more buyers.

by malamah | 3rd Nov 22, 9:35pm 1667464516

For what benefit?

by Zachary Smith | 3rd Nov 22, 9:44pm 1667465068

For my benefit really but a somewhat soft landing would be in most people's interests. Our economy, our society really, relies on consumerism and orderly financial flows

by Independent_Observer | 3rd Nov 22, 9:54pm 1667465640

Reliance on QE means we’ve gone past orderly financial behaviour. It’s either boom or bust now.

by malamah | 3rd Nov 22, 9:55pm 1667465707

Yes so it’s unfortunate that disorderly financial flows have gotten us into this mess. And a return to orderly financial flows needs to be so painful.

We’ve been privy to a live action of Hansel and Gretel played out over several decades. Now Orr is locking us away. He may end up getting burnt, but there’s a moral to all of this.

by meh | 3rd Nov 22, 10:19pm 1667467157

All sounds a bit unhinged really...

Very far from orderly financial flows, property doubling every 10 years, creating "wealth" out of thin air, hoarding "value" in property, pathological consumption... most unintelligent species...

by Zachary Smith | 4th Nov 22, 6:18am 1667495886

Well even term deposits would double every 14 years at 5%. This being shocked at houses doubling every 10 years is disingenuous. Property has been a valuable and sought after commodity for millennia. No different to hoarding any other type of wealth.

by meh | 4th Nov 22, 1:48pm 1667522889

Sounds like the old "this is the way we've always done it, we don't want to know any better".

by meh | 3rd Nov 22, 10:45pm 1667468750

Are you confusing house affordability with debt affordability, as this site has been doing for many years per their home affordability reports?

"Lowering borrowing costs caused house prices to inflate"... Economics 101, too much debt money chasing too few houses and the expert economists at the RBNZ couldn't foresee this. The expert bank economists saw it, it's their business model and they also hold all the power in their puppet strings. Note the blame game the last couple of years.

Reality was it was never a shortage of houses but too many competitors in the market...

by Zachary Smith | 4th Nov 22, 6:26am 1667496397

There was a shortage of houses due to high immigration. Housing affordability is a factor no matter how much you protest. Debt is an integral component of the economy. We saw house price inflation due to low borrowing costs. A fair amount of the potential of house price inflation is now being absorbed by borrowing costs. House prices will also continue to stay high due to general inflation.

by malamah | 4th Nov 22, 9:53am 1667508802

General inflation (I assume you mean CPI inflation or wage inflation?) is eating away at house prices.

Imagine a scenario where everybody gets paid $3pw.

1/3 is taxed, $1 for food/bills and $1 for housing.

A year later food/bills cost twice as much, and wages rise to meet the extra cost. Everybody gets $4.5pw. 1/3 is taxed, $2 for food/bills, $1 for housing.

The real cost of housing has dropped, the equivalent cost to when everyone earned $3pw, is 67c towards housing. 33% drop in value.

Now add in interest rates which have doubled 3% to 6%. $1pw used to get $520 debt, now gets $360, reducing FHB buying power from being able to afford a $650 home to $490 home (factoring in 20% deposit in both scenarios). And that $490 is now worth 33% less than is was a year ago.

If houses kept up with inflation, that house would be priced double, requiring $6pw wages and the real value of the home would remain unchanged.

So, where is the money coming from that will keep house values so high?

by HouseMouse | 3rd Nov 22, 10:30pm 1667467840

I have been following Grantham for a while. Suggests holding cash, as I have been doing since late last year:

https://markets.businessinsider.com/news/stocks/jeremy-grantham-stock-m…

by Carlos67 | 4th Nov 22, 3:43am 1667486603

Yep I'm all in on cash, TD rates will be over 5% next year, possibly even hitting 6% at the not so well known banks going by the current state of play.

by Zachary Smith | 4th Nov 22, 6:28am 1667496535

Saving has been and continues to be a loser's game.

by Pa1nter | 4th Nov 22, 6:30am 1667496631

It's pretty hard to save yourself rich for sure. Overall though a better strategy than living beyond your means.

by False economies | 4th Nov 22, 6:56am 1667498163

Sometimes it's about return of your money not return on your money...