A final review of things you need to know just before you go home for the year; some final rate changes, consumer confidence up, houses less affordable, dairy farm sales slump, housing debt rises faster, swaps up, NZD holds high, & more

A final review of things you need to know just before you go home for the year; some final rate changes, consumer confidence up, houses less affordable, dairy farm sales slump, housing debt rises faster, swaps up, NZD holds high, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
TSB has cut its one year fixed rate to 3.39% and raised its two year rate to 3.55%. This matches a number of other rivals.

TERM DEPOSIT RATE CHANGES
Kiwibank has trimmed -5 bps from a small set of key rates between 6 and 12 months.

RISING CONFIDENCE CONFIRMED
Hard on the heals of the WestpacMM quarterly consumer confidence report, the ANZ-Roy Morgan one for the month of December was out today and also recorded a lift in sentiment. Consumer confidence lifted +2 points in December to 123, its third consecutive increase and that is now above its historical average. The proportion of households who think it’s a good time to buy a major household item lifted another +3 points to 44%, a solid level.

GOING THE WRONG WAY
Strongly rising house prices have more than wiped out the benefits of lower interest rates for first home buyers. Rising house prices are pushing the dream of home ownership further out of reach for aspiring first home buyers, in spite of recent cuts to mortgage interest rates, Interest.co.nz's latest Home Loan Affordability Reports show.

LAND AGENT SPRUIKING
The Real Estate Institute is claiming there has been a "healthy surge" in the lifestyle block market but that may only be them talking up a very modest rise. In November 2018 there were 659 lifestyle block properties sold nationally and this has risen to 680 in their November 2019 data, a rise of +21 or just +3.2% in a year, and hardly much of a "surge". A check of our charting of this data shows that there has been a definite trend down since May 2016 which was the peak of an earlier trend that started in January 2009. Median prices were up +5.3% over the same period, but that is a difficult metric given the wide range of quality and areas being sold.

REAL ESTATE 'REALISM'
On the other hand, the REINZ identification of a slump in dairy farm sales is on the money. November is usually when dairy farm sales kick into gear and in November 2018 there were 30 farms that changed hands nationwide. This year only six did - and that is definitely a slump in anyone's language. (In November 2017 there were 35 sales, November 2016 there were 31.) But our monitoring of dairy farm sales listings shows that the number of farms being offered for sale is substantially lower in 2019 than 2018. This is especially true in the main North Island dairy regions. So one reason for low dairy sales is that current owners aren't keen to leave. It's a slump for real estate agents, not for dairy farm owners. Overall, 118 farms sold despite the dairy slump with volumes for grazing farms, horticulture blocks and especially forestry blocks much higher than the same month a year ago. Sales of arable and finishing farms were weak on this year-on-year metric. More details here.

A DOMINANT CUSTOMER
The latest PF Olsen log report reveals that 80% of our logs now go to China. It also reveals that we struggle to get international customers to buy our sawn timber due to our costs, undermining the idea that we have options to "add value". It seems that further processing in New Zealand only seems to add cost.

A FIRM PUBLIC POLICY SHOVE
The Goverment is cracking the whip on open banking. Commerce and Consumer Affairs Minister Kris Faafoi has given slow-moving banks a timeline to set up systems to better enable data sharing aimed at creating more competition.

HEATING UP
The growth of housing debt just keep going up. In the year to November, it is up +6.8% to $275 bln, of which banks hold $272 bln. +6.8% pa is the fastest growth rate since August 2017. But the non-bank portion, while a relatively tiny $3 bln is growing at the heady pace of +13.8% pa as tighter banking lending criteria drives more borrowers to the non-bank sector. 

BNPL MARCHES ON
The double data sets released for personal lending (other than housing) and the credit card data gives us a look at the struggle traditional lenders are hiving competing with the Buy Now, Pay Later sector. Credit card balances are now falling, down -0.4% in a year. But personal loans are down -0.7% on the same basis. This is significant because these personal loans include car loans and they won't have been challenged by BNPL platforms - so the personal consumption-type lending will have, and that is struggling. It won't help that many traditional personal loan companies are rushing to convert to BNPL options.

THAT'S IT FOR 2019
This is our final review of "What happened today" for 2019. We wish you a happy holiday season whatever your plans. However we will be releasing a daily briefing most mornings and items that may normally be included here will be covered there. All the best.

LOCAL SWAP RATES RISE AGAIN
Wholesales swap rates are firmer yet again, repeating yesterday's gains. Today they are up +2 bps for two years, up +4 bps for five years, and up +5 bps for ten years and taking it to 1.81% and its highest since July. The 90-day bank bill rate is unchanged at 1.24%. Australian swap rates have moved up only half the NZ levels.. The Aussie Govt 10yr is up another +6 bps at 1.31%. The China Govt 10yr is unchanged at 3.24%. The NZ Govt 10 yr yield is also up another +5 bps, now at 1.65%. The UST 10yr yield is up +1 bp to 1.92%.

NZ DOLLAR UP
The Kiwi dollar is higher after yesterday's GDP result at 66.1 USc. Against the Aussie we are unchanged at 95.9 AUc. Against the euro we have risen to 59.4 euro cents. That means the TWI-5 is back up at 71.2.

BITCOIN HOLDS
Bitcoin is little-changed today, now at US$7,101 as the recovery over the past two days peters out. The bitcoin price is charted in the currency set below.

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....and you and yours have a great Festive Break as well.

Merry Holidays and Happy New Year to all - its been a good one on all fronts (even the weather).

Smartshares NZX50 ETF up 25% for the year while high-dividend yield ETF finishing on 15%. Not too shabby.

Just remember:
The prospect of out of thin air central bank money creation and rate cuts further discounting future cash flows to higher present values remains the only driver of upward momentum. Graphic evidence
Courtesy of Hussman :

The idea that “low interest rates justify high stock valuations” is really a statement that “low interest rates justify low expected stock returns as well.” Those high stock valuations are still associated with low prospective future stock market returns.
Worse, the notion that “low interest rates justify high stock valuations” assumes that the growth rate of future cash flows is held constant, at historically normal levels. If, as we presently observe, interest rates are low because growth rates are low, no valuation premium is “justified” by low interest rates at all.
Presently, the combination of record low interest rates and record high stock market valuations does nothing but add insult to injury.

...the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment..
The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal.

Oh for sure. I agree completely. As an aside, Smartshares has a very low participation from private investors when I last read their annual report.

Strongly rising house prices have more than wiped out the benefits of lower interest rates for first home buyers.

I hate to post this again, but it seems poignant for those without assets:

Wealth effect or wealth illusion? The other therapeutic effect of lower-for-longer interest rates is the wealth effect. By driving up the value of future cash flows with lower rates of interest, all manner of assets – stock, bonds, and houses – increase in value and, thereby, can stimulate our marginal propensity to consume. More simply put, the imperative was to make rich people richer so as to encourage their consumption. It is not so hard to imagine negative side effects.
There are the obvious distributional effects between those who have assets and those who do not. Returning house prices in California to their 2005 levels may be good for those who own them, but what of those who don’t?
There are also harder-to-observe distributional consequences that flow from the impact of lower-for-longer interest rates on the value of our liabilities. This is most easily observed in pension funds.
Consider two pension funds, one with a positive funding ratio and one with a negative funding ratio. When we create a wealth effect on the asset side of their balance sheets we also drive up the value of their liabilities. Lower long-term interest rates increase the value of all future cash flows – both positive and negative. Other things being equal, each pension fund will end up approximately where they started, only more so.
The same is true for households but is much more ominous, given the inequality of wealth with which we began the experiment. Consider two households: one with savings and one without savings. Consider also not just their legally-defined liabilities, like mortgages and auto-loans, but also their future consumption expenditures, their liability to feed and clothe themselves in the future.
When the Fed engineered its experiment to promote the wealth effect, the family with savings experienced an increase in the present value of their assets and also an increase in the present value of their liabilities. Because our financial assets are traded in markets and because we receive mutual fund and retirement account statements, we promptly saw the change in the value of our assets. We are much slower to appreciate the change in the present value of our liabilities, particularly the value of our future consumption expenditures.
But just because we don’t trade our future consumption expenditures on the stock exchange does not mean that the conventions of finance do not apply. The family with savings likely ends up where they started, once we consider the necessity of revaluing their liabilities. They may more readily perceive a wealth effect but, ultimately, there is only a wealth illusion.
But what happened to the family without savings? There were no assets to go up in the value, so there is no wealth effect – real or perceived. But the value of their future consumption expenditures did go up in value. The present value of their current and expected standard of living went up but without a corresponding and offsetting increase in assets, because they don’t have any. There was no wealth effect, not even a wealth illusion, just a cruel hoax. Link

One of the issues here is not just those without savings, but also those yet to participate in the acquisition of assets.

The Real Estate Institute is claiming there has been a "healthy surge" in the lifestyle block market but that may only be them talking up a very modest rise.

Well, there's certainly been a whole lot of that going around.