1) Opinion: How a catastrophic collapse scenario might play out For speed readers, I think there is now a possibility of a catastrophic collapse in the banking systems in Europe and America, regardless of whether the US$700 billion bailout is passed by the US Congress. Such a collapse would put enormous pressure on Australasia's banks, who have borrowed over A$100 billion from foreign banks on relatively short terms. Australasia's banks would then have to dramatically curb new lending and preserve cash. They would remain sound, but would write little new business. Don't buy a house or borrow in the next couple of weeks until this is sorted. Reduce spending and repay debt wherever possible. This is an opinion piece I've been holding back from writing until now and I still don't really believe it will happen. But I think it's now worth thinking about how a catastrophic collapse of the banking system in the Northern Hemisphere might play out down here in Australia and New Zealand.
2) Opinion: Don't expect capital gains again until 2018 New Zealand's housing market is so overvalued and wages are growing so slowly that we expect median house prices will not rise back above their November 2007 peaks until 2018 at the earliest. The size of the bubble is so large it may take until 2028 before prices recover and people who invested in 2006 and early 2007 start seeing capital gains again. We realise this is a controversial view. Most property investors and real estate agents are predicting a housing slowdown lasting a couple of years before prices get back on their inexorable climb higher, delivering capital gains for property investors as it has done for most of the last decade. They point out there has never been a significant fall in house prices for very long and that prices will bounce higher within a year or two, as they have done after previous slowdowns.
3) Harcourts figures show house prices already down 30% Figures from real estate agent agency group Harcourts show their national average sale price has fallen almost 30% from the peaks around the end of 2007. The average prices seen by Harcourts dropped 31% in Auckland, 30% in Wellington and 26% in Christchurch.
4) Questions please on our banks, interest rates"¦anything really There seems to be an enormous appetite for up to date information about New Zealand's banks, other financial institutions and our economic outlook in the midst of the worst Global Credit Crisis since the Depression. People are asking which financial institution is safe? What might happen to interest rates? Will banks keep lending? What will happen to house prices? Is our economy going into recession or depression?
5) Opinion: Remove the tax incentives for housing investors It is the elephant in the room of New Zealand politics right now. Everyone knows it, yet our leaders refuse to address it, partly because they and their generation benefited personally through the massive house price inflation it created. I'm talking about the massive abuse of the tax system by property investors that has allowed them to set up various types of trusts and Loss Attributing Qualifying Companies (LAQCs) that make losses on investment rental properties to reduce their personal income tax bills
6) What "Greed and Fear" has to say about NZ banks The strategist credited with picking the sub-prime Credit Crunch, Christopher Wood, has warned in a research note that depositers in New Zealand banks could become worried about their health because of their exposures to the slumping property market and their heavy reliance on international wholesale markets for funding. He has recommended depositers should put their money with the government-owned Kiwibank. The chief strategist for Hong Kong-based broker CLSA Asia Pacific issues a regular report titled Greed and Fear. He was credited by the Wall St Journal as being the first to pick the Credit Crunch when he warned in October 2005 that investors should dump any securities linked to American mortgages.
7) Opinion: Why NZ house prices could fall 35% by 2011 By Philip O'Connor This first graph shows the close relationship between NZ median home prices and those in the USA from 16 months before. Each country's house price index has been set to 100 in January 2000. USA house prices appear to have topped out in May 2006 at 206.9, which represents a 107% increase in price in 6½ years. The rise in NZ house prices was remarkably similar, but its peak occurred around 16 months later in November 2007 at 207.6. The 108% increase is almost exactly the same as the increase in USA house prices.
8 ) Have your say: Govt guarantees all deposits for 2 years Labour Prime Minister Helen Clark announced today at her election campaign launch that her government had agreed to implement a deposit guarantee scheme for all deposits in all banks, building societies and finance companies for two years. Here's what Clark said today:
Our world is experiencing the worst financial crisis since the 1930s. The Labour-led Government is committed to doing what is needed to keep the New Zealand banking system sound, and the economy on a growth path. To that end, the government has agreed to implement a deposit guarantee scheme which will provide New Zealand depositors with additional confidence.
Later Finance Minister Michael Cullen announced the following details, including that building societies and finance companies would be eligible for the scheme and that all deposits meant all deposits except those by non-residents or other financial institutions.
9) RBNZ cuts OCR to 6.5% and expects to cut again The Reserve Bank of New Zealand has cut the Official Cash Rate by an unprecedented 100 basis points to 6.5%, in line with market expectations. Reserve Bank Governor Alan Bollard said "ongoing financial market turmoil and a deteriorating outlook for global growth have played a large role in shaping today's decision." Bollard said growth would be slower than the 0.5% previously forecast for 2008/2009 (March year) by the Reserve Bank in its September Monetary Policy Statement. He also said inflation would return to the 1-3% target band by the middle of 2009, which is about a year earlier than forecast in September.
10) Opinion: The 12 steps to ending NZ's foreign debt addiction The following is my speculation of what might happen over the next couple of years, given I think the era of easy and cheap short term foreign debt is over for New Zealand. This fundamental nature of this development is not understood publicly in New Zealand and I'm keen to lay out how I think it could unfold and what it might mean for consumers, businesses and our financial institutions. These 12 steps to ending New Zealand's foreign debt addiction should be read with my pieces earlier today on bracing ourselves for a debt implosion and how to cut NZ$1.5 billion a month in spending.