2010 New Zealand Market overview and outlook

[Shrewd Crude]

This year I am going to write a brief outlook for 2010 mainly on the topic of stimulus withdrawl… and I will spend alittle time on interest rates…

Tomorrow I would like to write about yesterdays major business news story which was all over the headlines, 'the Tax working group report'…
and hopefully later I will get more time to write up about other NZ indicators such as unemployment etc....


2009 was a year of International stimulus packages, and a year that ended in excitement as investors around the World realised that the economic downturn would not impair other assets of the banking industry
2010 is a year to be cautious… Later this year, these govt stimulus packages that were put in place during 08/09 will (and are already starting to unwind) such as US banks paying off Tarp funds...
….these stimulus measures were put in place to boost economic activity in an attempt to get us out of the recession quickly... Governments WILL reduce and REMOVE this spending which will have follow on effects for the economic revival… The imminent (short term) impact of these follow on effects depends on how the market recieves them, and how the market prepares for the fact that stimulus will be removed… So long as markets are prepared and well informed, then the fallout from this could be smoothed out with lower likelihood of high downside volatility on the share market… but none the less, the removal of stimulus will dampen any sort of major run on the markets this year...
As these stimulus measures fall, then the market could see another correction during the second half of the year…with such a bullish sharemarket run in 2009, leading into 2010 it would not be a surprise if the correction comes early…So long as Countries adjust to unstimulated economic activity smoothly, then we could see sideways up and down for the rest of the year leading into 2011… So we are looking at a flat sort of year I reckon...
The next step after the removal of stimulus is will the Private sector rebuild demand naturally? (which to date has been artifically stimuated by government spending)… The answer to this question is not an easy one… BUT indicators do show that the private sector is already preparing to rebuild demand, if not already rebuilding demand in some parts… For example NZ consumer confidence is at 3 year highs, which will see consumer spending increase, and therefore private sector investment to rise…


The other major note of 2010 will be of rising global interest rates, starting half year (imminent)…rising interest rates do reflect economic recovery as investment opportuities become more attractive people are prepared to pay more on the borrowing rate to take on these ventures… leading to interest rates naturally rising…
This is somewhat of contrast to what I have said in previous years where higher interest rates are proven to slow the economy… and they do, but this is a lag effect and feeds through the system over a period of years… for example, as businesses slowly adjust investment, or as banks slowly reduce lending, or as interest rates rise consumers save more rather than spend.… this is all true, but it gets back to cycles that I have previously talked about…. and this year we will enter a new cycle, one of rising interest rates (sure thing)...
… interest rates (OCR) controls the flow of money within the economy… how will this tool of the RBNZ by rising interest rates later this year affect you?
If you have a home mortgage then its time to fix for as long as you can as higher future interest rates will push up your cost of borrowing… dont listen to bug a lug mackdunks theory...

what are my thoughts of a share market crash in 2010?… Well if there was another share market crash I DO NOT believe that it would happen for the same reasons of the share market crash in 2008, and early 2009… and that was of the crash of the subprime market which blew into a Credit crisis… Why is this the case? Because amongst many reasons, Central Banks have opened up liquidity to banks that were not accessable before the crash meaning that Banks will likely recapture lending that was previously lost, or lost during the market crash…. Very very recently US bank reporting season got underway with some mixed results… We have seen Investment arms of the main banks performing, but other revenue streams still looking soft…(thats what im reading, but then theres lots of different stories going on)... anyway… As I said, the money was always there, it was just sitting on the sidelines…
A huge build up of savings from Asia spurred a massive run on Housing which played its part in the crash… These Asia tigers will just have to find something else to put their money in… And they will…. The growth of the Asia Pacific region will underpin New Zealands future Performance, so we look sound on that respect… Also, the growth of the International economy and in particular Asia has helped fight off the recession quicker than anyone thought possible… so having a sound diversified portfolio is recommended...
Im looking for a sideways year… as long as yourve got your stock picks down, then you will perform even if the markets are flat…
have a great year...and let us unite at sharetrader and share our thoughts
on all topics so long as we have something to add as this is what sharetrader is all about...

Have a great Year...
Yeeeearrgggghhhhh Haargggghhhhhh.....

[belgarion]

Re stimulus packages ... I'm not so sure govts will remove them. They'll stay but in a different guise. Unemployment, which has been seen as secondary to getting the financial system working, is going to become a major social and political issue. Govts will be forced to address this imblance and there'll be money thrown around to get the unemployed working and spending.

Re inflation and i-rates ... Until the great unwashed masses of unemployed/under-employed are pumping money into the economies inflation will remain low. As i-rates are govts/central banks main tool against inflation I think i-rates will remain low and, as usual, there'll be the inevitable lag when i-rates should be rising but govts/central banks are terrified of 'killing the green shoots'. Another point here is that there is still huge over-capacity in many manufacturing chains so inflation is unlikely to be driven by supply shortages for some time.

My view is that the markets will just grind their way upwards through 2010 without much volitility and smallish volumes as those holding just stay patient and those buying patiently chase small groups of sellers. Percentage increase? I think Phaedrus's prediction will be about right.

[bull....]

i dont think a lot of countries will remove stimulus either this year still to fragile.
The economic events happening this week are changing the outlook for 2010 now from maybe a recovery to ?
As for NZ if they dont make structure changes for the future this year the long term future is more in line with joining our island brothers in the pacific.

[COLIN]

Re stimulus packages ... I'm not so sure govts will remove them. They'll stay but in a different guise. Unemployment, which has been seen as secondary to getting the financial system working, is going to become a major social and political issue. Govts will be forced to address this imblance and there'll be money thrown around to get the unemployed working and spending.

Re inflation and i-rates ... Until the great unwashed masses of unemployed/under-employed are pumping money into the economies inflation will remain low. As i-rates are govts/central banks main tool against inflation I think i-rates will remain low and, as usual, there'll be the inevitable lag when i-rates should be rising but govts/central banks are terrified of 'killing the green shoots'. Another point here is that there is still huge over-capacity in many manufacturing chains so inflation is unlikely to be driven by supply shortages for some time.

My view is that the markets will just grind their way upwards through 2010 without much volitility and smallish volumes as those holding just stay patient and those buying patiently chase small groups of sellers. Percentage increase? I think Phaedrus's prediction will be about right.

Belgarion: I have to agree with you.

Re the two major developments impacting the global markets this week: I have posted my views, for what they are worth, on the AOE thread (ASX).

[beacon]

Re stimulus packages ... I'm not so sure govts will remove them. They'll stay but in a different guise. Unemployment, which has been seen as secondary to getting the financial system working, is going to become a major social and political issue. Govts will be forced to address this imblance and there'll be money thrown around to get the unemployed working and spending.

Re inflation and i-rates ... Until the great unwashed masses of unemployed/under-employed are pumping money into the economies inflation will remain low. As i-rates are govts/central banks main tool against inflation I think i-rates will remain low and, as usual, there'll be the inevitable lag when i-rates should be rising but govts/central banks are terrified of 'killing the green shoots'. Another point here is that there is still huge over-capacity in many manufacturing chains so inflation is unlikely to be driven by supply shortages for some time.

My view is that the markets will just grind their way upwards through 2010 without much volitility and smallish volumes as those holding just stay patient and those buying patiently chase small groups of sellers. Percentage increase? I think Phaedrus's prediction will be about right.

Good thread Shrewd. NZ OCR worth watching to see how the local story unfolds. If Bollard submits quickly, I fear NZ will backstep another couple of years in economic progress...
Govt flirtation with property is another space I'm watching with interest. Hope they don't meddle with it, and raise GST instead. Making tax dodgers pay is another good idea...

[Shrewd Crude]

hey all...
it seems that we have different thoughts...

On the first of February Obama is going to come out and announce the first round of cost cutting measures and he will likely cut domestic spending that will save 220-250 Billion US dollars from now until 2020...
its not if stimulus spending will fall/and or be cut... its when... and im tipping some time latter this year as the first wave...
it has to happen...
In fine print it has already been signalled...

read this...


US president Barak Obama has called on congress to create a bipartisan panel that will look at ways to rein in the countires soaring deficits. Obama says the US faces a "serious fiscal situation" that stems from the recession and years of "failing to pay for new policies"...
Democratic Senator Kent Conrad and republican Senator Judd Gregg have been pushing leglislation 4 such a panel...source Reuters...
:cool:
.^sc

[Billy Boy]

The NZ economy must be rebalanced and the big Q is
Does the present govt have the balls to make the hard
decisions. ACC and the motorbikers issue does not seam
to indicate this.
Year 2010 is going to be crucial going forward
2011 Rugby W/Cup , a lift to the economy
2012 Free trade deal with China becomes total.
NZ'ers have got to get away from the private investment porperty
mindset, so it will be interesting to see how the Govt deal
to this issue. Take the sector by the 'short and curlies and shake,
or pussy foot around for policial reasons.
All in all, without stating more of the obvious.
LEADERSHIP IS A MUST.
BB:)

[sharer]

The NZ economy must be rebalanced and the big Q is
Does the present govt have the balls to make the hard
decisions. ...
LEADERSHIP IS A MUST.
BB:)

Gareth Morgan for President!? His "Big Kahuna" might do the trick.

[bull....]

Think most intelligent people relise nz needs to change its policies or get lost in the new world.
Like ya say billy have the politicians got the balls or are they just show ponies.

[beacon]

I just hope the leaders see through these phony "have you got the balls?" challenges. It seems very fashionable to use these days ... especially by vested interests (no finger pointing to any posters intended).

In times gone by, the phrase really meant something. Now it is just an impotent insult thrown around. In the current scenario, property needs to be supported, even though no reflation is necessary like it is in the US - if only to let the economy settle...

[Dr_Who]

Didnt Gareth Morgan predicted the property market to drop 30-40% during the financial meltdown?

[belgarion]

Consider two hypothetical portfolios that started with a nominal $10,000 in January 1897, one each for the January Barometer and the Perennial Bull. I assumed that both portfolios were out of the stock market every January. The Perennial Bull portfolio got into the market at the close of the last trading of every January and remained there until the end of the year, while the January Barometer portfolio did so only if January was an up month.

Without crediting either portfolio for the risk-free interest rate when out of the market, the Perennial Bull's portfolio was worth $979,220 at the end of 2009, while the January Barometer portfolio was worth just $496,209

Source:
January's loss doesn't automatically doom the rest of the year.
(http://finance.yahoo.com/banking-budgeting/article/108709/january-by-the-numbers;_ylt=Ap8.1wP2khDad6QtnaN4L7S7YWsA;_ylu=X3o DMTE1OHJ1b3ZoBHBvcwMzBHNlYwN0b3BTdG9yaWVzBHNsawNkb 250cHV0dG9vbXU-?sec=topStories&pos=1&asset=&ccode=)

[Dr_Who]

World market is up with the exception of NZ.

[Doyle]

And so the pain continues. This has been a bad few months trading for me, some good calls but plenty of bad ones. The worst one being to go a 100% invested in early january.

[bull....]

Like wise was sitting on 14% return for the last 2 mths only to see it nearly evaporate in the last 2 weeks , depressing.
Pretty much cash now as see further declines

[winner69]

Consider two hypothetical portfolios that started with a nominal $10,000 in January 1897, one each for the January Barometer and the Perennial Bull. I assumed that both portfolios were out of the stock market every January. The Perennial Bull portfolio got into the market at the close of the last trading of every January and remained there until the end of the year, while the January Barometer portfolio did so only if January was an up month.

Without crediting either portfolio for the risk-free interest rate when out of the market, the Perennial Bull's portfolio was worth $979,220 at the end of 2009, while the January Barometer portfolio was worth just $496,209

Source:
January's loss doesn't automatically doom the rest of the year.
(http://finance.yahoo.com/banking-budgeting/article/108709/january-by-the-numbers;_ylt=Ap8.1wP2khDad6QtnaN4L7S7YWsA;_ylu=X3o DMTE1OHJ1b3ZoBHBvcwMzBHNlYwN0b3BTdG9yaWVzBHNsawNkb 250cHV0dG9vbXU-?sec=topStories&pos=1&asset=&ccode=)

Belg --- probably you wouldn't agree with a word this joker says but I love his words (from Casey Research)

Dear Reader,

I didn’t use to be a “cat” person, primarily because when I was young, I suffered from terrible allergies – the very archetype of the runny-nosed kid. Over time, however, I came to appreciate that cats are wonderful creatures in so many ways – most notably their Terminator-like ability to resolve mice problems with extreme diligence.

That special quality comes to mind this morning, in that at some point within the last few days, a mouse has shed its mortal coil in the vicinity of my desk. Even though I can’t find its remains, I know they are there – probably wall-bound – because of the growing intensity of the stench. While a burning stick of incense and an open window are able to mask the odor to some degree, it’s still there.

Likewise, the smell of a rotting economic corpse is in the air, although masked to some extent by the government’s statistical smoke. Even so, the stench is still there, and as I write, Mr. Market is rediscovering it.

[Dr_Who]

Very well said and a nice story, Winner.

My rural stocks been hit also. Lucky I cashed up on my resource stocks before the blood letting. Will have to ride it out and hold cash in the meantime until the dust settles. :confused:

[belgarion]

Dare I call this a "correction"? ... Actually I'm not as it is completely unsupported by macros that indicate wider global / eurozone / asian / americas econonies aren't in any real trouble. In fact, quite the reverse! Everyone is growing and there are many more positive aspects than negitive ones.

This volitility seems to be a response to a number of "talked up" macro issues (greece, stimulus ending, legislation for banks, etc.) that short sellers have focussed on to make some money and flush out those who are paranoid of losing their gains in the last 12 months. The VIX has spiked again but is below its last spike suggesting that this fall may be losing steam. Yes, the VIX is in the 20-30 zone that indicates a bit of volitity. (Would be nice to see it back in the 10-20 range). China and India just keep going like the steam rollers they are, and, if they can bail the US, they can bail out the eurozone just as easily (although I hasten to add its certainly not required!). At least, that my read of what's happening offshore.

Here in NZ, many companies are being sold down on fear and won't really be affected all that much (if at all). The NZD falling is a buffer for exporters (albeit some might be caught with hedging). Importers are going suffer and our BOP deficit will agian improve. Imported resources are going to get more expensive (e.g. oil). I could go on ...

I'm sitting tight for now and will be buying up some targets at the first sign of a fight back using all the remaing leverage I have ... and at the end of the fightback, selling off about 80% bought in that period ... and then I'll wait for the next attack by the shorters. The game continues ... :)

No doubt Phaedrus's graph will tell a different story.

[winner69]

I'm sitting tight for now and will be buying up some targets at the first sign of a fight back using all the remaing leverage I have ... and at the end of the fightback, selling off about 80% bought in that period ... and then I'll wait for the next attack by the shorters. The game continues ... :)

No doubt Phaedrus's graph will tell a different story.

Except for the first bit about sitting tight for now isn't the rest of your strategy exactly what Phaedrus's graph suggests you should do

[winner69]

.........China and India just keep going like the steam rollers they are, and, if they can bail the US, they can bail out the eurozone just as easily (although I hasten to add its certainly not required!).

.... and New Zealand as well Belg

Or is it better for the NZD to fall 50% and then a everything will be honky dory again

[belgarion]

Well ... we're down to the support level tested in Nov and Dec last year ... Interesting to see where we go from here.

[root]

Dow down another 140 points today off weak jobless numbers in US and sovereign debt problems (Bonds) in EU community.....back into the 9000s. Will be able to buy a DJI T Shirt in the US that says "10,000 4" soon.

[peat]

this article by the thorough and informative Brian Gaynor is a good summary of the recent plc results.
He compares ebit of 11 companies in total with the previous period to note that the totalled figure is down 23.6%.
But dividends are down by a lot more "The total dividends per share of these 12 companies are only 62.27c compared with 111.22c."
He notes FBU's future work hole and Freightways (transport as a barometer of business activity) reduction in earnings.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10627271&pnum=0