Black Monday

[Beagle]

Alright 9% then..just testing if you guys were awake. RBNZ is only getting into second gear with interest rate cuts and the hunt for yield has only just begun in earnest.
All those retired folks with tens of billions of dollars in term deposits will be desperate to get a return on their money when their bank offers to roll them over at 2.5% as RBNZ moves into overdrive to stimulate the N.Z. economy and they'll be chasing safe yield like crazy, REIT's are a prime candidate as an alternative to term deposit money. Article behind the NBR pay wall today saying low dairy is the new normal and farmers better get used to it e.t.c. will see tremendous stimulus applied to the N.Z. economy IMO.

Nobody is suggesting the N.Z. economy exists in a bubble and isn't affected by world events and other markets in particular but a lot lower for a lot longer is my key theme for interest rates here and that's a very supportive environment for an equity market that most importantly has one of the highest dividend yield's in the world. Most other central banks have fired off a fair bit of ammunition already but RBNZ can cut many more times yet and probably will have to. Also the lower interest rates will keep the currency under pressure which will assist a significant number of our exporters and continue to drive robust tourism growth.

Caveat to all this is a GFC Mk2 but as I don't think we're completly out of the first one I see that as very unlikely...always watching and ready to take action whenever needed...I guess that's akin to keeping your guard up when you're boxing

While the current market average PE is somewhere between 18 and 19 and that's high by historical standards, its not that high in the context of interest rates heading to 100 year lows. The other thing is that on average we will see some earnings growth from N.Z. companies this year so if the market goes sideways and simply grows to 7,000 by virtue of accrued dividends during the year, through earnings growth the average market PE multiple will come down a little this year...and this is happening while interest rates are being lowered still further.

Under this scenario the market at 7,000 is actually pretty good value at the end of the year.

Govt posted an unexpected surplus today...just a thought, maybe the N.Z. economy outside of dairy is actually trucking along reasonably well.

[workingdad]

Alright 9% then..just testing if you guys were awake. RBNZ is only getting into second gear with interest rate cuts and the hunt for yield has only just begun in earnest.
All those retired folks with tens of billions of dollars in term deposits will be desperate to get a return on their money as RBNZ moves into overdrive to stimulate the N.Z. economy and they'll be chasing safe yield like crazy, REIT's are a prime candidate. Article behind the pay wall today saying low dairy is the new normal and farmers better get used to it will see tremendous stimulus applied to the N.Z. economy IMO.

Nobody is suggesting the N.Z. economy exists in a bubble and isn't affected by world events and other markets in particular but a lot lower for a lot longer is my key theme for interest rates here and that's a very supportive environment for an equity market that most importantly has one of the highest dividend yield's in the world. Also the lower interest rates will keep the currency under pressure which will assist a significant number of our exporters and continue to drive robust tourism growth.

Caveat to all this is a GFC Mk2 but as I don't think we're completly out of the first one I see that as very unlikely...always watching and ready to take action whenever needed...I guess that's akin to keeping your guard up when you're boxing

I hope your right Roger. However I don't think the majority of retirees not already in the market will start to play in it though, they are too risk averse and afraid to loose too much of their nest eggs value in case there is a significant downturn and a lot would have a preference to real estate as a 'comfort zone' of something they are familiar with but in saying that I am only 43 so well off thinking like a retiree - just going by the parents views after a number of discussions with them. At least the RBNZ has room to apply further stimulus, one would hope further stimulus is better applied by the banks looking ahead than the last OCR cut, the bigger global central banks have a lot less ability and I do wonder how long it will prop things up for.

I don't think a downturn would be a dramatic drop, if it happens I am picking a gradual erosion of value with some spikes both positive and negative but trending down while people steadily sell down.

I am no boxer, currently still sparring with headgear on to avoid a possible TKO from an unpredictable opponent that seems to have no rhyme nor reason of late

[winner69]

Workingdad - i am amazed at how many retired people have given up on term deposits and buying high yielding shares.

Like a neighbour who was bemoaning that his HLG shares had fallen much more in price than he collected in dividends. His investing 'strategy' is following the mob down at the bowling club. He, and others, has cut their losses on HLG and reinvested in AIR because the guys down the bowling club says its got a great dividend (and its cheap). He tells me his broker is not discouraging him either.

Roger goes on about the billions that might move from term deposits to the high yielding stocks. He might be right but when interest rates in NZ increase (maybe as early as next year) they might regret joining the movement as they see their capital diminish in value (assuming they not smart enough to get out early enough)

My grandfather as well as my father always kept reminding me 'winner, there's no such thing as easy money son'. A lot of people think high yielding shares is a no lose situation.

[workingdad]

Workingdad - i am amazed at how many retired people have given up on term deposits and buying high yielding shares.

Like a neighbour who was bemoaning that his HLG shares had fallen much more in price than he collected in dividends. His investing 'strategy' is following the mob down at the bowling club. He, and others, has cut their losses on HLG and reinvested in AIR because the guys down the bowling club says its got a great dividend (and its cheap). He tells me his broker is not discouraging him either.

Roger goes on about the billions that might move from term deposits to the high yielding stocks. He might be right but when interest rates in NZ increase (maybe as early as next year) they might regret joining the movement as they see their capital diminish in value (assuming they not smart enough to get out early enough)

My grandfather as well as my father always kept reminding me 'winner, there's no such thing as easy money son'

My parents got 3.6% on greater than half a million in the bank just prior to the OCR cut and took it but other than that and her cards group I have very limited anecdotal evidence to go by. Its not much minus tax and I have tried to get them into shares in the past to no avail. One things for sure, it will be interesting to see how the year unfolds.

My grandfather and father used a different name to address me growing up but I will keep that to myself haha.

[skid]

My parents got 3.6% on greater than half a million in the bank just prior to the OCR cut and took it but other than that and her cards group I have very limited anecdotal evidence to go by. Its not much minus tax and I have tried to get them into shares in the past to no avail. One things for sure, it will be interesting to see how the year unfolds.

My grandfather and father used a different name to address me growing up but I will keep that to myself haha.

It was working son and grandson..

[skid]

Alright 9% then..just testing if you guys were awake. RBNZ is only getting into second gear with interest rate cuts and the hunt for yield has only just begun in earnest.
All those retired folks with tens of billions of dollars in term deposits will be desperate to get a return on their money when their bank offers to roll them over at 2.5% as RBNZ moves into overdrive to stimulate the N.Z. economy and they'll be chasing safe yield like crazy, REIT's are a prime candidate as an alternative to term deposit money. Article behind the NBR pay wall today saying low dairy is the new normal and farmers better get used to it e.t.c. will see tremendous stimulus applied to the N.Z. economy IMO.

Nobody is suggesting the N.Z. economy exists in a bubble and isn't affected by world events and other markets in particular but a lot lower for a lot longer is my key theme for interest rates here and that's a very supportive environment for an equity market that most importantly has one of the highest dividend yield's in the world. Most other central banks have fired off a fair bit of ammunition already but RBNZ can cut many more times yet and probably will have to. Also the lower interest rates will keep the currency under pressure which will assist a significant number of our exporters and continue to drive robust tourism growth.

Caveat to all this is a GFC Mk2 but as I don't think we're completly out of the first one I see that as very unlikely...always watching and ready to take action whenever needed...I guess that's akin to keeping your guard up when you're boxing

While the current market average PE is somewhere between 18 and 19 and that's high by historical standards, its not that high in the context of interest rates heading to 100 year lows. The other thing is that on average we will see some earnings growth from N.Z. companies this year so if the market goes sideways and simply grows to 7,000 by virtue of accrued dividends during the year, through earnings growth the average market PE multiple will come down a little this year...and this is happening while interest rates are being lowered still further.

Under this scenario the market at 7,000 is actually pretty good value at the end of the year.

Govt posted an unexpected surplus today...just a thought, maybe the N.Z. economy outside of dairy is actually trucking along reasonably well.

The NZ economy is trucking along reasonably well,and why not? Things are pretty settled overseas as we speak(at least thats how it looks) ..but shake things up a bit ..and..
Baby Boomers.
I sincerely doubt that if you go out and talk to 100 retirees ,you will find the majority will be desperate to get a better return on their money in the share market--i believe most are still afraid of the share market--Remember they have not done the research you have done. I believe the share market in general is a young mans game(or middle aged) Maybe a few will have a few GNE but nothing of any size,and should they?
Most are not educated in the world of share market investing. An exception may be managed funds but my guess is most would be very conservative. WE know there is a big difference between a well managed fund and the likes of Bridgecorp,Hanover,South Canterbury,etc. -but do they?---The only way to know is to ask around I suppose.

you can seldom eat your cake and have it too.
If interest rates cuts bring down the $Kiwi ,alot of overseas investment may become discouraged to find thier money has diminished in value.
From what I have seen,when (if)things go pear shaped the first thing foreign investors do is get their money into a safe haven--that is not NZ dollars or the NZX,those 2 things are on the fringe.
If,however, things cruise along internationally with no big problems,then NZ will do just fine. So if we go sideways for the year,this will be a good place for you and some overseas investors to park their money--If things get volatile and drop,as many fear,then being so small I believe that once a certain point is hit,it will become an exponential drop, here.
Theres alot of good companies here in Godzone--but the big markets trump all in the end.

But regardless of our differing opinions ,that ''keeping the guard up'' you mentioned, is the point we both can totally agree on.

Go out and ask oldies about the share market (not just well to do customers who need an accountant) but a good cross section, and Im betting they will tell you stories of the crashes of the past ,not the fortunes made. (be interesting to do a survey on the grey power newsletter or something)

[couta1]

Actually Skid you might be surprised to learn that a good number of elderly I talk to at the different retirement villages are holding shares in that sector and the likes of the power companies, heaven forbid some of them are even holding Peb, quite a few of these folk are in their eighties.

[winner69]

Roger the statistician offering odds of different scensrios unfolding prompted me to read this recent note from renowed commentator John Msy

Radical uncertainty: The importance of the things we do not know we do not know

06 April 2016, Financial Times

The excellent new book by Mervyn King, former governor of the Bank of England, is inevitably noticed mainly for its views on banking regulation and the outlook for the eurozone. For me the most important message of The End of Alchemy is its emphasis on radical uncertainty — or, to quote Donald Rumsfeld, former US defence secretary: “The things we do not know we do not know.”

That emphasis reflects the parallel intellectual paths Lord King and I have taken since we were young dons 40 years ago. In a book published in 1976, economist Milton Friedman disparaged a tradition that “drew a sharp distinction between risk, as referring to events subject to a known or knowable probability distribution, and uncertainty, as referring to events for which it was not possible to specify numerical probabilities”.

Friedman went on: “I have not referred to this distinction because I do not believe it is valid. We may treat people as if they assigned numerical probabilities to every conceivable event.” Asked, “Who will win the war?”, Churchill might have responded, “Britain, with probability 0.7”; and Hitler with a similar answer but perhaps different number.
However absurd, this is what we were taught and what we passed on to the next generation of students. It seemed an exciting time for young turks in finance; insider trading in an old-boy network was to be superseded by a new generation of quants and rocket scientists. We had the mathematical tools to revolutionise investment banking. Our theory came to underpin the risk models used in financial institutions and imposed by regulators.

But Friedman was wrong. There really are limits to the range of problems susceptible to the mathematics of classical statistics. He was, erroneously, rejecting the concept of radical uncertainty described 50 years earlier by the economists John Maynard Keynes and Frank Knight.

“By uncertain knowledge,” wrote Keynes in 1921, “I do not mean merely to distinguish what is known for certain from what is only probable. The sense in which I am using the term is that in which the prospect of a European war is uncertain . . . There is no scientific basis to form any calculable probability whatever. We simply do not know.”

There is a world of difference between low-probability events drawn from the tail of a known statistical distribution and extreme events that happen but had not previously been imagined
While the long-term future of interest rates or copper prices, about which Keynes also speculated, might be ap*proached probabilistically, questions about the social system 50 years hence are too open-ended, and the outcomes too varied and insufficiently specific, to be described in probabilistic terms.

A recent book on superforecasters, co-written by Philip Tetlock, illustrates the point well. By trying to turn multi-faceted questions into ones precise enough to enable those who proffer answers to be assessed for their accuracy, he makes the questions narrow and uninteresting: “How will the Syrian war develop” and “How will Europe manage its refugee crisis?” become: “How many Syrian refugees will land in Europe in 2016?”

More fundamentally there are things we do not know because we cannot imagine them. If you had described your smartphone to Mr Friedman in 1976 he would not have understood what you were talking about, far less been able to speculate intelligently on the probability that it would be invented or bought. These are the “black swans” Nassim Taleb has described. The reader who once asked me which black swans were most likely to materialise in the next five years could not have missed the point more comprehensively.

There is a world of difference between low-probability events drawn from the tail of a known statistical distribution and extreme events that happen but had not previously been imagined. And it is usually the latter that give rise to crises — and opportunities.



This article was first published in the Financial Times on April 6th, 2016.


http://www.johnkay.com/2016/04/06/ra...we-do-not-know
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[p2r]

http://www.telegraph.co.uk/business/...-live-volcano/

[Beagle]

Good debate.
Skid, you are absolutely right in a sense that many older people are scared of shares BUT there's an important distinction, most of them are familiar with property and how it goes up over the long run.
Its this level of comfort with tangible assets, property, that makes real estate investment trusts like GMT ARG e.t.c. an attractive alternative. I like them myself for the same reason.

When people are offered 2.5% by their bank later this year as a rollover on term deposit funds alternatives like an investment in a real estate trust that owns a bunch or modern securely leased commercial properties paying 5% after tax is not as big a psychological jump for many as I think you might imagine. Many need yield to maintain a comfortable standard of living and most HATE seeing their capital erode just as much as you and I do. Most of these trusts are running very conservative gearing of 30-40% and have secure long teases to a wide range of commercial tenants so its easy to point out that they're intrinsically safer,(with a wide spread of properties and tenants) than owning one or two rental properties, another asset class many older investors are very familiar with.

I think many fell into the trap earlier this year, myself included (and ran a cash allocation that was too high), of thinking we're sliding into a serious bear market and I guess my main point is as always, there a wide range of possible scenario's and its very difficult to predict the future so maybe best to pick a few key themes and work them ? My key theme is ultra low interest rates for many years to combat the seemingly never ending effects of the GFC and low commodity prices with it and in that environment exporters, high yield shares, REIT's and tourism do very well.