interest rates rising

[whatsup]

Long trem interest rates have been rising,the bottom it appears was on 3rd Feb for 3 & 10 year govt stock which is an indication that the long term trend is up. Although the 90 day rate trend is down and will be confirmed when the O C R is reviewed next month the bottom will not stay there for too long!!!
Could this indicate that the banks are thinking that the worst of the economy is in view now and that this time next year the economy will be starting to repair itself?

[whatsup]

Belg, Yes but the facts are this,the 3yr Govt stock interest has risen .25 of a % and the 10 yr rate has risen .40 of a % ,, significant increase for stock that started its slide some 18 months ago!!!!!!!!!

[Dr_Who]

Na mate, I dont see any sign of a recover. There is no light at the end of this tunnel yet, so interest rate continue to trek down until we see some sign of a recovery.

I say OCR to below 3.0% soon. May even see ocr at 2% this year.

[whatsup]

Yes Dr the short end O C R and 90 day rate IS falling but the long end 3---10yrs is rising.

[Nevl]

First obvious signs of recovery will start by 3qtr. NZ will bounce earlier due to the make up of the economy and the fact that Kiwis love low interest rates and we have a lot more wiggle room. Even the banks are not panicking as Kiwis are saving a huge amount of money so none of the big 4 banks have had to tap overseas markets for lending funds yet. They may do so but nothing like they thought 3 months ago. Also if the Govt makes the correct investments with the 5bill then could set up NZ well for the next 20 years and the NZ super fund is in a good position to pick up some good assets at a good price. This is a time to be brave I think and go for it. We are least exposed to financial products and our major exports all have a shelf life. Europe and Japan will be the last of the major economies to recover due to bad policy. The US will muddle along but also be a lagger but will have some spurts and then fall back again.

[beacon]

Without China, India, Japan and US recovery, you can kiss NZ's recovery (I really mean Australia's) goodbye.

[Billy Boy]

Without China, India, Japan and US recovery, you can kiss NZ's recovery (I really mean Australia's) goodbye.

Ditto ...........
BB

[Nevl]

Without China, India, Japan and US recovery, you can kiss NZ's recovery (I really mean Australia's) goodbye.

Aussie's export profile is very different from ours plus Aussie has huge infrastructure and enviromental problems to deal with that will take the gloss off any recovery over there. Global stockpiles for food are still falling and we are one drought or flood away from seeing a big rise in soft commodities prices. Iron and coal can be stockpiled for years with out producing new product and with iron it can be recycled as well.

[patsy]

Long trem interest rates have been rising,the bottom it appears was on 3rd Feb for 3 & 10 year govt stock which is an indication that the long term trend is up. Although the 90 day rate trend is down and will be confirmed when the O C R is reviewed next month the bottom will not stay there for too long!!!
Could this indicate that the banks are thinking that the worst of the economy is in view now and that this time next year the economy will be starting to repair itself?

It could mean one or more of these things:

1) Expectation of higher inflation down the road
2) Expectation of the collapse of the NZD
3) Higher risk of NZ government defaulting

[ananda77]

It could mean one or more of these things:

1) Expectation of higher inflation down the road
2) Expectation of the collapse of the NZD
3) Higher risk of NZ government defaulting

...agree, but short- to medium term, with equity markets displaying many positive divergences signaling a 'bottom out close', investors likely moving cash out of fixed interest markets into stocks in anticipation of a multi-month rally ahead

Kind Regards

[Dr_Who]

NZ OCR rates may even go below 2% this year if global markets continue to deteriorate. BOE cut rates to 0.5% and ECB cut to 1.5% with a view to be below 1%.

[lakedaemonian]

My thoughts are:

Reserve bank continues to drop it's pants this year......

Mortgage rates continue to drop, but also continue to further detach from reserve bank drops.....

We see a bottom this year, early next year at the latest......

NZ's biggest issue over the next several years is not barriers to trade, but barriers to credit making our 30-ish% shortfall in imported credit a real sore point for the foreseeable future.

We will eventually get to the point that the small amount of remaining reserve bank "dry powder" is overwhelmed by the international "shock and awe" financial fireworks.

[tobo]

My thoughts are:

Reserve bank continues to drop it's pants this year......

Mortgage rates continue to drop, but also continue to further detach from reserve bank drops.....

We see a bottom this year, early next year at the latest......

NZ's biggest issue over the next several years is not barriers to trade, but barriers to credit making our 30-ish% shortfall in imported credit a real sore point for the foreseeable future.

We will eventually get to the point that the small amount of remaining reserve bank "dry powder" is overwhelmed by the international "shock and awe" financial fireworks.


Just for the sake of clarity, what will be the practical effect of this overwhelming?
Do you just mean dropping the OCR will no longer have any stimulus effect, and credit shortage/removal will continue to shut down business activity, continuing the exodus to the unemployment lines.
Or do you mean the RB will be unable to keep up with cash requirements (which means an even more violent switch to no employment, and destitution for families with no savings)

[lakedaemonian]

Just for the sake of clarity, what will be the practical effect of this overwhelming?

I'm thinking we will NOT be as bad off as Iceland(more diversified exports, less FIRE economy hedge-fund hocus pocus), but we could suffer from an Iceland-Lite.......I'm thinking we could be paying substantially more for credit over the next few years since we are only able to self-fund about 70% of our credit needs. Nationalized overseas banks are not going to be interested in lending to little old NZ......angry citizenry will ensure that.


Do you just mean dropping the OCR will no longer have any stimulus effect,

I believe the benefit passed on by lending banks will continue to decrease.....the Reserve Bank can drop their pants on interest rates....smart banks will not drop their pants on risk management......when the economic tide's going out I don't see banks in a hurry to increase their lending....surely they would be biased to decrease lending/risk wherever they can.

and credit shortage/removal will continue to shut down business activity, continuing the exodus to the unemployment lines.

I just don't see stimulus from lowered mortgage rates, and lower mortgage payments flowing through QUICKLY enough.....if I were a bank manager looking at a loan portfolio of customers with <20% equity in a declining real estate market...I'd be pushing loan managers to dangle the best interest rates on those who are willing to shorten their loan terms and make extra payments to bring up equity levels with the savings.

I just don't see the savings in debt repayments being used to fuel another chapter of consumer spending.......personal balance sheets are in need of attention.


Or do you mean the RB will be unable to keep up with cash requirements (which means an even more violent switch to no employment, and destitution for families with no savings)

Let me be clear......I am by no means an expert.......while I've got a pretty solid formal and practical education in business/finance/economics...I'm still really just an enthusiastic amateur learning every day.

But having said that......my GUESS tells me that cash will remain king......and will even be crowned Emperor, until this massive wave of inflation eventually rolls through again.

I think of cash/credit as the "blood supply" of the living economy......removing blood from the system requires increased velocity of the "blood" to ensure all "tissue" remains viable.

If the velocity of the remaining "blood" doesn't increase enough to compensate for the further dwindling of the remaining "blood supply", tissue begins to die or becomes gangrenous.

I believe we still have a few more units of blood to be removed from the economic patient before we've hit bottom in NZ......so I think we will be lying low for a while until we can get our own internal "blood supply" producing in quantity...or if we can somehow find a generous foreign donor without selling our soul.

Having gone to a talk with Tony Alenxander last week he actually had me feeling slightly upbeat...selling me on the optomism that NZ and OZ will get hit.....just less so than other 1st world economies....I bought into it.

BUT, he finished by saying the signal for the global recovery(including NZ) could be the US housing market.

IF that's true....we've got a LONG way to go until the US housing market is reanimated....a LONG way to go.

Just my 0.02c

[peat]

a mate sent me a link showing that on goodreturns.co.nz two banks - ASB and Bank Direct - have actually increased their 5 yr mortgage rate today to 6.75. Most of the others are still on 6.5

[patsy]

I think of cash/credit as the "blood supply" of the living economy......removing blood from the system requires increased velocity of the "blood" to ensure all "tissue" remains viable.

If the velocity of the remaining "blood" doesn't increase enough to compensate for the further dwindling of the remaining "blood supply", tissue begins to die or becomes gangrenous.



As an analogy, this is sort of OK. The problem is that the "velocity of money" doesn't create the same effect as "blood supply". While blood supply can reinstate tissue (i.e., a productive effect), velocity of money doesn't necessarily create anything other than inflation. The though that just because there is a lot of money in circulation, such money velocity will create demand, and demand creates jobs, etc., and therefore wealth, is one of the most common fallacies around.

Unless money is directed to productive means, then there is no real wealth creation. If this is hard to believe, then the recent economic collapse has taught us nothing of the failed low interest rate and high money velocity period of 2002-2007.

[lakedaemonian]

As an analogy, this is sort of OK. The problem is that the "velocity of money" doesn't create the same effect as "blood supply". While blood supply can reinstate tissue (i.e., a productive effect), velocity of money doesn't necessarily create anything other than inflation. The though that just because there is a lot of money in circulation, such money velocity will create demand, and demand creates jobs, etc., and therefore wealth, is one of the most common fallacies around.

Unless money is directed to productive means, then there is no real wealth creation. If this is hard to believe, then the recent economic collapse has taught us nothing of the failed low interest rate and high money velocity period of 2002-2007.

I definitely understand that my anology is far from perfect and take it onboard....for me I spend a fair bit of time "talking outloud" on a few forums to better understand the complexity of the interwoven problems we face.

Usually when talking to folks in the real world about these problems I tend to keep things as simple as I can for them, as well as myself, to better understand.....but oversimplifying things can also have it's drawbacks...that's for sure.

One of things things I'm trying to better understand is what will happen in the next 36 months as a result of changes to the velocity of money as well as the dangerously diminishing returns each additional dollar of debt is having in terms of increasing GDP.

[patsy]

One of things things I'm trying to better understand is what will happen in the next 36 months as a result of changes to the velocity of money as well as the dangerously diminishing returns each additional dollar of debt is having in terms of increasing GDP.

If you are interested in money velocity, and you are not easily scared, I strongly recommend these two links:

http://www.guardian.co.uk/business/dan-roberts-on-business-blog/interactive/2009/jan/29/financial-pyramid

http://wherestheinterest.com/2009/02/09/st-louis-fed-velocity-and-reserves/

Those reflect Bollard's and Bernanke's legacy (among other "progressive" central bankers).

PS: GDP may increase in nominal terms, not real!