NZSX50 - Good News!

[Lizard]

..... dosn't it mean we that cumulatively the total deficit is getting bigger and bigger .... and bigger ...... we hardly ever run a surplus .... no wonder the people are following the money out of the country

It's not as big a problem as it was - as a % of GDP, we've reduced the deficit in our international investment position somewhat over the past few years. Not a lot though. On our side have been improving trade balances - mostly helped by oil exports offsetting our imports (which had become the least manageable part of our trade deficit prior to Tui, Kupe, Maari etc coming on stream) and through strong prices for commodities.

However, on the current account side we get hurt by the fact that for every $1 of New Zealand assets held by overseas investors, we only hold about 54 cents in overseas assets. It looks as though the majority of this is in debt markets. So we have the continual drain of interest payments - although fortunately the rates are quite low at the moment, with the government able to raise long term debt at under 2.5% interest. A big chunk of September Quarter deficit looks to have come from increased government debt issues purchased by overseas investors.

It would all be great if the government could find ways to invest this money that generated more than 2.5% return from overseas (buy italian bonds?!). Unfortunately, it is more likely that this money will be spent on overseas goods for the construction industry than on creating export industries.

Another problem of late is that overseas assets declined in value relative to NZ assets over the September Quarter - possibly this is exchange rate related. However, we tend to hold a much higher proportion of overseas assets as equity rather than debt, so perhaps more volatile in value.

One of the most curious things about this months figures is the big jump in financial derivatives on both sides of the equation that I can't find an explanation for.

It's a biggish issue as to what it might take to return the net IIP to something more balanced. The biggest windfall gain that could contribute would be to alter the trade balance on energy through more petroleum exports - or perhaps, more radically, the long term move towards locally generated energy sources for transport industry.

Otherwise, it will be a slow slog to get to a point where we own as much of overseas economies as they do of ours - investing wisely offshore and repatriating the profits is good, but pumping it into spec shares and losing the lot is not...

Btw, for comparison, Australia has an IIP liability to GDP ratio of 53% by my calculation, compared to NZ at 73%. Despite being the beneficiaries of a major resources boom over the past few years, they are still running a current account deficit, albeit smaller than NZ's in this particular quarter.

[Lizard]

There's still a few billion of insurance money yet to enter the NZ economy ... stand by for a reversal of fortunes ... (for the enxt 5 years at least)

Most of the reinsurance money has already been provisioned for by stats in past quarters. The reversal you will see will be when this all gets spent offshore on imports of kitchen units and bathroom sinks... not the reversal you are thinking!

[winner69]

These guys think we are heading into dangerous territory with the ever increasing 'deficit'
http://www.stuff.co.nz/business/6176...rse-economists


Of course we are .... all part of the big plan ...... let the cuountry run up huge deficits .... ones that need fixing ..., sell the real assets of the country on the cheap .... to whom one may ask .... obvious eh the rcih greedy few ........ and we think the Occupy movement are a lot of useless layabouts!

The palns working in parts of Europe .... the common people are getting raped and pillaged ..... NZ's turn soon?

Don't know where this fits with share trading / investing .... but prob has an impact somewhere

[Lizard]

The only thing I see blowing out in New Zealand are the levels of paranoia.

NZ was in a very shaky current account position back in 2007 and everyone turned a blind eye while we ran deficits of 8-9% of GDP. Now we hit 4.3% and people start comparing us with countries like Spain and Italy...ignoring the advantage of a floating currency. We also have very little borrowing that needs to be rolled over in the next two years, so they can throw our bond yields to the ceiling and it won't actually start to impact for a while - meantime, our GDP should be helped by the stimulus of a Christchurch rebuild - even if to a lesser extent than may be forecast. So even though the reinsurance inflows may have already been provisioned for, the extra trade imports would expect to be offset by increases in GDP in the BoP ratio.

Anyway, just so you can sleep easier, Winner, I have searched around and had to download the data to create this chart for you.... NZ's IIP net liability as a % of GDP (I was going to make the figures negative, as they should be, but I can't work out how to make this version of Excel put the Axis label above the line!). While the overall liability leaves us vulnerable to the world view on us, it's not a deteriorating picture in the 10 year time frame. Which is not to say it won't become so - but not to say it will either.

Attachment 3736

New Zealand got raped and pillaged in the late 1980's and early 1990's. We came close again with our inability to close down a housing bubble and agricultural bubble, parts of which remain a risk. Our WFF commitments may have been on the generous side and, in my view, the expenses of policy advice, regulation and monitoring abound unchecked. However, we are not in the kind of dire straits that require us to plunge into an austerity spiral - especially not in a one-way competition with the rest of the world.

Still, caution is required. The recently announced improvement in savings rates could become mirage-like if it has been caused by Christchurch homeowners paying off their red-zone mortgages and not yet investing in a new property. We need to stay on the glide path if possible - investing wisely is the most important thing we can each do in this regard.

[Hoop]

Hmmmm.....things are looking a little grim here.

Is this another test of the bottom trading range or something a bit more sinister?

In theory a warning of a trading range breakout comes when a cycle gets cut off from reaching its destination range limit (see A on chart)...Hmmm... theory v in practice agree only in perfect world ..eh?

Update
Breakout warning is now a reality.

Was the previous inflow of money holding up the NZX50 causing it to be one of the few global Equity markets still in a cyclic Bull market cycle...

now that money is exiting ......

Winner...free camping ground this Xmas

[winner69]

Winner...free camping ground this Xmas

Free camping Hoop .... good idea ..... maybe Aotea Square .... plenty of empty space there I believe .... but then again I couldn't put up with being in Auckland for too long

[winner69]

Good stuff there Liz .... you'll make me think more deeply about such stuff

Whatever it's not affecting the economy - Sept number out and the economy growing at an annualised 3.2% .... more than those doozie economists are projecting for next year .... and with Dec quarter being up as to all accounts makes you wonder what these guys are on when they run their models .... jeez 3.2% growth now has to be 4%-5% by this time next year .... even if the rest of the world is struggling

[Lizard]

.... jeez 3.2% growth now has to be 4%-5% by this time next year .... even if the rest of the world is struggling

Yep, and if we could run 4-5% GDP growth, then a 4.3% current account deficit would be infinitely sustainable without an overall deterioration ....

I thought this bit from today's release looked positive from the perspective of the average NZer:

Real gross national disposable income (RGNDI) increased 2.8 percent for the year ended September 2011, while GDP grew 1.3 percent over the same period. The difference between RGNDI and GDP for this year was mainly due to an increase in the terms of trade effect. Current price exports of goods and services increased 9.5 percent for the year ended September 2011, while prices of exports increased more than prices of imports over the same period

Explained further here:

While GDP is a measure of domestic production or economic activity over a given time period, RGNDI can be viewed as a broad welfare indicator. Net flows of income with the rest of the world are also included in RGNDI, as not all of the income generated by domestic production accrues to New Zealand residents. RGNDI measures the volume of goods and services New Zealand residents have command over.

[Lizard]

Okay, so I agree with you Belgarion - GDP will rise. What I disagreed with you originally on was the current account balance though - the actual deficit is likely to increase on the basis of increased imports. However, as a % of GDP, the rise in GDP may off-set that.

On the back of a that, we could also expect a rise in GDP to perhaps trigger some OCR increases... and perhaps that in turn risks a re-start of the carry trade, rise in value of the NZD and associated frustrations for exporters. It would be nice if enough risk aversion has been learned in recent years to ensure we don't see an instant return to debt-fuelled household spending patterns.

[Hoop]

What a shame Phaedrus's tongue-in-cheek post was wrong ... Maybe Assumption 1 gives him a getout? Hoop? (Certainly assumption 2 is the perfectly worded get out of jail free card).

LOL
That Phaedrus's Post was a frustrated reaction to all the posters who kept harping on about TA predicting the future..He kept replying that his TA could not accurately predict the future and it should be used as designed... to time the buy ins and sell outs of that particular stock returning the best profit in relation to the amount of risk involved (the sweet spot).....so he drew that chart to prove his point..but unfortunately for P it worked very well (too well) for quiet some time before it broke down, probably much to his surprise .

No discipline is 100% accurate, but P noticed that his TA method had much better results when that particular stock's market index was in a primary uptrend and so he created his MSI indicator as a guide...basically to minimize the investment risk even further by ignoring his own TA buy signals when his MSI was in the red zone.
His methodology when MSI was red was basically "when kicked out, stay out" Bear Market Strategy.
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Back to the NZ50
Colin Twiggs email today shows USA markets resumming their Bull market cycle (primary up trend) together with Brazil and South Africa.
Canada and South Korea are looking likely to follow
The European markets are threatening but their indicators are weaker
Australia seems to be bottoming out
The Asian markets continue to trade in their bear market conditions.
I couldn't see NZX50 anywhere so I drew up one.
The NZX50 seems to follow the good news as well with a primary breakout and hopefully this will be confirmed with the MA200 nearby and the testing of the 3350 resistance level