Matt Nolan

Rough 2011 predictions

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I suppose I should make some falsifiable predictions for the year ahead – so I can explain at the end of the year why I was so wrong 😉

Lets go (note, these are my rough picks – they aren’t associated with anyone else, and they definitely don’t exist in a professional capacity) :

  • NZ GDP growth will near 4%pa by the end of the year.  Inventory accumulation will be a major contributor.
  • Consumption growth will be weaker than economic growth – but will accelerate during the second half of the year.
  • NZ unemployment will hold above 5% – but will be in the lower 5’s.
  • The housing market will remain weak.
  • The Reserve Bank will remain dovish on rates over the first half of the year – but then start hiking in June.
  • Farmers paying down debt on the back of high commodity prices, combined with increasing risk taking/confidence by investors, will see interest rates fall over the first half of the year.
  • National and Labour will compete over “savings plans” which will involve far too much in the way of distortions, compulsion, and poor “incentive” programs for my liking.  As a result I will post on them constantly.
  • National will win the election with effectively the same coalition government as we have now.
  • Aggregate commodity prices will peak in March, but will not decline significantly.
  • Oil prices will rise 10-15%.
  • Australian growth will fall slightly below trend.
  • The US recovery will be lower than expectations in the early stages of 2011 on the back of a slight run down in inventories – however, underlying activity will pick up sharply from the middle of the year.
  • The Fed will not lift rates or cut back on QE.
  • Israel will attack Iran to destroy any nuclear capabilities – and nothing will come from it (have put an entire dollar on this on iPredict – with an order to buy another 100 stocks)
  • Chinese growth will slow to 8%.
  • Portugal will teeter, but the essence of the debt crisis will be forgotten again over the year.
  • Japan will tighten policy too early.
  • Subsidies for solar power will become a more common policy around the world.
  • An international mission to Mars will be announced.
  • Update: India will win the Cricket World Cup.
  • Update:  France will win the Rugby World Cup after disappointing in group play.
  • Update:  Gold price will fall – say it will be lower on December 31 2011 than it was in December 31 2010 in US dollar terms
  • Update:  The NZ TWI will be volatile, but on average unchanged!
  • Update 2: Arsenal will win the PL in 2010/11
  • Update 2: LFC will be top of the PL in 2011/12 at Christmas (but will end up coming 4th)
  • Update 2: Wellington Phoenix will come in sixth in the regular season – but will make a semi final.  They will be in fourth place by the end of December 2011.
Matt Nolan

All I want for Christmas is … cash?

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So says an article on Stuff.

This makes sense to me, after all having the means to buy what you value the most is useful.  In fact, this is incredibly relevant for my article in the Dom Post tomorrow 😉

Matt Nolan

Another sentence

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The shift from debt-financed consumption to greater saving and investment is also expected to support the household sector’s capacity to repay its debt.

This is from the RBNZ’s Dec 10 bulletin.  This is a good article, but the nature of this specific sentence grates me.  I would suggest reading and enjoying the article for what it is – and viewing my discussion below the fold as a discussion based on an interpretation of this sentence, not a discussion of the article per see.

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Matt Nolan

Sentence to ponder

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Via Stats NZ

Increases in borrowing, interest paid, and investment in housing by households and the private unincorporated producers sectors (sole traders, partnerships) suggest that New Zealand increased its international indebtedness through offshore borrowing to finance housing, among other things.

That is from their new Institutional Sector Accounts, which I’m going to spend a bit of time thinking about.  The key thing to differentiate for me here is – were we spending too much building houses, or simply building up the mortgage in order to consume excessive amounts of non-housing goods.  My impression is generally in the former camp, and I’m hoping that a bit of time looking at this data will give me a clearer idea of which view is more reasonable.

I continue to believe that any adjustment in the NZ economy will come through investment in housing, rather than through a large scale shift in household consumption (which if anything has been restrained in NZ).  In this view we borrowed to build bigger houses, not to buy plasma TVs.  So it will be interesting to see.

Matt Nolan

Irish and Greek crises: Why is NZ different?

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This post from Marginal Revolution has moved me from thinking to writing.

On the surface there appears to be a lot in common with the Irish, Greek, and NZ economies.  All three have high net foreign liability positions, liabilities are highly concentrated through banks who are borrowing overseas, all three have experienced some form of housing boom and lift in consumption, and finally all three appeared to have a relatively strong fiscal position before the GFC before moving into fiscal deficits after the shock.  And yet (so far) while the Irish and Greek economies and banking systems have collapsed, New Zealand’s has been fine.

There are two major differences that have helped reduce the implied risk on our debt, making New Zealand much less likely to experience a bank run:

  1. Our banking system is primarily foreign owned (Eric Crampton expands on why this is a good thing),
  2. We have a freely floating exchange rate – combined with having much of our debt denominated in NZ$ this is useful.

These are important points to recognise.  While many commentators are saying we should “peg” our dollar and set up more domestic ownership of banks GIVEN the risks associated with the GFC, I tend to reach the opposite conclusion – namely, the reason why we haven’t suffered as much as these countries has been largely the result of our free floating exchange rate and the fact that a larger economy has a large stake in our banking system.

The terms of trade boost and our proximity and exposure to Asia has also helped, but I would say that the Greek and Irish crises give us a reason to hold onto the status quo – not to chuck it out!

Matt Nolan

A question to all

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Why do policy makers care about this graph so much right now? (ht Roger Kerr)

Specifically, my question to people is simply this three parter:

  1. Does this graph show an issue,
  2. If so, what is it?
  3. And if so, are their any changes that could improve matters?

Some small thoughts of my own beneath the fold.

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