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"The deeper the recession the stronger the upturn on the other side..."

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  • "The deeper the recession the stronger the upturn on the other side..."

    This weeks overview by Tony Alexander contains a little gem which caught my attention.
    It's often been mentioned on PT that "the bigger the boom, the bigger the slump".
    I don't think that is necessarily true - it could be just an urban myth.
    But I've never considered beyond the slump before.
    In view of the very vocal PTers who have been claiming that we're heading into the biggest slump in decades then what do you think of Tony's thoughts?

    Originally posted by Tony Alexander
    Recession Is Old News – When Will There Be An Upturn?

    It's now old news that the New Zealand economy is in a weak state and probably in recession. For up to
    the next 12 months most of the pieces of data we are going to receive will continue to show the economy
    in a weak state and a lot of the commentary in the media will be about the weakness of these numbers. In
    other words, continuing to write about the weakness in the economy and analysing it in detail is going to
    get repetitive. We will still need to do that but now let's try and turn our attention around to what always
    happens after one's economy has a recession - the recovery.

    Economies always recover and the deeper the recession the stronger the upturn on the other side. This
    arises because the worse the downturn the greater the downward pressure on inflationary forces, stock
    and employment levels therefore the greater the fall in interest rates and the exchange rate and the
    greater the eventual surge in exports and later on the greater the surge in the housing market, business
    investment, production orders and the domestic economy overall.
    Does anyone else sense an opportunity in property about 2011-2012 perhaps?

  • #2
    Hi Bob.

    Where do you get these commentaries from Tony Alexander?

    Comment


    • #3
      He emails them out each Thursday.
      Just get on his email list - go to the BNZ site and follow his name.

      Comment


      • #4
        Hmm, interesting thought.

        I guess the theory is that there will be a regression to trend. Thus if we go vastly below the trend we will snap back to it by going vastly above it...

        However a big slump is not necessarily going all that far beyond the trend given a big bump up before hand, the slump might only be a restoration of the trend (which I would say hasn't even been reached yet).

        All of this of course relies on the notion of regression to trend, which Tony rightly criticised recently...

        Cheers
        David
        New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki

        Comment


        • #5
          Everyone knows that oft-quoted fact that the Chinese character for "crisis" is comprised of two symbols; one signifying "danger", the other "opportunity"...

          Comment


          • #6
            Originally posted by Monid View Post
            Hmm, interesting thought.

            I guess the theory is that there will be a regression to trend. Thus if we go vastly below the trend we will snap back to it by going vastly above it...

            However a big slump is not necessarily going all that far beyond the trend given a big bump up before hand, the slump might only be a restoration of the trend (which I would say hasn't even been reached yet).

            All of this of course relies on the notion of regression to trend, which Tony rightly criticised recently...

            Cheers
            David
            Hi David,
            I don't think Tony means a regression to trend at all.
            I think he means treat the slump in isolation.
            I'm thinking along the lines that if there's a big slump then the dollar will be really low which will give the exporters an extra boost to their incomes which will flow through to the rest of us and drive a fast recovery. A really low dollar also kills off the importers which also helps the recovery.
            What happened in the previous boom doesn't come into it.

            Of course, I'm no expert.

            Comment


            • #7
              I am no expert...

              But I am thinking Recession = Exchange Rate fall

              Low Exchange Rate = Immigration Boom (Better return on funds to come here)

              Immigration Boom (coincides with economic recovery) = Property Boom (Building industry lag to meet supply)

              Hows that for my Macro-economic summary

              Comment


              • #8
                Originally posted by Bluekiwi View Post
                Low Exchange Rate = Immigration Boom (Better return on funds to come here)

                Immigration Boom (coincides with economic recovery) = Property Boom (Building industry lag to meet supply)
                The price-elasticity of immigration?

                Interesting concept. Could be PhD topic for some budding economist out there.

                I have no idea how price-elastic immigration is, but would say that for NZ's sake I'd hope it was, because in the event of a bad recession (I'm saying if, not when) then I think we'll need all the help we can get to stem an even greater flow of persons to Australia.

                M
                Comments may not be relevant to individual circumstances. Before making any investment, financial or taxation decision you should consult a professional adviser.

                Comment


                • #9
                  Heard Tony speak at a breakfast this morning. He confirms we are in a recession and who knows the extend of the credit crunch but it looks like its far from over, throw in oil at whatever price and things don't look great. The upside is that we have a pretty solid agricultural and farming sector that is doing well and is likely to improve. One thing Tony said was that in 3 or 4 years when you meet someone that has just retired with $4 million worth of investment properties , it will be because they were bought for a song about now.

                  Comment


                  • #10
                    Originally posted by Dean View Post
                    Heard Tony speak at a breakfast this morning. He confirms we are in a recession and who knows the extend of the credit crunch but it looks like its far from over, throw in oil at whatever price and things don't look great. The upside is that we have a pretty solid agricultural and farming sector that is doing well and is likely to improve. One thing Tony said was that in 3 or 4 years when you meet someone that has just retired with $4 million worth of investment properties , it will be because they were bought for a song about now.
                    Everyone else says the slump will last 3 or 4 years.

                    We have 2 definite camps here:
                    • Most people on PT think market recovery 2011 / 2012.
                    • But there are a lot that are saying late 2009.
                    I am switching from thougts of low ball offers to waiting till 2009.

                    I would love to hear friends Matt Gilligan and Dean Letfus sitting around the fireplace discussing it as they are in apposite camps.

                    Comment


                    • #11
                      Originally posted by Bluekiwi View Post
                      But I am thinking Recession = Exchange Rate fall

                      Low Exchange Rate = Immigration Boom (Better return on funds to come here)

                      Immigration Boom (coincides with economic recovery) = Property Boom (Building industry lag to meet supply)

                      Hows that for my Macro-economic summary
                      Your forgetting a few Macro things

                      Low exchange rate = high cost of everything NZ imports mmm like oil...

                      Immigration = wheres the extra infrastructor? Like power stations? to power up all the new houses required?

                      Property boom = in a time of declining resources?

                      This time period will be the first time in the planets history where humans have for the moment less energy to go round...

                      Comment


                      • #12
                        Originally posted by Bob Kane View Post
                        This weeks overview by Tony Alexander contains a little gem which caught my attention.
                        It's often been mentioned on PT that "the bigger the boom, the bigger the slump".
                        I don't think that is necessarily true - it could be just an urban myth.
                        But I've never considered beyond the slump before.
                        In view of the very vocal PTers who have been claiming that we're heading into the biggest slump in decades then what do you think of Tony's thoughts?



                        Does anyone else sense an opportunity in property about 2011-2012 perhaps?
                        My thoughts after distilling many sources of info...

                        Yes I think there will be great opportunities then(2011-2012) to pick up some cheap (good yield) housing. However, if massive capital gains are what you are after, I dont think that will be happening until around 2018/20.

                        Oil price will peak around 2012, as will butter and cheese (and gold) - oil wont run out this time around, there is still plenty in the ground for now, although clearly it will run out one day. Then inflation will start to cool.

                        High oil price = high travel cost, high transport cost = bad times for NZ. Fewer visitors, fewer immigrants, lower dollar to counteract the higher cost to export. High prices, high inflation. Interest rates will stay relatively high for a little while (few years) yet.

                        Badger worries about too many immigrants, I think we will be struggling to maintain a flat NZ population for the next few years. This may change mid next decade, or it may get worse. A declining population is probably very bad, particularly when most of the remaining population are superannuitants.

                        Looks bad, but there are always opportunities to make a buck,

                        happy days

                        Comment


                        • #13
                          Bluekiwi, I think there will be better buys next year.Maybe will be making lowball offers on the same properties.I'm in no rush because from what I am experiencing the worst has yet to come and the recovery won't be quick.

                          Comment


                          • #14
                            Well I have just heard the radio news this morning.
                            People are now talking about petrol at $10 per ltr.
                            No body is talking about interest rates going through the roof.
                            Look what happened at the last decent recession.
                            Shares fell through the floor in 87.
                            Commercial Property in the big cities slumped to 15% net.
                            Interest rates shot through the roof to 22%.
                            So I wonder how many PTers will be buying all those bargains if interest rates are up around 15% or more.
                            I purchased my first IP at this rate so it can be done.

                            Comment


                            • #15
                              Glenn, depends on the amount of one borrowing and the price of the purchase.I agree, it still can be done and the upside will be bigger.

                              Comment

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