How international market forces affect NZ property

[Jeffa]

There seems to be a myth or more likely a miss understanding that the kiwi property market is insulated from international markets, and move's only on forces in New Zealand.

This is incorrect,

Property prices are influenced by interest rates, interest rates are influenced (manipulated) by the RBNZ.

The RBNZs job is to control inflation, but what is less understood they need to control employment.

Employment is made up of government and private, we are an exporting nation so rely heavily on international markets, government relies on tax or international debt in the form of bonds.

Who cares! What's that got to do with my portfolio?

The bond market is dictated by trader's or investors trying to predict were the global economy is going , growth, flat or recession.

China and the US are the biggest markets although I believe the US is the most important.

The 10y bond rate is the most important, it gives an insight on what investors are predicting years in advance, the 2 year bond rate is what pretty much everyone knows is happening in the economy right now, you just have to read about it on the doom and gloom in your click bait news sight.

So?

The RBNZs job is to stabilise inflation, and employment, not many people realise they also need to increase unemployment and have people fail or force mortgagee sales to slow the economy down so they can lower interest rates.

And all this is dictated to by international markets or more importantly the US sharemarket.

The RBNZ will deny this because it's not very politically correct to explain that Kiwis fate's are controlled by the elites in America...get over it, it's been happening well before I was born.

What does this mean for you?

Not much really, you will go on investing in property, prices will double every 8 years or so and you will be oblivious to whom controls it all.

(Note: Central government have very little amount of power in global markets, but can make matters worse for local economies when trying to influence natural forces)

PS

Obviously there is much more to this but I have tried to keep it as simple as possible.

Yours sincerely

K.Jeffa.

[Jeffa]

If you know this already, good for you.

It's for those who don't.

[Jeffa]

If a huge company like Apple or Google give the slightest hint that revenue will be down, this sends shock waves to the rest of the share market, this in turn flow's onto international markets, companies start preparing for a recession,lay off worker's,stop hiring,cut spending.

Effect:
Central banks stop increasing rates, when growth stalls , unemployment rises forcing Central Banks to follow there mandates, and rates are lowered.
-Through Bonds and the international debt market.(see original post)



This is not delayed in New Zealand, it's almost in sync with all central banks.

A good instrument to forecast where mortgage rates are heading over the next 12 months is the SP 500, the top 500 companies in the US will most likely dictate where the economy is going, Apple, Google, McDonalds.

Then it's up to the Fed to step in and "save" the economy.

This flow's onto the RBNZ and eventually New Zealand house prices.

[Jeffa]

So when celebrity Economist appear on Mainstream media saying you can't predict the bottom of the NZ real estate market, I respectfully disagree.

The bottom of the NZ real estate market is when the OCR stops rising and unemployment increases.

(As to when please see above post.)
The beginning of the new cycle starts when interest rates are lowered.

Quite simple really.

Because the real estate market isn't liquid,it can take a couple of years for it to play out, unlike your "sharesie" app were you can buy and sell in seconds, which is why the share market is usually about 9 months ahead of the real economy.

[Jeffa]

Treasury forcasting interest rates to remain high for the next 5 year's.

It's to "force" New Zealand companies accountants to price in low growth, low revenue and slow down new employment and wage increases in the short/ medium term.

It's a fear tactic to slow down the economy and growth, those in the know understand this and know better. but I believe its a good thing moving forward.

I could add further how they slow down economic growth but would likely have this thread moved to conspiracy theories.

[Jeffa]

McDuck!

I know you asked for me to start this thread the other day, but honestly, I was too lazy and now my brain hurts.

[McDuck]

McDuck!

I know you asked for me to start this thread the other day, but honestly, I was too lazy and now my brain hurts.

Ha!

Think of how the people trying to take it all in must feel.

I figure you can write any of the content from your "conspiracy theory" thread here, as long as you don't attribute it to some master plan devised by some 1% of the population.

I'm still reading it all, and thinking about it.

The 10 year Bond yields...how do they know what's going to happen that far ahead?

And how did their predictions go pre corvid?

Remember, one mention of a masterplan , and were back in the dog box again.
ha.

[Jeffa]

The 10 year Bond yields...how do they know what's going to happen that far ahead?


ha.

Gambling what the Fed and Reserve Bank is going to do in the future from what's happening today or short term.

Basically trying to be ahead of the Fed or bond yield curve.

I know this clip is boring, but portfolio managers usually live and breathe this stuff
Most politicians don't understand this stuff so if you can understand it, you will be well ahead of most people.

[McDuck]

Gambling what the Fed and Reserve Bank is going to do ...

I know this clip is boring,

Not to me.
I love this stuff.
I like to imagine what it would have been like back when Wall street was an actual wall, built to protect the city from the wilds.
Or what it would have been like to walk into one of those Dutch coffee houses and listen to the deals going down,

About this Stock centered view of things.
See, to me, you have it backwards.

Stocks aren't the center of the financial world.
The "amount of dollars" is.

Unless you can stabilize the "amount of dollars" to the "amount of productivity", you're fighting an impossible battle.
None of the numbers will work.
you can't move in any direction without working numbers.

It would be like trying to build a house with a tape measure that was made of rubber.

[Jeffa]

Unless you can stabilize the "amount of dollars" to the "amount of productivity", you're fighting an impossible battle.
None of the numbers will work.
]

Kind of,

The Fed is hiking interest rates to stabilise inflation which should stabilise the economy.

The sharemarket is trying to beat the Fed to its next move.

If the Fed gets it wrong (and yes everyone knows they did with too much money printing)

Consequences will filter to the bond market and Kiwi housing market.(As well as possible famine in developing countries but Kiwis and media prefer to ignore this)

It's a game of poker at the moment the market is pricing in the Fed to stop increasing the OCR after July or possibly as early as June! with the 10y bond rate down from 3.2% to 2.7% in only a few weeks.

The poker part is the Fed is trying to talk tuff by saying they are going to raise rates no matter what, (The fear tactic) to cool markets.

The bond market trader's don't believe him...who's going to blink first?

[Jeffa]

Things that caught my eye from the RBNZ today after the standard were going to raise rates because were a wealthy country and can afford to because we have no unemployment!

Standard fear tactic towards companies.

Only part that interested me was below v

"However, headwinds are strong. Heightened global economic uncertainty and higher inflation are dampening global and domestic consumer confidence. Asset prices, in particular house prices, have also declined, reflecting in part higher mortgage interest rates and increased supply of housing."

"Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level."

[Jeffa]

RBNZ forcasting OCR could be as high as 3.9% in a June 2023.

An excellent scare tactic which seems to have worked as the Kiwi dollar strengthens as I write this post ... for now.

How out side influences can change this .

Probabilities:

Are supply chain issues really going to be on going in a year?
Was reading an interview from the CEO of VW, he's expecting supply chains to improve by the second half of this year (in a few months)

Who cares what CEOs have to say?!

CEOs warned the Fed last year to start tapering bond purchases, the Fed didn't listen.They already see what's coming in there companies and eventually economies.

Will China finally start to end there zero COVID policy as there economy begins to struggle?

Will the war in the Ukraine still be happening in one year?

If only one of these events correct itself, it will drive inflation down..and our OCR.

These are what market trader's are betting on, which indirectly effects our real estate market.

[McDuck]

..
The poker part is the Fed is trying to talk tuff by saying they are going to raise rates no matter what, (The fear tactic) to cool markets.
The bond market trader's don't believe him...

When you try to scare someone and they dont take you seriously, you have to make good on your threat.
Especially if you have more power and a target to achieve.

[Jeffa]

When you try to scare someone and they dont take you seriously, you have to make good on your threat.
Especially if you have more power and a target to achieve.

Total agree with this post McDuck.

Here's the tricky part, does the RBNZ want to push the NZ economy into a recession in an election year?2023.. easier said than done.

(Full disclosure:I want a recession because I truly believe rates will go negative eventually , it just needs a trigger)

Which for me if I was gambling on the sharemarket and let's be honest I do ...I don't believe a word they say, but it's not me who there trying to convince, it's your average kiwi mortgage holder or small business.

[Jeffa]

US media is all over the RBNZ move today, The Fed may use similar hawkish language.

Get ahead of the yield curve, stamp out inflation before they both actually have to raise rates so dramatically, Wall Street sharemarket is severely hurting, how much pain can markets take before it falls over? We shall find out over the next few weeks/, months.