Who's Tony referring to?

[Bob Kane]

From Tony's BNZ Weekly Overview (8 July 2010):

http://www.bnz.co.nz/binaries/w080710.pdf

There are those who forecast seemingly gleefully that the biggest global economic downturn since
1946 and biggest financial crisis since the 1930s (overseas) would push the NZ unemployment rate
to 14%, collapse house prices by 40%, and cause many other very bad things. These forecasters
tended to be either left-wing, Muldoonist interventionists,

Bernard Hickey?

... or people who liked or needed publicity in order to get either clicks on their websites or punters buying their various products.

??? Ollie, Kieran ??

They may or may not now feel embarrassed about how bad their forecasts were but the point is they see an
opportunity to restore some credibility by claiming they were merely mistaken in terms of timing and
their forecast bad outcomes may still happen – though in smaller versions.

[Davo36]

All of the above I would say.

[whitt]

reference to all 3 I think

[Bluekiwi]

I note that Westpac dont have such a rosy view as Tony.

But even in Tony's reportings you can see a change in his perception of what he thinks will happen to house prices.

Not so positive about his shortage of supply theory as he was earlier in the year.

[Bob Kane]

But even in Tony's reportings you can see a change in his perception of what he thinks will happen to house prices.

Not so positive about his shortage of supply theory as he was earlier in the year.

This is what you would expect - as the situation changes (like the drop in immigration numbers) then the forecasts will change.

[kyotolaw]

One might reasonably expect a well paid economist to take into account the fact that a global recovery would reduce the number of Kiwis coming home, and increase the Kiwis going overseas again. New immigrants have always been pretty steady, its the Kiwis who are the moving variable (excuse the pun!).

Or should we just accept that all of these bank economists are just a cynically cheaper way for the banks to get their brands on the TV news than prime time advertising rates, and that they are not paid to be right, but to be interesting? (Much like Mr. Hickey, but that might cut too close to some egos to be accepted...)

[Property Trainer]

You have to wonder don't you?

[Perry]

Surely! One cannot help but wonder why
banks have econo-mists in their employ?
Economic soothsayers - after-the-fact!
.

[kieran]

Can't be me because last time Tony A. stated something similar to this in his newsletter I got several calls asking if he was referring to me.

So I contacted my BNZ Regional manager and asked him if Tony was referring to me.

The regional manager asked Tony who said NO, he wasn't referring to me.

Some people have delighted in misquoting me as having said values would fall by 30 or 40%... that rumour has already been proven to be untrue.

[Bob Kane]

Some people have delighted in misquoting me as having said values would fall by 30 or 40%... that rumour has already been proven to be untrue.

What about your call for investors to fix at 10% for 5 years as the rates were going up?

They may or may not now feel embarrassed about how bad their forecasts were but the point is they see an opportunity to restore some credibility by claiming they were merely mistaken in terms of timing and their forecast bad outcomes may still happen – though in smaller versions.

[kieran]

The Truth

What about your call for investors to fix at 10% for 5 years as the rates were going up?

Again UNTRUE.

If you were at the event in 2008 when Phil Jones and I were debating the potential of interest rate movements (which must be what you are refering to as I remember being asked the question of what my opinion was on interest rates) then you would know that I never said to fix at 10%.

It seems you are referring to the seminar held by Phil and I in 2008. The fact is this , Phil said interest rates would probably fall and that property values wouldn't fall by much if at all in 2008.

In contrast I said that interest rates were likely to rise so if you could afford the cashflow then fix longer term for security of knowing what your costs are and categorically stated this strategy was NOT NECESSARILY TO GET THE CHEAPEST RATE but to secure certainty of outgoing cashflow (and at the time the 5 year fixed rate was 8.95%).
It appears there are a few posters on PT who have raised this point (but always out of context) to attempt to discredit me for whatever their reasons.

I also stated that property values would fall by 10% in 2008 (FACT is the QV HPI fell by 9% in 2008 the biggest fall in recorded history).

If you are going to make public statements on PT about others comments please get your FACTs right and don't rely on heresay or 2nd hand gossip.

[watchful]

http://www.propertytalk.com/forum/showthread.php?t=16369

Trass is also cautious about the possibility of interest rates dropping next year. He points to the tightening international lending market and the likelihood local banks will increase their lending margins after 10 years of squeezing them. Trass is fixing his own mortgages at five years.

That means sooner or later we MUST re-borrow funds offshore... which in my opinion will translate into potentially much higher interest rates than 9%... Why do you think the banks term deposit rates are so high right now?
Its because the cost of borrowing offshore is too high already...

Kieran when you were quoted in the NZH as fixing your own mortgages for five years, five year rates were over 9%. A few questioned it and a short while later I took the advice to fix for 5 years at 6.5%. I hope you have upgraded your software since making that call...

[dandan]

It seems you are referring to the seminar held by Phil and I in 2008..... (and at the time the 5 year fixed rate was 8.95%).

It was the seminar which you held yourself before the one with you and Phil where you displayed your interest rate predictions.

At the time, 5 years rates were 8.95% and 10%+.
The audience of the 5 year fixed rate optimal prediction were investors. Many investors at the time were unable to borrow at mainstream bank rates and were borrowing from Finance companies. Finance company's at that time were charging a margin of 1-3% above bank rates for the likes of lo-doc, or no-doc or asset lending.

[PeterEmpowerEd]

If he says he didn't say it ...

We're each fairly to be judged by our track records and the veracity of past statements, in my opinion.
It's almost enough to make one temper what one says in public, wouldn't you agree?

Personally, I've given up making predictions because I've learned there are so many sub-markets and sub-cycles and things can pop up that don't match the trend. Also, frankly, it's hard to see the wood for the trees a lot of the time.

I rate Tony Alexander despite the rubbishing he gets here on PT sometimes. I also respect Westpac's Brendan O'Donovan. Both those guys have changed their tune about interest rates in the past... and fair enough if the data and environment changes. (See my post on another thread quoting John Maynard Keynes: "When the facts change, I change my mind. What do you do, sir?")

Various property sales organisations and real estate agents (licenced and unlicenced) often have their own reasons for 'pumping' whatever it is they're hawking. "Don't miss out! Live the life of your dreams! Take control of your future! BUY NOW!!" etc etc There are plenty of examples of that around.

Perhaps Kieran got caught up in something like that? I don't know.

Whatever the case, Kieran, I expect, would remember what he said about fixing rates ... But I must say, I have raised my eyebrows at some of his 'reported' advice.

Maybe he's just routinely misquoted? (If he says he didn't say it ...)

Peter Aranyi
Blog: www.thePaepae.com

[Dean@Massiveaction]

Why they all might be wrong

Written by
Rodney Dickens
Managing Director and Chief Research Officer
Strategic Risk Analysis Limited
09 426 4122 (Orewa) 027 2882209
[email protected]

https://www.sra.co.nz

The RBNZ and the 10 forecasters surveyed by NZIER in June are predicting robust economic growth over the next two years and robust growth in residential building activity (and, by implication, robust housing market activity more generally).
Unfortunately the economists’ residential building predictions are dubious. Bizarrely, the forecasters are predicting both significant increases in interest rates and robust growth in residential building activity. The housing market is the most interest rate sensitive part of the economy and there is no basis for expecting robust housing market activity to coexist with significant interest rate increases. It doesn’t and won’t happen (i.e. the forecasters are off with the fairies).
There are good reasons why the leading indicators of housing market activity are starting to diverge from the leading indicators of economic growth.
The RBNZ is predicting that the economy will grow 3.5% in the 2010/11 March year, 3.6% in 2011/12 and 2% in 2012/13. Seemingly consistent with its view on economic growth, the RBNZ is predicting solid growth in residential building activity over the next two March years (24.6% and 7.4%, respectively), followed by a tiny fall of 0.8% in 2012/13. The average or consensus predictions of the 10 forecasters surveyed by NZIER in June are reasonably close to the RBNZ’s forecasts for 2010/11 and 2011/12 on both counts.
Most economic forecasters exhibit flocking tendencies.
The RBNZ and the consensus view of the forecasts is for a favourable outcome for both economic growth and housing market activity over the next two of years, which is the sort of thing one would like to see after a recession (i.e. wishful thinking could be involved). The performance of the existing housing market is closely tied to the performance of residential building, so based on what the economic forecasters are predicting for residential building the existing housing market (i.e. the number of sales and house prices) should also participate in the fairytale outcome.
If I was in the business of granting wishes I would give the forecasters the thumbs up. I would like nothing more than to see economic growth and housing market activity behave in line with the predictions.
However, I have a nagging suspicion, which already has some empirical backing, that the economic forecasters are off with the fairies.

If residential building activity was going to grow somewhere in the ballpark of 25% in 2010/11 the number of house sales should be in the process of rising pretty strongly. Unfortunately, house sale numbers have fallen over the last nine months. By contrast, the NBNZ survey of firms’ own activity expectations, which is a useful leading indicator of economic growth, has skyrocketed over the last year, while consumers’ assessment of current conditions in May reached the highest level since the recession based on the ANZ Roy Morgan survey, which means consumer spending prospects are improving.

Based on the rigorous analysis of housing market prospects contained in our Housing Prospects and Building Barometer reports there are good reasons why REINZ house (and section) sales have fallen. Short of a miracle housing demand will remain low for the next 12-18 months based on prospects for the primary drivers of the housing market (i.e. the optimistic predictions for residential building activity are likely to be wrong by a long shot).
So the prospect of weakness in housing market activity in 2011 means economic growth is likely to run at least moderately weaker than the forecasters are predicting.
There is at least one major flaw in the conventional view.

Strangely, the economic forecasts are predicting both robust growth in residential building activity over the next two years and significant interest rate increases.

What the RBNZ does with the OCR is the primary driver of the 90-day bank bill yield, so the RBNZ’s forecasts for the 90-day bank bill yield are akin to OCR forecasts.
The logic of the economic forecasters appears to run something like the following: an economic recovery is underway and will be followed by a couple of years of robust economic growth and, fitting with this prediction, residential building activity will grow robustly while the strong growth will result in significant interest rate increases.
The only problem with this view is that the economy does not work like this.
There is a consistent inverse relationship between the monthly number of house sales reported by REINZ and the average mortgage interest rate. If interest rates go up significantly, existing house sales fall roughly three months later. And where REINZ house sales go, consents for new residential buildings follow 4-5 months later.
There is not one instance historically of interest rates rising significantly, as all the economic forecasters are predicting, and house sales subsequently rising. Someone forgot to tell the economic forecasters that significant interest rate increases and robust growth in residential building activity are mutual exclusive outcomes.
On the bright side, the average mortgage interest rate has not changed over the last few months, which implies that the number of house sales should remain reasonably stable over the next few months before grey clouds start rolling in on the back of OCR hikes. Unfortunately, our analysis of prospects for net migration, the second of three key drivers of housing activity, also points to a less than favourable future for housing.
The major housing affordability problems is also casting a dark shadow over the housing market, with this being the primary reason why housing activity is currently significantly below normal or average levels.
There is nothing new in the economic forecasters having predictions for residential building/housing market activity that are at odds with their predictions for interest rates.
The mathematical forecasting model used by the RBNZ is supposed to stop such inconsistencies, but the rigour imposed by the forecasting model is easily overcome by the people running the forecasts. I have seen it first hand from my time working at the RBNZ. If the forecasters don’t like what the model is predicting they simply override parts of the model and surprise, surprise the forecasts come out just like the forecasters want them to look like.
In this context, forecasting is more about justifying the preconceptions of the forecasters than it is about applying a rigorous framework to arrive at well-founded predictions.

Many of the 10 forecasters surveyed by NZIER have not built rigorous forecasting models. Rather than torturing their forecasting models to produce predictions that are consistent with their preconceptions or wishful thinking, they simply scratch their heads a few times and in general end up with predictions that are either a snip below or a nudge above what the RBNZ is predicting (i.e. they flock).

I do not play the flocking game and have instead spent 25+ years building a rigorous and independent forecasting framework. This framework is currently telling me that it would take a miracle for residential building activity to experience the robust growth the forecasters are predicting for the next two years.


From http://massiveaction.tv/blog/flocking-surely-not