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JUL 17

On The Land July 2017

How is the Reserve Bank going?

No real change from last time and as we have discussed before things on hold for a while yet. I still see late 2018 as first interest rate rise, currency has strengthened and inflation indicators are subdued. That said Canada, UK and USA central banks guidance is giving more emphasis on lifting rates

There is a RBNZ discussion paper out on wider macroprudential controls. Pre-the global financial crisis the theory went that interest rates target inflation and lending limits, deposit requirements support financial stability and the two were distinct and separate but that is changing.

The problem is that a housing bubble threatens financial stability and that might require a rate rise but to do so would impact the currency damaging trade, a dilemma that can’t be addressed with interest rates changes. Hence the need for other controls brings in the macroprudential interventions like the loan to value or loan to income controls.

These prudential controls are not new and were normal prior to the 80’s – I am of the view that it is the lack of a connection between earnings and asset prices that has encourage the housing price bubble in the English-speaking world as financial systems liberalised.


Trade Developments?

TPP11 (TPP – USA) is getting more discussion, nothing concrete but hanging in on life support. Question is will Japan and New Zealand not be distracted by domestic politics.

Pacific Alliance Launch - Mexico, Chile, Colombia and Peru, collectively about the 6 biggest economy – Central and South American TPP backstop to some extent, Columbia is the new addition.


What about the USA?

Remains confused, it seems that the latest answer to any Trump utterance is “the American people knew who they were voting for” so why be surprised by anything Trump does. Hard to know which if any misplaced comment will trigger any change – most would say it should have happened already, but…

Interesting view of the differenc between lying and bullshitting..


UK Election Surprise in early June?

Who would have picked a hung parliament from the general election, expecting a Conservative landslide instead seeing a swing to the left makes Brexit (whatever that is) harder to sort out. Four freedoms – goods and services trade, people and money – soft Brexit would keep most, hard Brexit would abandon them.


How are markets going?

Markets are getting softer but it looks like people are wanting to be optimistic so ignoring the bad news and playing up the positive. Usually the numbers can be interpreted in at least two ways, the news is not bad, but equally it is not wonderful so you take your pick right now. On balance, I come out on the plus side but for the ongoing emphasis on asset prices in New Zealand, overvaluing our currency and hurting exporters.

And our Election?

Seeing some old faces re-emerge under a different brand. Generally politics increasing unfamiliar and uncertain. Some damage to Bill English around the Barclay story but we are a way out. Dollar remains an issue for exporters, dairy auction gains still positive trend recognising the drop in June. Pay-out forecast remains in the mid $6 even with softer auctions of late.

Hot Issues:

• housing
• water (TOP policy -
• immigration



tags: reserve bank, on the land, currency, macroprudential, debt to income, housing, water
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