Friday, January 23, 2004
Financial reality check
It’s time for my regular reality check on the world of finances. New Zealand’s Minister of Finance (Michael Cullen) is very upbeat about the economy and doesn’t know how to spend all the money the government is collecting. US Federal Reserve head, Alan Greenspan, is likewise – for him – quite bullish. So what’s the problem?
A number of key indicators show that we could be in for a bumpy ride this year. The latest Consumer Price figures for New Zealand show a higher than expected inflation. Most of it has been by a crazily spiralling housing market.
Infometrics forecasting group expects the housing market to do a major correction by the end of the year. The same goes for the US housing market.
Because of the inflation and housing situations, many economists expect the NZ Reserve Bank to up interest rates at the next review. Also, the NZ dollar is way over-valued. It reached 68 cents US a week ago, but has climbed back down significantly since. Nonethless, it is still far too high, and the exchange rate is hurting NZ exporters.
Despite the high NZ dollar, petrol prices in NZ are going up (aided by new government taxes to fund roading), because international oil prices are shooting through the roof. And electricity prices are getting savage hikes because of deficiencies in the way industry reforms were carried out a few years ago.
In the US, two of the main economic gauges used by Wall Street, banks, and in the calculation of Social Security payments have been found to contain serious problems. Analyst Dan Spillane explains in an article entitled “Black Hole found in US Economy�
Investment advisor Whitney Tilson is also concerned about trends in the investment market – he believes investors have not learnt the lessons that led to the dot.com bubble burst of 2001.
The scary thing is that you could plug New Zealand names and figures into Tilson’s article and it would still read almost exactly right for this side of the world.
To be fair, not all economic analysts are painting a gloomy picture. In fact, the majority are probably very positive, for example the Economic Cycle Research Institute, which last week said: “Every sector is now expanding at a rapid rate, the jobs picture is improving and the U.S. recovery is helping to pull the world along.�
It will be interesting to look back this time next year and see who was right.
It’s time for my regular reality check on the world of finances. New Zealand’s Minister of Finance (Michael Cullen) is very upbeat about the economy and doesn’t know how to spend all the money the government is collecting. US Federal Reserve head, Alan Greenspan, is likewise – for him – quite bullish. So what’s the problem?
A number of key indicators show that we could be in for a bumpy ride this year. The latest Consumer Price figures for New Zealand show a higher than expected inflation. Most of it has been by a crazily spiralling housing market.
Infometrics forecasting group expects the housing market to do a major correction by the end of the year. The same goes for the US housing market.
Because of the inflation and housing situations, many economists expect the NZ Reserve Bank to up interest rates at the next review. Also, the NZ dollar is way over-valued. It reached 68 cents US a week ago, but has climbed back down significantly since. Nonethless, it is still far too high, and the exchange rate is hurting NZ exporters.
Despite the high NZ dollar, petrol prices in NZ are going up (aided by new government taxes to fund roading), because international oil prices are shooting through the roof. And electricity prices are getting savage hikes because of deficiencies in the way industry reforms were carried out a few years ago.
In the US, two of the main economic gauges used by Wall Street, banks, and in the calculation of Social Security payments have been found to contain serious problems. Analyst Dan Spillane explains in an article entitled “Black Hole found in US Economy�
Investment advisor Whitney Tilson is also concerned about trends in the investment market – he believes investors have not learnt the lessons that led to the dot.com bubble burst of 2001.
The scary thing is that you could plug New Zealand names and figures into Tilson’s article and it would still read almost exactly right for this side of the world.
To be fair, not all economic analysts are painting a gloomy picture. In fact, the majority are probably very positive, for example the Economic Cycle Research Institute, which last week said: “Every sector is now expanding at a rapid rate, the jobs picture is improving and the U.S. recovery is helping to pull the world along.�
It will be interesting to look back this time next year and see who was right.
