Tuesday, August 21, 2007

After Helen, now Michael Cullen looks ever more naked

After Helen, now Michael Cullen looks ever more naked with a financial tsunami about to wash away what little credibility he has
Fairfax blogger/ columnist Bernard Hickey again shows intelligence never seen before in Rod Oram with a fine article looking at how the kiwi housing boom has been funded from overseas.
Now those Japanese housewives are looking a little nervous and some are wanting their money back.
The markets really gave Cullen a true vote of confidence last week, when the dollar slumped 14 cents from its recent high, now settling below 70c.
Well, when times are uncertain, you dump your risky ventures, and that obviously means New Zealand, showing the world has little faith in Liarbour's economic record and the claimed kiwi prosperity is built another lie , one of castles built on sand, ready to be engulfed by an incoming financial "tsunami.
Hickey uses Treasury figures to show what Uradashi and similar bonds are due to mature and sees bleak times ahead- well, bleak if you are an importer, or a householder.
Exporters, meanwhile, like our dairy farmers, will be the only ones the cream it from the dollars impending likely collapse.


Adolf Fiinkensein said...

Yesterday afternoon I heard some demented Labour apologist by the name of Ven Thomas (who thehell is Ven Thomas) on the RAdio Left Wing 'Panel' programme. He wass droning on about how well the rconomy is doing under Labour and he spoke of 'prosperity at a level not seen since the 1950s.' Well, for he information of Mr Thomas and the rest of his hottentot economists, the price of coarse wool in 1951 was 'a pound a pound'or $2.40 / kg. Inflation adjusted that would equate with roughly $21.60 per kilo. Better goback to school Ven and when you do, don't forget to check out those OECD rankings for the past twenty years, along with Clark's 'pledge' to put us into the top half.


Well, I recall first coming here in 1995 and thinking NZ was richer.
In the years that followed, I could see Britain's prosperity increasing by 2-3% a year, while NZ stays constant.
By 2000 the difference between the two countries was certainly significant.
The wealth gulf between between Britain and Australia is now quite staggering too.
Auckland looking very much the poor relation compared to Perth, brisbane, Sydney, Melbourne and even Adelaide, which is often seen as the poorer state thanks to its cheaper housing.

Matt Nolan said...

I'm not sure that the maturing of a whole lot of bonds is going to hit our currency that hard, it will just make it harder for finance companies to find liquidity so they will have to stop handing out loans.

On Monday $2.6bn worth of NZ bonds matured and the currency didn't move. This was pretty significant as there are $3.2bn worth of bonds maturing this month and we are right in the thick of the maturing cycle, so Monday was a big day. When our dollar crashed to $0.66, people were pricing in the fact that a whole bunch of bonds were going to mature on Monday, and they got scared and sold them short to NZers.

As a result, most of the effect of mondays maturity had already been priced into the market. I think this is probably the case for a good number of the bonds that are going to mature over the coming months.

So although I agree that there will be a squeeze on liquidity, I can't see our dollar falling much further, unless the world economy and commodity prices collapse.

Matt Nolan said...

Also to clarify one thing, I don't think that the economy is going to sail smoothly, they just don't think that the current crisis is particularly important for NZs long run growth.

As an economist I expect the dollar to pick up slightly in the coming months, but then I expect 2008 to provide sluggish growth and strong inflationary pressures, which will drive the dollar down. By the end of 2008, most economists expect NZ to be in a recession.

The main reason that many economists aren't that excited about this situation is the fact that we expected this fall out from subprime a year ago and it didn't happen. When corrections don't happen it usually means that there will be an even stronger correction later on. As a result, all our policy advice took this into account when we talked to clients, and we expect firms to have prepared for this type of low liquidity situation.

Households will have a bitch of a time over 2008, however unemployment will remain at historic lows, as business margins have recovered partially and firms will not want to let go of labour following the chronic labour shortages of the past 4 years.