Tuesday, 22 April 2014

“12 Reasons Why New Zealand's Economic Bubble Will End In Disaster”

Forbes magazine columnist Jesse Colombo invites international investors enamoured with NZ’s “rockstar economy” to think again – offering 12 Reasons Why New Zealand's Economic Bubble Will End In Disaster, pointing out among other things the conjunction of historically ultra-low (unsustainably low) interest rates and a mortgage bubble grown by 165% in a little over a decade, with the fact that nearly half of all NZers mortgages have floating interest rates, with mortgages themselves accounting for nearly 60% of banks’ loan portfolios.

So sit tight waiting for the pop when interest rates head back towards reality.

On top of this he sees the industrialised world’s fourth-worst household debt-to-GDP ratio, and a place in which agriculture as a source of wealth is vastly outstripped by “the finance, insurance and business service sector,” a sector in which banks “dangerously exposed to the country’s property and credit bubble” comprise the lion’s share.

Naturally, National Party cheerleader Keeping Stock has a cogent dismissal.  “Bubble? What Bubble?” says the blindfolded blogger responsible for a constant election-year refrain of “more good news” delivered by his heroes. “Cherry-picking,” “old news” and basic ridicule are about all the criticism offered however of Colombo’s case– apart from Keeping Stock’s hero Steven Joyce, who offers little more analysis than the word “alarmist” and a suggestion of similarity between Colombo and Moon-Man Ken Ring.

I can’t help thinking that if Colombo’s argument could be as easily dismissed, then they’d actually try to address it.

And then there’s Infometrics managing director Gareth Kiernan, who concedes “If his predictions ever came to pass then the economy would be in trouble, but no one was really forecasting that to happen…”


  1. The saddest story in all this mess is not only that Key had the best opportunity in a couple of generations to really reform NZ's economy, but that Key knew he had the best opportunity in a couple of generations to really reform NZ's economy --- and did nothing, except borrow 60 BILLION dollars to spend on welfare, to keep NZ communist so he'd get re-elected.

    Imagine if welfare and state ownership had been phased out between 2000 and today!
    NZ would be really capitalist and really free: and our economy would be strong and growing even stronger.

    If Helen Clark had won the last two elections and carried out Key's policies the business sector would fleeing to Australia, the conservatives would be up in arms, foreign investors would have fled, and indeed the economy would already have tanked.

    But Key won, kept all Helen's policies, borrowed 60 Billion - and somehow everyone in NZ believes there will be no consequences, that the golden years (all built on borrowed money) can continue forever.

  2. Unfortunately all so true Angry Tory.

  3. Whilst I don't thinking things are as rosy as National cheerleaders would have us believe, I don't think they're as bad as the picture Jesse Colombo points either. Rising real estate prices and decreasing affordability doesn't necessarily equate to a bubble if the increases reflect rises in actual costs of bringing new product to the market. With a few exceptions in the biggest cities (largely Auckland) that is generally the case in NZ. That's certainly not good news, and there are certainly things the gov't could do (or rather not do) to ease that situation. But regardless of that I can't see property prices crashing when there's no oversupply and no one build cheaper than the price of current stock.

  4. @Mark: For myself, I don't say things are necessarily as bad as Colombo suggests, but I do think few of the dislocations in the economy have been remedied over the last few years (and he identifies many of them) leaving us enormously fragile.
    To me, at the very least, he provides a necessary corrective to the idea we are some sort of "rock star."

  5. My landlord is selling the house to an investor. He says the bubble is here and it is going to pop and then he'll buy another place on the cheap. He says to me, "you buy when there is blood on the streets, there is a-plenty of that a-coming and so there will be plenty of buying to do".


  6. This talk of a bubble is all complete rubbish for a very simple reason - nobody is going to sell their house for $200,000. Or $300,000.

    The very notion is preposterous.

    I suggest you go down your street knocking on doors and asking who is planning to sell their house for $250,000 (3X average household income) see what response you get.

    If it isn't going to happen in your street in a million years perhaps you can then knock on every door in the neighbouring streets and ask those people; or in the next suburb.

    I guarantee you could knock on every single door in Auckland and Wellington and not find a single person prepared to sell their house for that kind of money - thereby ensuring a property crash will never occur.

  7. Mr Lineberry

    According to you a property crash will never occur. It isn't going to happen for a million years. Never is a long, long, long time oh young neophyte. A million years is also a long time...

    The trouble with your predictions and guarantees is they are completely worthless. They are all merest supposition and verbiage, hot air the lot. My landlord says the local term for this is "blow-arsing" and that is what you are doing. He is likely correct, more's the pity.

    And let's not be forgetting that you were the one who invested in those rubbish equities pertaining to the Russia-trade right before they went belly up and you lost. Ouch! Busted! And let's not be forgetting the nonsense claim you made that no-one could have realised what was a-coming back then, that no-one could have predicted the collapse (and your losses). Well, no-one is zero people and we both know that wasn't right. Not everyone at that time was like you. Not all Russia-trade investors were wrong and not all of them were caught in a loss making mess. Some of us shorted. You ought to have been on that side of the trade. But no..... You were wrong footed back then and it would appear that the reason is that it is your habit is to BLOW, not to do the in-depth research required to KNOW what is going on (if you did it, then you wouldn't be making exaggerations and assertions in the manner you do, nor would you offer worthless guarantees- just puff and gush). Smart money is on your being wrong again at some point in the not impossibly distant future (far less than a million years). Bubbles pop.

    I'll let you in on this. Back in Argentina there was a bubble and came then the inevitable pop. It was an important lesson to view. Expensive apartments on the beachfront became startling bargains at fractions of what they had traded for months earlier. Distressed sales were around all over. People lost their savings, worse they lost their jobs, so not only there was no fat to live off to tide them through the troubled financial times they encountered, they had no income. Then all sorts of properties came on the market thick and fast as first the realisation hit and next the desperation hit. Don't think it can't happen in NZ a million years just because you are white and have round eyes.


  8. Amit - as I said in my previous post, go and knock on every door in your street or suburb and ask if they will sell their house for 3X the average household income ($250,000) and see what they say.

    Hearing it from the horses mouth may give a better indication of what is likely to happen property crash/fire salewise.

    On the subject of your contention you shorted the Russian Ruble in 1998 - and foreseeing its collapse when everyone from George Soros to Goldman Sachs to me got blindsided and lost money on Russian investments ($2000 in my case) - I of course believe you.

    However I note your profit from that was not used to purchase a house, with your talk of your landlord.

    My apparent lack of skills as an investor, lack of research and my inability to foresee Russian events was so damaging in 1998 that not only did I purchase a house a few weeks after the Russian collapse, but I paid for it in cash (unlike you, apparently).

    I further note that since 1998 Mr Soros, Goldman Sachs - and myself - have gone on to other things with great success....but you are the chappie renting.

  9. Mr Lineberry

    Empty bragging and puffing from you this morning! You do not know your subjects. Read and learn: stop with the BLOW and get with the KNOW.

    Back in the day I shorted what nitwits were into. My favourite trade was the naked short. It works like this. First you research and locate a target. Then you research some more and work out when comes the flush. Then you set up and set the trade with the correct time. Then you wait for the fun and learning to occur.

    The Russia trade: People like me cleaned people like you out! Here is why. People like you purchased without knowing what they were getting into. You had no idea what the situation in Russia was and you had no idea what transactions your investment was being used for. It was like giving your money to a drunk and sending him to the horse races to bet on a horse. You knew nothing about the horses, the race, or even the drunk. You had no idea whether the money ended up on a horse or on bottles of gin in the drunk. It was like that. Face it, you bet on the Russia trade without knowing anything about the subject of your bet. You bet by giving your money to some people you knew little (next to nothing) about. What you did was bet, not make an investment. There was and is a difference. Trouble is that you learned little from what you experience. So here you are, blow-arsing and making excuses for yourself about what you actually don't know enough about. Read and learn, don't blow, know.

    Here is about me. I was in Russia prior to the action. I had been there for a time. I knew exactly what was happening there. When I visited London I sure was impressed to spot the opportunity that there were people wandering around with no true facts and betting money large! It was amazing.

    Yes, I remember Soros. Without Rogers (Jim was his partner in Quantum who left and retired to go adventuring and meet a nice lady and get married and have children) around any more he was reduced to relying on poor data and poor analysis to work from. He did fancy himself as a philosopher though. He had his own ideology and mythology and here was his chance to prove it out. In the absence of anything else he bet a lot, rather a lot, on sequences of losers. He was warned publically, but...

    As for Goldman Sachs, weren't they involved in a mortgage securities collapse that no one saw coming? No-one apart from some unknown Austrian economists and some fellows at D-Bank and some surgeon who cleaned out several hundred million and then wrote a book about how bleeding obvious it all was? Seems they don't see it coming and get blindsided more than just the once. They have a track record- plenty of pedigree of being blindsided. Unlike you though, they get bailed out!

    My profit was mostly used to ensure early retirement. Some of it was used for the education of my children.

    Do you have any children to educate and set up for their future? Are you also going to be able to afford to stop working and retire when it suits after putting that aside for them? Have you even planned ahead that far away yet? Interesting to know.

    I own property but not in here. I am here to complete a fixed program of study in chemistry and materials and to get better English language skill. I do that because it is interesting and a great experience. Life is short and so you have to get everything in order swiftly so you can do what really is interesting and challenging and good experience before it is too late to do it. But you did not know ANY of that- you assumed I was without property. You assume because you do not know.

    See, this is another example of you blowing and not knowing. You know nothing about the subject you are addressing. In this case you do not know what my life is- yet you assume and pretend and you blow. Stating it again: you should not BLOW you need to KNOW.

    Have you gone on to other things with great success really?


  10. @Mr Lineberry

    Most people are heavily mortgaged. It won't be homeowners selling their houses; it will be the banks trying to cut their losses.

    You can't fail to understand this simple point and expect people to believe your BS about paying cash for a house.

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