| Welcome to the April issue of the Dashboard Newsletter - a month I have been looking forward to as I get to go watch my beloved Phoenix at the Caketin next week. GO YOU GOOD THINGS!!!!
Yesterday we had 2 significant announcements - an update on the Traffic Light System, and a review of the Official Cash Rate (OCR). Both of these announcements are likely to have material implications. In terms of the Traffic Light Announcement, I'll start by saying that I know a heap of small business people who were desperate for the change to orange, or preferably even green. These are just good honest people, struggling to make ends meet because their businesses, or their employers' businesses, have been adversely affected by the red setting. But then I also know the odd person who is immunocompromised and afraid of any potential relaxing of the rules - the consequence for these folk is scary. So as a starting point, it's worth remembering that these decisions are not, nor have they ever been, easy - they are more of a balancing act. Having said that, I believe that on balance, we are at a point now where we need to get back to "normal" - as much as that is possible. I also think that on balance, the population is ready for this too, and willing to take on the self responsibility required to manage their own individual risk. So personally, I am pleased that we have moved to the orange setting. From an economic perspective, you would have to think that this would be a positive (the caveat being that we don't have a sudden spike in case numbers as a result). Busier restaurants and bars, bigger events and conferences, more people returning to their offices, etc. But the more important economic impact in my view is on the psyche of the population. Never under-estimate the importance of a positive and optimistic consumer psyche. The subtle change in tone from "it's not safe to be out there" to "it is safe to be out there" will hopefully encourage a bit more economic activity from everyday New Zealanders. Off-setting this positive development is the rise in interest rates. Yesterday, the Reserve Bank of New Zealand increased the Official Cash Rate (OCR) from 1% to 1.50%. This year, we have already seen material increases in mortgage rates, and this increase in OCR (and any potential future increases) will eventually also filter through and translate to even higher mortgage rates. This is something that I have been concerned about for a while now. The impact of rising mortgage rates is severe. Think of your average young family with a mortgage of $500,000. A year ago, their mortgage rate was 2%, so the interest cost on this mortgage was $10,000 per year. Fast forward 1 year, and the new mortgage rate is 4%. Suddenly the interest cost jumps to $20,000 per annum. So this family has to find an extra $10,000 per annum - just to pay the mortgage. That's $10,000 that they can't spend anywhere else in the economy - like a restaurant or bar, going to an event or conference, or buying a coffee when they go into the office. That's a lot of money being sucked out of the real economy. This rising interest rate phenomenon is not specific to New Zealand - it is happening across most of the western world. It is something I watch closely and with interest. For many home owners, this would be the first time ever that they have had to endure a mortgage rate increase. We've had 15 years of tailwind from falling interest rates, and for the first time since the Global Financial Crisis in 2008, we have to deal with noticeable interest rate rises. I am intrigued as to how we cope with this, and fear that we might see some blood on the streets as a result of it. Sadly, I imagine the next 12 to 24 months might see an increase in mortgagee sales. I hope I'm wrong. Whilst rising interest rates are bad news for mortgage holders, there is a small positive in that it is good news for deposit holders. Your bank deposit that was giving you a miserly 1% a year ago now gives you 2.5% - still not great, but a vast improvement. And if you want to invest in bonds, you can get 4.5% to 5% for good quality bonds now. This presents some interesting investment opportunities in the fixed interest (bonds) space - something we haven't had for a very long time. As is always the case, this backdrop means that there are lots of moving parts and considerations when it comes to managing investment portfolios. Keeping a level head and balanced perspective remains your best instrument to achieving a good investment outcome. Kneejerk decisions (stemming from either optimism or pessimism), opens the door to inconsistency, and this could lead to disappointment. In terms of the markets, the past month has been kind. Global share markets are up 3% to 5%, and New Zealand a less exciting, but still respectable 0.5%. This was of course off the back of 3 months of dreadful share market returns, so whilst this bounce is encouraging, we are still very much in the red for the year to date. Currencies were mixed, with relatively muted moves in either direction. Interestingly, propertyvalue.co.nz reported an increase in property values nation wide over the past month, which in entirely contradictory to the evidence I have seen out there. They report a 3% increase in property values so far this year, whereas I have marked my own property down by 10% in my mind over the same period. This topic might warrant an entire newsletter to itself at some point... The first of April also saw an increase in the New Zealand Superannuation rate. Pensioners' payday increased from $672 per fortnight to $712 per fortnight. I still marvel at this every year. It's ironic that the increase occurs on April Fools day. If you told a citizen of most other countries in the world that your pension payment went up to $712 per fortnight, they could be forgiven for thinking that it was an April Fools joke. It's a very generous pension, and one that we should all be proud of as New Zealanders. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, you will be receiving your 31 March quarter performance reports soon. As I made clear in my previous email, this is not going to make for pretty reading. The March quarter performance was bad. However, I remain confident with the positioning of the portfolios, and remind you that the longer term performance is still very much in line with expectations. If you have any questions about your performance report or want to meet to review your portfolio, please don't hesitate to contact me - I am here to help. Finally, a quick update on our HUHA (Helping You Help Animals) Giving Back program. We are now half way through this campaign (running to June 2022), and I am pleased to say that we are half way to our target of $2,500. To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html As always, thank you for your continued support by introducing friends, family and colleagues to our business as prospective clients - I really appreciate it. Warm regards Dave and the team at Makowem & Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice.