| Welcome to the final issue of the Select Wealth Management Dashboard Newsletter for 2023. It's been another very eventful year. Israel declared war on Hamas, India became the fourth country to successfully land on the moon, and Donald Trump became the first ever former US President to have their mug shot taken. We farewelled Pope Benedict XVI, Tina Turner, Lisa Marie Presley and Matt Perry. But the headlines were mostly taken up by significant developments in artificial intelligence (AI). In fact, Collins Dictionary announced "AI" as the most notable word in 2023.
This year also saw the Food and Drug Administration (FDA) in America give Elon Musk approval to trial his Neuralink brain implants on humans. Musk envisions brain implants could cure a range of conditions including obesity, autism, depression and schizophrenia as well as enabling Web browsing and telepathy. The world really is changing at an incredible pace. From an investment perspective, 2023 has been a bit of a roller coaster ride. The March and June quarters saw decent returns, only to be followed by a weak September quarter. However, with only a few trading days left, markets have cantered in with a very strong December quarter resulting in good returns overall for the year 2023. Patient investors are finally being rewarded after what has been a very challenging few years. As is customary, December is the month that I always reflect on my predictions from January. I've been doing this for over 10 years, and you would think that by now I would have learned my lesson. But I'm a sucker for punishment, so I'll step up again and take my annual dose of humiliation. This is actually a very healthy exercise to go through to remind me why I never invest your hard earned money based on my (or anybody else's) predictions - they have a habit of being consistently inaccurate... My average historical score is about 50% (right half the time, wrong half the time). Let's see how I go this year - predictions from January in black, actual outcome in red. Prediction 1 - Election: Let's start with the fact that New Zealand is likely to have a general election this year (no later than 13 January 2024). The 2 most likely outcomes are either a National & ACT coalition, or a Labour & Greens coalition. If the polls are to be believed, then the former are the current front-runners with National and ACT currently polling well, and trending in the right direction. But the old saying that "24 hours is a long time in politics" reminds us that this race has a long way to go yet. In my opinion, a "Back to Basics" election campaign would go a long way to winning the race. Big, aspirational, long term projects are fantastic and to be encouraged, but right now I sense the general public just want some boring, core services delivered well. In particular, the 3 major issues I believe would win votes are:
This is too tight to call for me, but as I have to make a call, I'll say that we have a change in Government and National are the senior party in a new coalition. It really is a coin toss though. Well, it wasn't as close as I thought it was going to be in the end, but I'll claim the points based on the fact that it was a change in Government, it did take a while for coalition negotiations, and NZ First are once again the tail that wags the dog... Prediction 1 - Reality 0 Prediction 2 - Interest rates: Since March 2019, interest rates have been on an absolute roller coaster ride. In the space of 12 months (March 2019 to March 2020), the Official Cash Rate fell from 1.75% to 0.25%. Then in 15 months (from August 2021 to November 2022), the Official Cash Rate shot up from 0.25% to 4.25%. This included both a cut, and a rise of 0.75% - a rise of this magnitude unprecedented. In the USA, the trend is similar. My prediction is that we have a period of relatively muted interest rate movements moving forward. In New Zealand, the OCR starts the year at 4.25%, and in the US the FED rate starts the year at 4.50%. I predict that we have a few "back to basics" 0.25% increases, and end the year at about 5.00% in both NZ and USA. In New Zealand we had 2 rate increases of 0.50% each, and 1 of 0.25% - taking the OCR up to 5.50% now. I can't claim points here given the two 0.50% increases. But in the USA, they had 4 rate rises of 0.25% each, taking the rate up to 5.50% now. I think I was close enough to claim some points here. I'll call this one a draw - half a point each. Prediction 1 ½ - Reality ½ Prediction 3 - Housing market: As New Zealanders, we have always had an infatuation with property. We love to own it, we love to improve it, we love to invest in it. Safe as houses. Well, after a year of crazy capital gains in 2021, the past year (2022) has been difficult for property owners - particularly investors. Values have fallen by 10% to 20% (depending on what data you believe), and mortgage rates have increased 3 fold. Throw in the fact that mortgage interest deductibility is being phased out, and property as an investment really is a lot less attractive than it used to be. Whilst property prices have already fallen materially from their highs, many pundits are predicting that they are likely to fall even further this year. I can't ever recall as much negative press and downbeat commentary about property as there has been in the past year or so - it's very un-Kiwi. My prediction is that the property market gets "back to basics" in 2023. Home owners with mortgages take a year to re-adjust to their higher mortgage rates (although sadly some won't be able to re-adjust and mortgagee sales will increase). Landlords meet their tenants halfway and rents become more palatable. Buyers continue to have the upper hand, and sellers re-calibrate their price expectations to be more reasonable. According to www.propertyvalue.co.nz we start the year with a national average house price of $955,540. All said and done, I predict that property prices are flat, or slightly up over the next year - somewhere between $950,000 and $990,000. It seems that the negative commentary was in fact on point. According to https://www.propertyvalue.co.nz/ , the average house price in New Zealand is now $910,374 - down a further 5%. Anecdotally, the property market is starting to thaw now, and there is slightly more optimism. But I certainly can't claim any points on this one... Prediction 1 ½ - Reality 1 ½ Prediction 4 - Markets: Much like interest rates and property markets, the past few years have been extremely volatile for share markets too. Returns for the S&P500 (the American share market) have been:
These are big moves, even for a traditionally volatile asset class. And if you look at specific companies, the volatility is even more stark.
There are dozens more examples like these. With moves like these in stock prices, it becomes apparent why the share market has attracted the "get rich quick" crowd over the past few years. Investors were replaced by speculators. Fundamentals were replaced by nonsensical over-exuberance. My prediction is that the share markets return "back to basics" - where a company's share price is a true reflection of it's future cash flows. Quality businesses will fare well, and poor business will be punished. Investors return to the market, and speculators move on to the next thing. Much like sellers of property, investors in share markets need to re-calibrate their return expectations to be more modest and realistic. All said and done, I think share markets deliver modest returns for the year - ranging from 0 to 10% between various markets. I also imagine European shares outperform their American counterparts. To measure this, I'll put some starting values and target prices on several share markets around the world.
I couldn't have been more wrong on this one. The most notable observation in hindsight is the divergence between regions. The Hong Kong share market (a proxy for the Chinese market) was down by a painful 16%. New Zealand and the UK were flat, but greater Europe delivered a solid 9%. The USA was the clear winner with a whopping 23% increase - a fair chunk of that (15%) gained in the last 2 months alone. No points here for me... Prediction 1 ½ - Reality 2 ½ Prediction 5 - Sport: The 3 main sporting events for the calendar this year is the Cricket World Cup, the FIFA Woman's World Cup, and the Rugby World Cup. New Zealand have the privilege of hosting the FIFA Woman's World Cup (along with Australia) which will no doubt be a fantastic event, whilst India have the cricket and France the rugby. No points here for me either... India and England both made the finals, but fell at the final hurdle. France lost (by a solitary point) in the quarter finals to eventual winners South Africa. As for my beloved Nix, there was no home play-offs. But 2024 is our year - guaranteed!!! Prediction 1 ½ - Reality 3 ½ So there you have it. A dismal performance this year - even more embarrassing than usual, and well below my historic average of 50%. I'll take some time to lick my wounds, dust myself off, and try again in January next year... 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 the December performance reports early next year. As I mentioned, with a few trading days left, performance for the quarter looks good, rounding out a solid performance for 2023. If you have any questions about your performance report, please do not hesitate to contact us - we are here to help. Finally, a quick update on our Giving Back program. I am very pleased to confirm that we were able to reach our goal of $2,500 and have made a donation of $2,574 to the Billy Graham Youth Foundation. Thank you for all the referrals of friends and family that made it possible for us to support this fantastic cause - we really appreciate it. We have a great new campaign lined up for next year which I'll share with you next month. In closing, I want to thank you for your support and custom in 2023. It is a privilege to work with you, and something that we do not take for granted. I'm taking a nice long break over the Festive Season, and hope that you get to do the same. Wishing you a fantastic Christmas with family, friends and loved ones, and a wonderful New Year. See you in 2024! 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.