| Welcome to the first issue of the Dashboard Newsletter for 2023. I hope you have had a great break and that the new year has started well for you! I've enjoyed a fantastic 3 week break with my family and friends - a good balance between time away exploring our beautiful country, time at home to finish some chores, and a bit of walking through the Able Tasman. So I'm well rested and fired up for 2023.
It's that time of year again where I dust off the crystal ball and have a crack at making a few predictions for the year ahead. It really is an impossible task, and one that I have a decidedly average record with over the years. So this year I have decided to keep it fairly simple with only a few predictions. I also have a theme for the year ahead which will run through all my predictions - "Back to Basics". I feel that the past 3 years have been so chaotic and disruptive that there is a general appetite for some normality and stability. The Boom and Bust of the property market. The lockdown fear to the re-opening euphoria. The roller-coaster ride from chasing unicorn investments like GameStop, Tesla and Bitcoin. The breakneck speed of interest rate cuts and rises. The polarising politics. I think some good old fashioned "Back to Basics" would go a long way to steadying the ship right now. So here goes... 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. 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. 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. 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.
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. 2 of my 3 predictions for this are very basic - India will be too good in India for the cricket, and France will be too good in France for the rugby. In terms of the Woman's World Cup, I think England will finally "bring it home" with their team. And I can't help but throw in a comment about my beloved Phoenix. A top 4 finish giving us a home play-off game this year. I can't wait!!! So there you have it - my musings for another year. It would be remiss of me not to mention the usual disclaimers about the fact that these predictions are just my opinions and should not be considered as advice. When it comes to predictions, the best advice I can give is to not listen to anyone's predictions... Here are the numbers for the past 30 days: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
In terms of your Select Wealth Management portfolio, you will be receiving the December performance reports soon (if you haven't already). I am pleased to confirm that all sectors (shares, property and fixed interest) delivered positive returns, resulting in reasonable returns for most portfolios for the quarter. Whilst the 1 year number still looks horrible, it is good to see a change in the trajectory. With fixed interest now delivering a meaning return moving forward, I am optimistic about the returns for a typical diversified portfolio moving forward. The fundamentals for a diversified portfolio look a lot more normal now than they have in a long time. 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 excited to announce that for the first 6 months of 2023, we will be raising funds for the Nurses at Hutt Hospital. They are the front line of healthcare, working long hours (often in a challenging environment), and providing emotional support to patients and their families. These wonderful folk answer our questions and help to alleviate our fears and concerns when we are at our most vulnerable. They are dedicated, compassionate individuals who work tirelessly to provide vital care to patients of all ages and backgrounds. They are truly an integral part of the healthcare system, and their contributions are invaluable. Makowem & Isaacs Financial Planning wants to raise some money to put coffee machines in the staff rooms at Hutt Hospital for these wonderful folks. Given the great work they do, we want to make their workplace a little bit better and ensure that they can have a decent cuppa when they get a quick break in their hectic day. We aim to raise $2,500 to buy a few Nespresso machines and as many coffee pods as possible to stock them up. To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html Thank you for your continued support. Warm regards Dave and the team at Makowem & Isaacs Financial Planning dave@mifinancialplanning.co.nz |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
This newsletter is intended for general distribution and does not constitute personal financial advice.