Welcome to the June issue of the Dashboard Newsletter. Well, its official. New Zealand is in recession. So what does that actually mean? Should we be worried? Do we need to tighten our belts? What's going to happen to our investments? When the "R" word gets bandied about, it is very easy to get caught up in the emotion of it all. But let's just take a minute to look at the facts. Let's start with the actual definition of a recession: In New Zealand, a recession is typically characterized by a significant and sustained contraction in the country's economic activity over a certain period. The commonly accepted definition is two consecutive quarters of negative gross domestic product (GDP) growth. GDP is a measure of the total value of goods and services produced within a country's borders. So by definition, a recession refers to a period in time (2 consecutive quarters) where the country is producing fewer goods and services than it did the previous quarter. By this definition, it becomes apparent that not all recessions are equal. Some may last as long as 6 consecutive quarters (like the GFC did in 2007 - 2009), others are shorter and only last 2 quarters (like the COVID recession in 2020). There are also varying "depths" of recession. New Zealand's GDP contracted by 12.2% during the COVID recession in 2020, but a reading of only a fraction below 0% would technically count as a recession too. The current "technical recession" is a result of 2 consecutive negative quarters in December 2022 and March 2023. These readings were:      December 2022: -0.70%      March 2023: -0.10% In terms of "depth", these readings (particularly the March reading) are close to irrelevant. If the economy was 0.10% better in the March quarter and the reading was simply 0%, the recession would have been avoided and I wouldn't even be writing this article. (In fact, these numbers are often revised after they are released, and there is a chance that the number could change resulting in our recession status being reversed...). So as far as recessions go, we are currently in a very "shallow" recession. In fact, we may not even be in recession at all any more, because the readings are always retrospective. If the economy grows between March and June (even just a little bit), then the recession officially ended in March. Ironically, we won't find this out until about September this year. I'm not saying that we should ignore these numbers. Nor am I saying that everything is peachy. The fact is that our country's GDP has slowed down and our economy has shrunk slightly. There will be implications in the real world for real people. There will be some job losses, business failures, mortgagee sales. Some people won't get their bonus this year, other's will have to work harder for the same pay. These are all facts. But the point I am trying to make is that it is not a black and white scale of "recession" or "no recession". It is a sliding scale. Sometimes the pendulum swings a long way into the growth side of the spectrum, and things are great. Other times, the pendulum swings a long way into recession territory (like the GFC), and things get really tough for a lot of people. But right now, the pendulum has just swung slightly past neutral into negative territory. That's not ideal, but it's also not cause for panic. An obvious question right now is how this recession is going to affect your investment. The fact is that there are hundreds of factors that affect your investment, and you probably know me well enough by now to know that I am not going to be drawn in to forecasting investment performance. But what I will say is that share markets are "forward looking". Share prices get sold off or bid up based on what investors expect those companies will be worth in the future - not the past. The table below shows the S&P500 (the American share market) over the past 100 years. The grey vertical bars are periods of recession, and the blue line is the value of the S&P500. Click here to open full size image There are 3 observations from this graph for me: Recessions are common - on average, they occur every 7 or so years. Share markets typically start falling before the recession starts - certainly before they are announced (remember that we have just been told that we are in recession now, but it started in October last year). The red cross shows the bottom of the share market in each cycle, and this is typically reached well before the recession is over. So share markets look forward - they typically turn down before a recession starts, and they typically turn up before a recession ends. The NZX50 (New Zealand's share market index) fell by 20% from September 2021 to June 2022 (in anticipation of a recession which started in October). It bottomed out on 12 June 2022, and has gained 11% since then. This implies that our shallow recession may end soon, if it hasn't already. Time will tell. In terms of the markets, the past 30 days have been good for most share markets. The outliers were New Zealand's NZX50 and London's FSTE100 (both down a bit), and Japan's Nikkei (up a whopping 12%). The Nikkei's history is interesting. This market delivered a spectacular 39,707% return from 1950 to 1990. Think about that - every $1 invested in the Nikkei in 1950 was worth $39,707 by 1990 - excluding dividends! This is one of the worlds most spectacular financial bubbles, and it's hardly ever spoken about. The bubble burst (as they always do), the Nikkei fell by 77%, and it has taken 33 years for this index to recover back to the 33,000 level it last saw in 1990. So a milestone for the Nikkei this month... Mortgage rates have stabilised, but house prices continued to fall over the past month. I have heard some anecdotes that the property market is starting to thaw out a bit though - news all home owners will be pleased to hear. Here are the numbers for the past 30 days:   In terms of your Select Wealth Management portfolio, there have been no major developments over the past month. A couple of fund managers have delivered remarkable returns, including the Magellan Global Fund Open Class, Clarity New Perspective Fund, Devon Alpha and Trans Tasman Funds, and Scottish Mortgage Trust. We continue to monitor the performance of our fund managers carefully, and remain comfortable with the managers we use. Finally, a quick update on our Giving Back program. We are reaching the end of the campaign for the Nurses at Lower Hutt Hospital, and will get very close to our target of $2,500 to put towards their coffee machines. We have received particularly good feedback about this campaign - clearly there is a lot of respect and admiration for the incredible nurses at the hospital. Thank you as always for the introduction to your friends, family and colleagues which makes this program possible - we really appreciate it! To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html That's all for now. Chat again soon Warm regards Dave and the team at Makowem & Isaacs Financial Planning dave@mifinancialplanning.co.nz

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