NZ Economy: The Big Picture

Today, our editorial will be a little different.

As investors, it’s easy to become overwhelmed with all of the issues and trends affecting our wealth. Some good. Some bad. It’s critical to determine which is which.

Let’s quickly roll through a few of the biggest stories we’ve been covering over the past year….

Interest rates

The foundational premise of our market outlook is understanding that today’s credit environment is abnormal.

It’s the era of ‘easy money’…where record-low interest rates have made borrowing money unbelievably easy.

That debt has propped up a decade of ‘wealth’…especially in the property industry and stock market.

Most companies have geared up…and with super-low interest rates, why not?

But this practice started in 2008…then continued into 2009…2010…2011…and continues to the present day!

The mainstream press and central banks around the world call this the ‘new normal’.

I don’t believe it’s normal at all.

It’s an opioid addiction. Global corporate has grown accustomed to easy money…and now authorities fear withdrawals more than the natural downturn that they first cut rates to prevent.

The result is that we’re enjoying a party that will end one day…and when it does, it’s going to hurt.

Ouch.

Nobody will know this pain more than Kiwi property investors…

NZ property

When I got to New Zealand, I was astounded to learn about the Kiwi culture of property investing.

The idea that ‘successful’ young professionals would empty out their retirement accounts and put it into a house blows my mind.

Even after digging into the data and seeing how well property has performed in recent decades, it still amazes me.

Property’s performance is nowhere near what stocks have delivered.

And yet, most Kiwis seem to allocate towards homes over stocks.

But since everyone’s paying into it, the whole pyramid scheme stays up.

Just don’t be the last rat off the ship.

All around us, we’re seeing other ships sinking…but the bulls keep on thinking that NZ is different. It’s bulletproof. Too much demand. Too little supply. And that will never change, right?

New Zealanders aren’t the first to think that their bull run is unique…and they won’t be the last.

KiwiBuild

On that note, good ol’ Phil Twyford’s been chugging away on the silver bullet to fix the whole property problem — KiwiBuild.

100,000 homes in 10 years.

One year in and we’re 200 houses built. A few more on the way…allegedly.

Under 100 homeowners in houses to date.

I’m no Isaac Newton, but I feel like those numbers don’t add up.

Meanwhile, your tax dollars are flowing into the committees and salaries of those supporting this flawed scheme.

But most people are realising it’s doomed now…and it’s just a matter of time before it’s scrapped or reworked.

Keep an eye out for KiwiBuild 2.0 — 1,000,000 houses in just five years!

NZ stocks

Stocks in New Zealand have performed exceptionally. It’s a shame if you missed out.

As measured by the NZX50, the index went from about 2,700 10 years ago to over 10,000 today.

In other words, for every buck you invested in 2009, you’d be sitting on about $4 today.

Or $50,000…into $200,000. $250,000 into a sweet million.

And that’s just the 50 biggest companies on the NZX. You could have been sitting even prettier if you’d picked up a small-cap like PushPay or Xero.

You could afford that fishing boat you’ve been eyeing…and a yacht to hitch it to.

But, alas, hindsight is 20/20…and those ships have already sailed.

The best most of us can do is try to get our money working for us today…and invest wisely in the next Xero.

Bitcoin

Speaking of sweet millions…bitcoin has made a remarkable comeback in recent days and made a few millionaires to boot.

From pennies before 2015 to $20,000 per coin in Christmas 2017.

Then a sudden ‘crash’ back to $3,500 over the next couple months.

Now back up over $10,000!

What a rollercoaster.

And one that’s almost impossible to time. I spend many hours a week studying the bitcoin-buying behaviour…and it’s still hard to pinpoint a trajectory.

Oddly enough, I sold some of my coins at the very peak — $20,000 — but not because of any skill of mine. I had my eye on a big purchase and my wife told me to sell some of those ‘stupid coin things you keep spending money on’ in order to afford a gift for myself.

I reluctantly sold…then watched as the price tumbled by almost 85% after that.

Incredible.

So, while I’m no expert at all, I will advise that cryptocurrency isn’t for the faint of heart. Expect HUGE swings of 5–15% each day.

Yikes!

Cannabis

In a similar department as bitcoin, Kiwis have a big opportunity looming in the form of cannabis stocks.

With the referendum around the corner, New Zealand could be looking at legalised cannabis products in 18 months.

And companies are already getting their ducks in order.

Helius, Hikurangi, Greenfern — just to name a few.

One that you may know is Cannasouth [NZX:CBD] — host of the recent listing fiasco on the New Zealand Stock Exchange.

Launching at about 50 cents per share, it’s collapsed to about 35 cents now.

Nothing like a 30% wealth cut to seduce investors to a new industry.

Here at Money Morning NZ, our consensus has been that cannabis represents New Zealand’s next big investing opportunity. But Cannasouth’s IPO was so overhyped…and that wasn’t helped by the fact that it was the first IPO on the NZX in two years…that the valuation was astronomical and poised for failure.

We expect future listings to go a whole lot smoother.

But the CBD wreck might have scared the other companies off the fence…I hope not.

As an investor, this is one field that I’d keep a close eye on in the next few months.

Last thoughts

As a final note, this will be my last chance to write to you.

Together, we’ve explored the murky waters of the world of money…and connected the dots as we went.

Along the way, we found a few golden nuggets…opportunities for you to protect or grow your wealth…

We’ve also picked out some threats unique to the Kiwi market.

Maybe we can be just a bit smarter with our money going forward…

Thank you for the chance to go on this journey with you.

After today, Simon will be the sole editor as Money Morning transitions to becoming Wealth Morning. He’ll continue to provide the top-notch research and investment insights that you have already come to expect.

I look forward to hearing the ideas that he plans to share…

(Based on what he’s told me so far, his upcoming content will be crucial for Kiwi investors to consider when investing in today’s bearish market.)

Thanks again…and happy investing!

Best,

Taylor

Editor, Money Morning New Zealand

PS: Exciting times! Simon Angelo has just launched a brand-new research service for Kiwi investors who are eager to understand Australian, British and American stocks. There’s never been a better time to sign up. Click here to take a look at Lifetime Wealth Investor


Taylor Kee is the lead Editor at Money Morning NZ. With a background in the financial publishing industry, Taylor knows how simple, yet difficult investing can be. He has worked with a range of assets classes, and with some of the world’s most thought-provoking financial writers, including Bill Bonner, Dan Denning, Doug Casey, and more. But he’s found his niche in macroeconomics and the excitement of technology investments. And Taylor is looking forward to the opportunity to share his thoughts on where New Zealand’s economy is going next and the opportunities it presents. Taylor shares these ideas with Money Morning NZ readers each day.


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