But can we ? Are there any reliable signs ? Do we know anyone who has consistently forecast the top of a boom ?
NZ Economy forecast to take hit by 2018
Our top NZ economists met this week and said the NZ economy has had a “sweet spot” , but is now at risk of a hard landing. Hat is a recession, or worse, a bust, once temporary factors ramping up growth wear off - from about 2016 onwards.
The Christchurch rebuild has helped the economy a lot, but it could slow very quickly down when the rebuild comes to an end.
Milk solid prices have fallen over 40% this year, and many other countries are very keen indeed to supply the Chinese dairy market.
Log prices have fallen over 30%.
Low interest rates will gradually rise and eventually could crush the housing market.
We have had a surge in inward migration, which hit a 10-year high in the year to June, but this is unlikely to continue at current levels for long.
Kiwis will again move to Australia as their economy recovers, so inward migration to NZ is expected to be zero by 2018.
A soft landing for the NZ economy was unlikely to happen, since it tends to have 3 gears - 1st , 5th, and reverse.
NZ is always at risk from a possible slow-down in China – at the moment their officials are loosening housing policies to stop a fall in property prices.
The high NZ$ dollar is already falling on our less lively economic forecasts, and has fallen 5% against the AUD$ and the US$ in just a few short weeks. Over the next few years the economists say the NZ$ could fall dramatically.
Don’t get me wrong, I am as much an NZ patriot as the person. But I am also a financial adviser and I have to take into account what is going on in NZ and around the world. I then apply a hefty dose of common sense when building investment portfolios.
So can we pick the top of a boom ?
We can apply common sense. We can listen to people who have a lot to say – if they are buying houses, beach properties, and shares, and bragging about big gains, maybe the top of a boom is approaching.
We can listen to the economists, but need to separate the common sense from the waffle. However they are probably right in this case.
Always watch house prices - in Auckland and Christchurch they have reached insane levels, especially when compared to incomes.
Watch interest rates - if they are rising, it will usually be the RBNZ trying to slow the economy (maybe a boom) down.
Watch our main export prices. If they fall a lot, the economy might slow or even stop.
Do the opposite to everyone else – if they are buying, start selling& vice versa.
Don’t listen to the incessant NZ rant that “we are doing better than Ozzie” – they will have their turn again on the upside.
What to do
Don’t just talk about it – don’t over-react either – but do something.
Look at what would have worked in 2007.
If you own more than 2 or 3 houses in NZ , think about selling one.
Work towards holding higher levels of cash than you normally might in shorter term deposits.
Take profits off shares.
Ensure you hold only high quality bonds, and possibly buy more if and when interest rates rise.
Diversify offshore, both into bonds, and unhedged shares.
Your unhedged offshore shares will in effect be in other currencies, so you will win if the NZ falls - another form of diversification.
If you are not earning and are going to spend a lot of time offshore, put more money offshore.
Watch out for more on this topic in a week or two.
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media and on line.
His second book “The Great NZ Work, Money & Retirement Puzzle” is now available.
You can buy it on line at www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) FSP26532
His disclosure statement is available on request and free of charge.