Official Cash Rate: Bollard Gets it Wrong, Again

Allan Bollard's decision today to raise the official cash rate by .25% to 3.00% is further evidence that Mr Bollard is out of his depth.

His raising of rates to record levels a few years back did nothing to damage the housing boom - the 2008 financial crisis took care of that.

Most of Mr Bollard's movements have been based by looking in a fogged up rear view economic mirror with little understanding of the current and future outcomes. His movements lack foresight, basic economic understanding and the ability to see the bigger picture.

What is clear is that the world is having economic problems, especially struggling with debt, and what New Zealand relies on to keep afloat, exporting, is going to be hurt again by this latest rise.

Likewise the mortgage holder is going to have problems, at a time when there is no spare cash to spend in a faltering economy.

One only has to look towards the United States near zero cash rate to see what problems this latest rise will cause - our OCR is too high.

The wise thing to do today would have been for Mr B to lower the cash rate to 2.5% and keep doing it to stimulate business lending and therefore the economy.

Any 3rd form economics student would have done the same.


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From Fishpond.co.nz





c Share Investor 2010

Alan Bollard Speaks, but who is listening?

He was wrong about hiking interest rates and he took far too long to drop them again. Now he needs to start raising interest rates but still no sign of that. Last year Alan Bollard, Reserve Bank Governor, also said the recession was over.

How can we then take seriously Bollard's claim made today that:

"New Zealand is likely to begin recovering from the global financial crisis ahead of the pack".

NZ Herald 14/07/09

I am not sure what he is pointing as to evidence of this rather bold claim but his track record is littered with inaccuracies and bumbling wrong moves with a penchant to be somewhat Schizoid.

Is this supposed to inspire confidence for the average kiwi?

The stockmarket didn't believe a word of his pronouncement, rising only a handful of points when the large DOW movement up overnight indicated there should have been a good rise on the NZX today.

More astounding and confusing remarks today from the Gov given his decree last year that the recession was over:

"We appear to have avoided a repeat of the Great Depression. After the plummet in activity through to early 2009, production seems to be stabilising (Europe), to have stabilised (USA) or even turned around (some Asian economies)." NZ Herald - 14/7/09

But didn't he say late last year that the recession was over while we were at the height of the US banking collapse and hasn't the recession continued until the present day?

Well, yes he did and it has:

However, Bollard indicated at a press conference today that he thought the recession in this country was already over.

"If you want to be technical about it we believe the recession has ended and we have positive but very low growth for the next four quarters. It's only towards the second half of next year that one can be sure that we're getting solid growth," he said. "Those numbers in New Zealand can jump around and historically they tend to improve rather than getting worse.

Bollard said the recession was actually quite shallow and a lot shallower than in the past.
Stuff.co.nz - 4/12/08

What the...?!

So if you cant decide from day to day how things were, are, or are going to be Mr Bollard then how are we expected to decide? It kinda makes you wonder of the relevancy of a Reserve Bank Governor in the first place.

Why not let the market decide what interest rates it wants, it would at least be more accurate and reflect market conditions far more competently than a soothsayer.

Best leave the fortune telling for the Woman's Day.


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c Share Investor 2009

OCR cut puts pressure on investors seeking better returns

The OCR rate cut coming this Thursday varies from 1-1.5% depending on which financial media commentator you are following but what is clear is that this cut isn't going to immediately stimulate any sector of the economy because most people have put their wallet away thinking there are cheaper bargains to be had.

What it will do is put pressure on many who have money to invest to go out and find a better return than the gross 6% (and dropping) interest rate they maybe getting for a term investment and the meager real returns still to be found in residential real estate for rentals-values for that sector still have a long way to fall and then will become more attractive return-wise.

I would contend that there are many good stocks on New Zealand's NZX that will find an attractive home for the vast amount of billions currently tied up in term investments in our three major banks.

With a 1.5% point cut on December 4 the OCR rate would be 5% and another likely cut early in 2009 would see our OCR fall below 5% putting pressure on investors coming back from holiday to go hunting for better returns in the stockmarket.

Look for higher yielding and safer large capital stocks to benefit from rate cuts.

A dozen or more Kiwi stocks are paying more than a 10% gross yield and companies like Telecom NZ [TEL.NZ] should do well from those bailing out of banks.

Eventually the rate cuts will work to stimulate our economy, just as tax cuts do.

I am hoping against hope that since the previous Government has guaranteed finance companies that no more term deposit money goes after their higher rates.



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Dr Cullen needs to intervene in OCR

The New Zealand Government is happy to intervene where its citizens don't want them
but when it comes to the precipitous economy in relation to lowering interest rates,
Michael Cullen gets blisters on his hands from sitting on them.

Original story from Share Investor Blog

I'm not an interventionist by any stretch of the imagination but our monetary system, for better or worse, is, and so is the present regime that presides over the country's books, the New Zealand Labour party.

The interventionist approach in regard to the Reserve Bank and through the official cash rate(OCR) has led NZ INC, courtesy of drunken overspending and overtaxing by the aforementioned regime, to the highest interest rates in the "developed" world.

The Mike and Helen show has put the country in a very precarious position, given the uncertainty over the global economy and the "credit crunch"(2 days in a row, sorry) has slowed the wheels of commerce globally.

This dastardly duo seem quite pleased that an excuse like the global credit crunch has come around because they are now on a PR offensive to blame any current or future New Zealand downturn on it and not themselves, where the bony finger should be pointing.

The sensible among us know that high interest rate were here 3-4 years ago and then we though a credit crunch was a new chocolate bar bought on time payment.

Like Al Gore's science fiction movie "The Inconvenient Truth", we also know, like that movie, the M and K show lacks consistency and truth. When it comes to the economy we can all remember the Labour Party taking the accolades for the nearly 4% growth we had for a nano second, but they now blame the downturn and any possible downturns on other circumstances.

You cant have it both ways.

Now this government's profligate taxes and spending(they go hand in hand) has put its citizens in such debt that we even outrank those nasty Americans for our debt levels. This debt is primarily in real estate and servicing the high interest debt that bought it.

Higher house prices meant more borrowing on the increased equity, because taxes are so high we had to borrow to survive.

So guess what, now things are in reverse, because of that debt we are in potentially a worse condition than America.

They at least borrowed to buy other sorts of assets beside houses, while we sunk most of ours into houses and plasma TVs.

While we haven't had the extreme reckless lending like America's Sub Prime loans, we have got many thousands of kiwis who have borrowed more than they will be able to service when the shit hitith the fan.

Its hitting now.

NZ$40 billion of mortgages will be refinanced this year alone at close to 10% and others will be higher, the time for intervention is now.

The OCR should have been cut at least a year ago but now there is urgent need for it. An emergency cut to bring it into line with other nations suffering from the sub prime fallout would be a key move in the right direction.

There is no use sitting on your hands waiting "to see what happens" according to Alan Bollard, the Reserve Bank Governor. Decisive action needs to be taken because inflation is the least of his/our worries now.

Like I have said before the OCR is a poor way to maintain an economic system, it doesn't serve its purpose well, but it is all we have at present.

A progressive cut over this year, down to below 6%, starting with a .75 point basis cut will send a good message to the market and business, that lending rates will be somewhat dampened and business will be stimulated when it needs it.

Our socialist government are intervening in every other part of our lives, including the private business world but for the life of me , when we really do need intervention, Micheal Cullen just sits on his calloused hands and blames others for our countries current mis- fortunes.

Get off your arse and do something history boy.


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c Share Investor & Political Animal 2008

Time for OCR intervention by Dr Cullen

The New Zealand Government is happy to intervene where its citizens don't want them
but when it comes to the precipitous economy in relation to lowering interest rates,
Michael Cullen gets blisters on his hands from sitting on them.


I'm not an interventionist by any stretch of the imagination but our monetary system, for better or worse, is, and so is the present regime that presides over the country's books, the New Zealand Labour party.

The interventionist approach in regard to the Reserve Bank and through the official cash rate(OCR) has led NZ INC, courtesy of drunken overspending and overtaxing by the aforementioned regime, to the highest interest rates in the "developed" world.

The Mike and Helen show has put the country in a very precarious position, given the uncertainty over the global economy and the "credit crunch"(2 days in a row, sorry) has slowed the wheels of commerce globally.

This dastardly duo seem quite pleased that an excuse like the global credit crunch has come around because they are now on a PR offensive to blame any current or future New Zealand downturn on it and not themselves, where the bony finger should be pointing.

The sensible among us know that high interest rate were here 3-4 years ago and then we though a credit crunch was a new chocolate bar bought on time payment.

Like Al Gore's science fiction movie "The Inconvenient Truth", we also know, like that movie, the M and K show lacks consistency and truth. When it comes to the economy we can all remember the Labour Party taking the accolades for the nearly 4% growth we had for a nano second, but they now blame the downturn and any possible downturns on other circumstances.

You cant have it both ways.

Now this government's profligate taxes and spending(they go hand in hand) has put its citizens in such debt that we even outrank those nasty Americans for our debt levels. This debt is primarily in real estate and servicing the high interest debt that bought it.

Higher house prices meant more borrowing on the increased equity, because taxes are so high we had to borrow to survive.

So guess what, now things are in reverse, because of that debt we are in potentially a worse condition than America.

They at least borrowed to buy other sorts of assets beside houses, while we sunk most of ours into houses and plasma TVs.

While we haven't had the extreme reckless lending like America's Sub Prime loans, we have got many thousands of kiwis who have borrowed more than they will be able to service when the shit hitith the fan.

Its hitting now.

NZ$40 billion of mortgages will be refinanced this year alone at close to 10% and others will be higher, the time for intervention is now.

The OCR should have been cut at least a year ago but now there is urgent need for it. An emergency cut to bring it into line with other nations suffering from the sub prime fallout would be a key move in the right direction.

There is no use sitting on your hands waiting "to see what happens" according to Alan Bollard, the Reserve Bank Governor. Decisive action needs to be taken because inflation is the least of his/our worries now.

Like I have said before the OCR is a poor way to maintain an economic system, it doesn't serve its purpose well, but it is all we have at present.

A progressive cut over this year, down to below 6%, starting with a .75 point basis cut will send a good message to the market and business, that lending rates will be somewhat dampened and business will be stimulated when it needs it.

Our socialist government are intervening in every other part of our lives, including the private business world but for the life of me , when we really do need intervention, Micheal Cullen just sits on his calloused hands and blames others for our countries current mis- fortunes.

Get off your arse and do something history boy.


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Alan Bollard's indecision over OCR a worry to NZ INC

The case for Alan Bollard, New Zealand's Reserve Bank governor, to lower interest rates is strong and the time to do it is clearly now.

His rationale and excuses for raising them over the last few years has been to keep inflation in check but he really is swimming up the creek without even a boat when he has had to contend with out of control government spending and more to come, record oil prices, an exchange rate that is at post float highs and a crises of credit flow and lack of faith in business and the global economy.

He had raised the rate, with one explicit goal in mind and after every rate rise he told us that kiwis really needed to "end their love affair" with real estate. Almost double figure mortgage rates have finally put paid to our love affair and some sellers are finding their divorce from excess rental investments becoming more hateful by the day.

Yes, the housing market is dropping like a cheap hookers knickers but it took more than two years lag for Bollard's aim to take effect.

That is my point. The effect of his rate manipulations, up or down, take time to infiltrate their way through the market. A rate cut one Thursday morning could take more than a year to have a consequence.

The time to cut our interest rates from the current official cash rate of 8.25% is now. A couple of .75 cuts in succession are needed immediately, and then 2 more .50 cuts after that, then smaller ones if needed.

The fact that Alan Bollard is sitting on his hands over this, just shows those who know a little about economics that he really doesn't know what to do. Like a possum in the headlights he is going to move when he has to, that is, when the shite hits the fan.

His upwards movement of the official cash rate has not only affected the housing market negatively it has also put business lending out of reach of many struggling and promising new growth businesses. With high CAPEX costs our economy is simply going to fold up and go somewhere else if the status quo continues.

While Bollard's high cash rate has clearly pushed up our currency against our big trading partners, as Mr and Mrs Uridashi take advantage and invest their Yen here, it has also squeezed margins for our exporters.

While this is a risk that New Zealand exporters need to manage and only a smaller consequence in my opinion, it really shouldn't be happening if the cash rate was managed properly.

In fact, a wise move would be to abandon the official cash rate and keep the machinations of hopeless bureaucrats like Bollard out of things he doesn't understand. Let the market decide its own cash rate, it would be more efficient, more predictable for those it has a direct affect on and allow flexibility and competition for our banking institutions.

Finally, moving the cash rate too low isn't enough to rescue our economy from the current downturn. Japan tried that in the 1990s and it failed miserably. We must also have large personal and business tax cuts. These would have the dual effect of stimulating our economy while also putting the brakes on wasteful government spending, when we most need it.

The headlights are getting closer Mr Bollard, lets hope you move before our economy is run over.


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c Share Investor 2008

Bollard sits on his hands

Alan Bollard rattled his sabre again last week.

Keeping the cash rate at 8.25% while telling us inflation was a risk down the road.

Well helloooo! could one of the reasons to the risk of inflation be your 4 rate hikes this year and multiple ones over the last few years?

The short answer is yes but the less interesting answer is that Bollard is clearly out of his depth.

Barely able to see over the rims of his accountant style glasses, he rarely has the vision to see further than what happens from day to day..

Instead of dropping the cash rate, as he should have, he risks putting the New Zealand economy at the sort of risk the Labour Government has put it under for the last 8 stifling years.

Labour did it with world record breaking high taxes, removing cash and investment from the economy and Bollard did it with the worlds highest interest rates outside the worlds other banana republics, ditto removing cash from street level and strangling productive investment, savings and business.

World economies are cutting rates to stimulate economies and Bollard sits on his hands. It looks like he will only move once the economic cycle we are in is in the middle of a meltdown.


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c Share Investor 2007