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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (6678)2/1/2004 3:21:08 PM
From: gregor_us   of 110194
 
Russ: I Can Answer Your New Zealand Question.

My wife is a Kiwi and we run an account there. I buy and sell NZ Govt bonds on a fairly regular basis, follow all the RBNZ news, and speak to people there.

The RBNZ and the govt. have zero concern about shoring up their currency. The balance sheet of the govt is excellent. If anything, the Labor Govt. of Helen Clark would like to see a softer NZD--as the Farmers are quite agitated about the rapidity of the appreciation. (Even though quasi-govt agencies help all exporters hedge their currency exposure.)

The reason for the rate hike is New Zealand's cultural fear of inflation, and the way in which Real Estate gains in the past 3 years have triggered that fear. If you thought the YOY house price gains in London were astonishing--the Sydney and Auckland advances have been mind-blowing.

You should also know that capital has always, always been much more expensive in New Zealand--and Australia. Part of this owes to the boom bust nature of their export economies--but alot is related to the currency risk borne by offshore investors. Capital markets are tiny, in NZ. No one has a 10 year fixed mortgage, for example. They simply don't have the capital base to make that product possible. Most homeowners have 5 Year adjustibles--and the 1-3 year fixed is popular.

Broadly, the RBNZ has never had the freedom to run monetary policy the way a large nation would. The external forces (like 1000's of Kiwi's coming home with British Pounds to buy houses) dwarf the RBNZ's power.

No large country in NZ's position would raise rates right now, but they are at serious risk of internal inflation--not yet corrected by a strong currency.
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