Recession?

Troubled financial times in the US continue with the Bears Sterns collapse. It seems as though each week there are ripple effects as a result of either: bleak stories from the subprime market, international share market woes, the demise of the local finance industry and more recently our own share market diving. So the question remains, where do you put your money? Where is the safe haven? Well, that’s the great thing about a home. Good times and bad, it’s never worth nothing. You can always rent it and it gives you somewhere to live. More particularly it provides a haven and security in troubled times. It’s interesting that whenever you want to raise money, the first thing any lender wants is some real estate as security for the loan.

We note with interest economist Tony Alexanders reaction to Cullens recession reference:

Recession? Not as we know it Captain. Forget the panic merchants and have
a Happy Easter.

Media headlines this week have focused on the near 50% probability (toss of
a coin in other words) that we may see a minor technical recession late
this year - though the data to judge whether this happens won't appear
until April 2009. But a true Kiwi recession means sharply rising
unemployment and that will not happen this cycle. That means declines in
retailing and even housing will be capped to some degree. History shows
that less panicky businesspeople and investors can make their best deals at
times when other people are headline-focused and predicting doom. So for
all those cashed up property investors waiting for better yields, purchase
time is approaching this Winter. For those companies seeking better
qualified staff hiring opportunities will soon be appearing. And for
businesses wanting better premises some will also become available soon as
under-capitalised inexperienced operators get scared into down.

In other words, this year and next year will provide a very good
environment where New Zealand's' recent appalling productivity growth
record can be reversed with resources moving from inefficient areas to
businesses struggling to get people and premises to expand. The big winners
will eventually be exporters still now in business after five years of an
over-valued exchange rate with the NZD set to decline later this year.

Our message to the nervous is don't panic. Its still fundamentally a soft
landing being talked about.

Internationally its been a week of major downs then an up with the collapse
of US investment bank Bear Sterns driving a surge in fears about other
banks. But a 0.75% rate cut in the US last night and better than expected
profit reports from two large investment banks has assuaged those concerns
somewhat - for now. But downside risks still prevail internationally and
huge volatility in exchange rates, sharemarkets, and perhaps interest rates
remains likely this year. Buckle in.