Hi [salutation],
Without a doubt the long awaited slow down in the NZ economy is now here and whilst we may all be a little disapointed that the housing boom has come to an end we can console ourselves with the fact that the recent spate of interest rate rises will now come to an end and some relief is in sight...
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Without wishing to put too fine a point on it I believe the NZ economy is now in recession and if its not it will be by the end of the month. The US is also now in recession- when the price of gold hits $1000 you don’t need a degree in economics to know that the proverbial is on the fan. Although inflationary pressures abound in our economy the headwinds are starting to build in the form of lower immigration, a crumbling housing market and drought in the Waikato. These factors coupled with the US falling out of bed and the impact of the global credit crunch will result in a rapid easing of the OCR later this year and a resulting plunge in the exchange rate with any luck. The RBNZ will remain staunch in the lead up to its shift to a loosening policy as inflation remains strong- due mainly to a backlog of infrastructure projects, an inevitable round of tax cuts and the ever rising price of oil. Despite these pressures when the tipping point is reached later this year relief will be swift.
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What does this mean for interest rates? Good news- they will come back from what are presently very high levels historically. A number of factors have been at play for the past 12 months to compound the pain for borrowers- numerous OCR rises coupled with the impact of the credit crunch and the banks desire to restore profitability to their home loan businesses. The up shot of these factors has been borrowers gradually being lumped with an extra 75bps on their home loan rates since the midle of last year pushing floating rates to almost 11%. What would I do if I was a borrower? Fix for 6-12 months to allow yourself to pick up cheaper fixed rates later in the year. My belief is that the economy will slow rapidly and has already begun to and that when Bollard begins to cut he will have do so quickly to stimulate growth. If its a dry winter in the Waikato he will need to act agressively and this will favour borrowers.
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For the past 6 months Stu and I have been gradually incorporating SBA into the group of franchise businesses that we operate having purchased it in October last year. Like APM it is a franchise based system with about 30 retail offices nationwide and 10,000 customers. Our core offering is a monthly accounting service that allows small buisness owners to have up to date reporting (monthly). For those of you who prefer to use the internet you can code your transactions on line and have GST paid on line direct to IRD. The service is $90/ month and this includes your end of year financials. Additional services such as payroll and rental property accounting are also available. From a value perspective it is hard to beat. To contact your local SBA office ph 0800 999 SBA or visit www.sba.co.nz.
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In the current high interest rate environment there are considerable savings to be made by restructuring your credit card, vehicle finance and hire purchase commitments into your mortgage. The spread between consumer credit rates and mortgage rates is now at 10%+ so it is definitely worth the effort. Credit cards alone are now at 20.95% which is just insane. Contact your APM Adviser on 0800 800 067 and they can get things started for you.
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Those of you interested in either cricket or India should check out my blog on our website while I am on ICL duty as I am presently. As well as the progress of my Chennai side I will also focus on opportunities to do business in India and developments in the game and their implications for cricket globally. At present the landscape is changing daily as we experience the biggest shake up since Kerry Packer's World Series and as one of the first to appreciate the link between sport and buisness I am obviously pretty happy to be right in the thick of it...
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Adam Parore
Managing Director |
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