Indexgroup Newsletter

Hi [salutation],

Not alot of good news at present is there? Fortunately we may be getting close to the worst of it...

1. Economic Outlook

It would be fair to say that things are not looking super flash right now for just about everyone. Petrol price rises and food have been generating plenty of headlines and it is thanks to these two commodities that inflation is now running at 4%. Remove both and the inflation figure drops to 2% well beneath the top of the target range of 3%. Why is inflation important? Because it reduces the value of our earnings (both businesses and individuals) which means we have less to invest which means we grow slower. Currently unless you are increasing your wages by 4% you are going backwards. Those of you who have suddenly found yourselves a few hundred bucks short at the end of the month are experiencing the consequences of high inflation. Not much fun is it. What do you do to compensate? You cut back on non essential services- change your mobile plan, flag the morning coffee, get a lift to work etc. When our businesses start doing this we have a problem as cut backs inevitably limit investment and growth. High inflation is a no winner.

2. OCR Review- What now?

So what does this mean for Thursdays OCR review? I reckon Bollard will cut by 25 points and get the easing cycle underway. The choice he has is whether to ignore the impact of petrol and food price rises and focus on tradeable inflation which he is mandated to do. If he does so he will see the inherant weakness in the domestic economy which is now in recession as I predicted earlier in the year. Either way it will make very little difference for interest rates in the short term unfortunately. Those of you who have been paying attention will have seen our Aussie banks getting 'out in front' of the easing cycle by making it clear that in the past 6 months they have been hit by increased borrowing costs as a result of the global credit crunch. As a result their margins are under pressure (they are always under pressure which serves only to enforce that they are gready bastards) and it is unlikely that they will be passing on the full benefit of cuts in the OCR to the consumer. Sounds a bit like the petrol companies doesn't it- same old story, they are quick to go up and slow to come down. With most households on fixed rates this too will ensure that it will be 12-18 months before the benefits of lower interest rates find their way through to you.

3. If I was a borrower...

In a line call I would float rather than fix for 1 year. Why? Because I think the global economy has a little way to fall yet on the basis of recent bad news out of the US. That means global interest rate cuts to go with those to be delivered by our own RBNZ. The only issue is will the easing be quick enough to close the gap between the two options which currently sits at about 100 points. If you buy the arguement that the banks will be slow to pass these on your breakeven position is 50 points in 6 months to stay in the game. I think you'll get it. The beauty of floating is that if you don't get the cuts you're looking for you can always chicken out in 3 months time and fix then and you won't be too much worse off. But if you fix now and the world goes pearshaped you may find yourself along way out of the money at a time when you could really use the extra cashflow.

4. Do you need more income?

For most of us right now the answer is yes. If this is you then have a think about either you or your partner joining APM and writing some mortgages to supplement your income. There is no cost to join and we will provide full mentoring and brand support from our franchise network. Our Smartloan product means you can help family and friends take advantage of no fee banking and save thousands of dollars a year in interest payments and pay off their loan 10 years earlier. This role will also suit those looking to add additional revenue streams to their existing business- Lawyers, Accountants, Real Estate agents, Insurance Brokers etc.

So if you could do with an extra $2k- $3k per month from writing a few loans then email louise@adamparore.co.nz. for an information pack.