It's horrible trying to value stocks at the moment, with the threat of the economy turning and the ocr increasing which makes the free cash rate higher, increasing the discount required in DCF valuations and altering what is an appropriate PE... All the while with the possibility of a resistant economy and company reports with positive results pushing valuations in the other direction.
It's nice to read analysis from other nz investors to see how others ate handling it at the moment. Thanks for sharing.
You're welcome. Times are indeed uncertain and the very long run of nearly free money has come to an end. Will the RBNZ be brave enough to tame inflation which means asset prices should fall significantly from here or will they tolerate inflation for the longer term?
Looking forward to company results many of which are due in the next few weeks. Cheers.
Agreed, however I'm not convinced the rbnz has the tools to tame inflation.
I've long suspected that as inflation is a supply side problem, trying to reduce demand will just make people poor because they still need to buy the things.
Another substack writer (sorry i have no link) wrote a great article on the historical causes of inflation in America along with the associated ocr rates. The only other time inflation was causes but supply side problems in his list was due to the gulf war. I looked up when the gulf war ended and this coincided exactly with the ocr. In other words, inflation wasn't affected nor fixed by ocr changes for that supply side inflation problem; inflation only abated when the underlying problem went away.
Im concerned that this may be the same this time, but the ocr (while offering marginal affect) will mostly serve to make us poor, while politicians create more supply side inflationary policy like reducing supply of rse workers so we can't harvest food crops.
Interesting points. I think the RBNZ will try to tame the problem for a while with the OCR, and we will see what the supply side component is if they fail to bring inflation down. That article you mentioned sounds vaguely familiar. But it has been a long time since I read it.
I am guessing the supply side issue rose through military demand for fuel etc. during the Gulf War? Did this push up prices for fuel which flowed through into all products and services?
Savers of course, are one beneficiary of OCR rises, but saving in New Zealand seems to be through buying real estate so the beneficiaries given the low savings' rate will be few people. I also recall reading that banks increase profits through rising interest rates.
Im not much of a history buff, but i believe the gulf war was something fuel supply related.
Feels like everyone is losing from this inflation except highly employable people who are getting promotions and wage increases above inflation.
Im not sure if savers are helped because interest rates are below inflation, so that's a real term loss for them.
I guess employed people with mortgages are having their debt inflated away as salaries increase, but the value of houses is dropping faster, so that seems like a loss, too.
My strategy so far has been to try to cash up as much as possible and get smelly fingers (trying to pick the bottom), which might be later this year...?
It's horrible trying to value stocks at the moment, with the threat of the economy turning and the ocr increasing which makes the free cash rate higher, increasing the discount required in DCF valuations and altering what is an appropriate PE... All the while with the possibility of a resistant economy and company reports with positive results pushing valuations in the other direction.
It's nice to read analysis from other nz investors to see how others ate handling it at the moment. Thanks for sharing.
You're welcome. Times are indeed uncertain and the very long run of nearly free money has come to an end. Will the RBNZ be brave enough to tame inflation which means asset prices should fall significantly from here or will they tolerate inflation for the longer term?
Looking forward to company results many of which are due in the next few weeks. Cheers.
Agreed, however I'm not convinced the rbnz has the tools to tame inflation.
I've long suspected that as inflation is a supply side problem, trying to reduce demand will just make people poor because they still need to buy the things.
Another substack writer (sorry i have no link) wrote a great article on the historical causes of inflation in America along with the associated ocr rates. The only other time inflation was causes but supply side problems in his list was due to the gulf war. I looked up when the gulf war ended and this coincided exactly with the ocr. In other words, inflation wasn't affected nor fixed by ocr changes for that supply side inflation problem; inflation only abated when the underlying problem went away.
Im concerned that this may be the same this time, but the ocr (while offering marginal affect) will mostly serve to make us poor, while politicians create more supply side inflationary policy like reducing supply of rse workers so we can't harvest food crops.
Interesting points. I think the RBNZ will try to tame the problem for a while with the OCR, and we will see what the supply side component is if they fail to bring inflation down. That article you mentioned sounds vaguely familiar. But it has been a long time since I read it.
I am guessing the supply side issue rose through military demand for fuel etc. during the Gulf War? Did this push up prices for fuel which flowed through into all products and services?
Savers of course, are one beneficiary of OCR rises, but saving in New Zealand seems to be through buying real estate so the beneficiaries given the low savings' rate will be few people. I also recall reading that banks increase profits through rising interest rates.
Im not much of a history buff, but i believe the gulf war was something fuel supply related.
Feels like everyone is losing from this inflation except highly employable people who are getting promotions and wage increases above inflation.
Im not sure if savers are helped because interest rates are below inflation, so that's a real term loss for them.
I guess employed people with mortgages are having their debt inflated away as salaries increase, but the value of houses is dropping faster, so that seems like a loss, too.
My strategy so far has been to try to cash up as much as possible and get smelly fingers (trying to pick the bottom), which might be later this year...?