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What does 2009 hold?

Monday, January 19th 2009, 7:45AM 7 Comments

by Philip Macalister

Here is a bit of crystal ball gazing on the year ahead. Something to cogitate as you launch into work. Talking to people over the past couple of weeks has been fascinating as there seems to be two distinct schools of thought: One being total doom and gloom, and the other mildly optimistic. It will be no surprise to many readers that I am in the latter category. My take is that the first part of the year will be tough, but things will improve. (After all, we can’t have two consecutive years like 08 can we?) Perhaps one of the biggest indicators of trouble will be in employment – or should that be unemployment. I have come across a number of people who have been retrenched recently and there is no doubt more to come. This, though, tends to be on the corporate side. On the other side, and this is the adviser market, numbers will hold up and you may even see some former fundies and the like become advisers. Another thought this year is it may be one of significant corporate action. We haven’t seen much happen in this space for a number of years, but a couple of names spring to mind, some of which will either be sold or closed down. In this space I am not thinking finance companies, rather fund managers and life offices. As for punters, well they will have no choice but to look towards shares and property again. Fixed income will be a big under-performer for the year and many of the offers (such as TDs) have barely any real return. Cash, which has looked so damn good, has already lost much of its shine. Property must look attractive, particularly residential, as money is as cheap as it has ever been, the market is down and this government isn’t likely to penalise property investors. Shares also look cheap, but I suspect it will be harder to persuade investors to go down this route as opposed to property. One space which will, I suspect, create a lot of discussion is adviser regulation as we now get down to the details. There will be lots of debate in this area, and some will be fierce. Key things to look out for are the appointment of a Commissioner of Financial Planners and who leads the charge at the IFA. The commissioner appointment may set the tone for the changes. I understand the choices are wide. Many people applied, some bureaucrats (with little first-hand knowledge of the industry), some industry people and some who aren’t necessarily that in love with the current work planners do. No doubt it will be a fascinating year. I’d welcome readers’ thoughts on what they think 2009 holds.
« More questions to ponder about credit fundsWho should be the commissioner of advisers? »

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Comments from our readers

On 19 January 2009 at 11:06 pm Gerald Mullaney said:
The first half will be challenging as people and businesses adapt to the new conditions of 2009. Looking ahead to the second half with historically low interest rates on debt and loosening monetary condition this will act as a huge stimulus to expansion and growth. We have already seen building consents increase.

I believe the economy will start its upturn going into summer 2009, with the economy entering a new cycle by 2010. There will be big winners and there will be big losers. The trick is to position oneself in the winners' club.

It's back to basics - lean, mean and smart. Cash flow is king and those that can move and adapt very, very quickly will have a future. On my recent survey I have found a lot of over-pricing, lack of staff training, over-staffing, while the owner's sulking on the yacht, the party is over! You can't run your business from your yacht anymore. Get behind the counter and start getting to know your customers and don't let them walk out the door without doing a deal, because they won't be back.

There is a lot of marketing going on to cause confusion with the customer. I say try to stop developing marketing programmes to trick and confuse the customer, but rather good price with a reasonable mark-up because 60% off what is not good enough, anymore. Current pricing is over market by 40% to 60%. The good times are over.... Get real!

Oil prices by mid to late this year may well be over $2 litre as the dollar slips to $0.40 to $0.45 USD. Once again there will be winners and loser - the trick is to be in the winners' club.

Debt management will be critical this year and those that have shorted their position will be the big winners, the ones that fell asleep and got caught long have got some very big pain to endure.

My prediction is that the five-year rate by mid year will be 5% to 6%; could well be lower for a very short time.

The recession I believe began in the first quarter of 2007 and will end in the first half of 2010. That means we are two-thirds the way through a three year recession.

Like all cycles there is opportunity in adversity. The trick is to search the opportunities and there is plenty of them, but you won't be able to see them if ones mind is in a negative mode!

The summary is as it always has been....It's a JUNGLE and only the quick and smart will survive if you can survive and thrive until 2010 you will be one of the few to join the "winner club".

Gerald Mullaney
On 19 January 2009 at 11:53 pm Peanut H said:
Bank term deposit rates are now 4.50% p.a for 12 months, less tax at 33% and less current inflation of 5% equals an investors capital losing 2% in value per annum, indeed a conundrum for investors relying on safe short term government guaranteed bank fixed term deposits for income.

What alternatives? Finance companies currently offering 7% p.a for 12 months, probably down to 6% by next month, after tax and inflation investors still lose real capital value.

Will the high dividend shares such as Telecom or listed property be good value or will the directors of these companies divert the dividend yields to deleveraging debt?

Perhaps unrated corporate bonds are an option offering 7% - 8% per annum, still not enough for the investor to live on and maintain the real value of their capital.

I am sure there is a large group of advisers currently travelling along the short-term deposit road with their clients' funds. I wonder whether these advisers are doing their clients a service by reducing the real value of their capital? If I were an adviser caught in the low interest rate high inflation environment I might be a bit gloomy.

I'm sure the advisers who locked in long-term 10%+ rates with government guarantee backing, purchased the high quality high rate bank and corporate bonds issues on sale early last year and purchased more quality shares at cheap prices will be feeling decidedly optimistic about the future.

The jury is still out on whether Finnigan, Podmore, Hotchin / Watson can be trusted to deliver on their promises.

Trust, yes TRUST will be the big issue for 2009.

I am not optimistic that adviser numbers will hold up. As for former fundies, who needs a business development manager when there is no business to develop? I agree with Phil we will see a lot of action in the fund manager life office space.
On 20 January 2009 at 7:26 am Norman Stacey said:
HNY

We can say with certainty the financial markets will most likely be up, down then up in 2009 - unless it is the other way around.

The reality is, it is unknowable. We do not add value with unjustified certainty over the destiny of any single holding, no matter how strident and irrespective our audience may clamour for it.

Precisely because the future is full of unknowable risks, is why a portfolio diversified across the asset classes, sectors regions and issuers, is the least-risk strategy. Most advisers who abandoned the tenets of Modern Portfolio Theory have not added value; some have caused real financial stress.

Inevitably we all hold views, nuances and biases, but to concentrate in any single asset class, including NZ cash, is to add risk. Sure we can augment sectors we rationally expect to perform better and shun those that we calculate will underperform, but always within a structure of systematic diversification.

The irretrievable damage done to Kiwi investors in 2008 - through DIY as much as advice - was through being concentrated in an asset class that proved unsound. A diversified portfolio by contrast should have dipped only about 10%; uncomfortable but hardly a life-altering problem.

Fine to pick favourites, but let's, as advisers, not exceed our competencies and certainly not depart from sound investment advising.

On balance, we are in the optimistic camp on the likely performance of financial market overall in 2009. Our 'Balanced' model strategies are about neutral on asset allocation, but favouring sectors, styles or holdings with a high beta to economic recovery. If recovery is delayed, our investors will be intact to participate in 2010.

We are all in what is basically a very easy business.

TTFN
On 20 January 2009 at 1:26 pm Realistic said:
The one major factor that is feeding the financial crisis is the unwillingness of the banks to lend to each other or the private sector. This "liquidity trap" characterised the Great Depression. The credit markets have shut down because of the fear of default overwhelms any expected profit from lending (even if borrowing costs are nil). Add the likelihood of deflation, the global recession may be heading towards a global depression.

To survive in this environment, refer to Darwin's theory.
On 21 January 2009 at 9:45 am Gerald Mullaney said:
There is no crises, But seriously there is a serious crisies of morality, greed, honesty, harwdwork, diligence, fair deals, a real education system that prepares humanty for the jungle....

Above all there is a lack of leadership and inspiritation and direction stumbling from one glossy report to another while not a great deal happens on "main st"

A lot of money spent, that in most cases achieves ZERO.

A system that rewards the winning rugby team but does not reward the business man for creating jobs and downstream wealth, and opportunities this is a very serious situation that has been a long time in the making...

A system that rewards the loser not the winner....

Our leadership relaxes while Rome Burns, lets get some leadership in place and some long term planning in place like a 5, 10, 20, 30 year plan that can also change and evolve as we move forward. Rather than moving form crises to crises.

The sooner we can end the individual economy and return to fair social economy the better, just look what happened to NZRail, Air New Zealand look at Air New Zealand where it has come from since bankrupcy. NZRail will take $6 billion to to turn it back to the use it was meant for, it has like air NZ sucked dry of cash by the Stewards of the companies for their own benefit, not the good of the shareholder or the Public.

The change needed for stewards is that they are there to serve, they are not there to serve themselves.

The so called financial crisis is nothing other than the end of a cycle it has been forcast over 10 years it just part of life as is death and sickness in the humman race, the next cycle is about to commence in 2010

The big "Shakeout" is designed to shake out the rot, and a lot of rot has been shaken out of the system.

Surely people dont think a party continues for ever some work does have to be done.

The ones in the winners club saw it coming and took action, some did not and they are now enduring pain.

For the diligent and hard working people and business people the ones that cared about there business, there customers, adapted to change day by day are in the winners club.

Until we sort out the the Real issues, we will continue to endure hardship and pain.

The opportunites presented today are the best i have seen in 30 years.

The so called crises goes far beyond the so called financial crises.

We have never been better off as humanity and individually the real crisis is ourselves as many are looking outwardly to solve the issues for them, when the answers lie within ouselves.

The Crisis, What Crises should we really consider.

Life is not all about money and things, there is a lot more to life than a man made promissory note!

On my latest survey all humany desires is these three things

Love, Security and Certainity the sad thing i found out was that most of humannity expect others to provide it.

Summary

2009 will be a great year if you have take the necessary "ACTION" and "Foresight" and have planned for the "NEW" CYCLE" of 2009 and beyond.

We, and we alone, create great pain or joy, don't depend on governments or some other entity to provide you with a good time!

Lets get some FOCUS on the REAL ISSUES OF "LEADERSHIP"

Gerald Mullaney
On 23 January 2009 at 8:28 am Gerald Mullaney said:
The financial future is by and large is predictable, read economic forcasting based on demographics.

Man made things are predictable and in this opinion piece i am only commenting on the end of this cycle, the financial cycle.

The way our systems works encourages short term thinking and greed.

It encourages pass the parcel as quick as possible before there is no value left.

The system does not build up society, it tears society apart as we see happening today.

There are huge shifts in power and enthinicity occuring watch out europeans the crown is being passed to asia and india this is also predictable.

On my survey of banking officers this we week the main comment was most people failed to see that fixing long term is not a good idea although up to 6 months ago and until recently some banks where advising customers to go long the main comment was a lot of people where caught sleeping while the lion roared.....! Confusion remained until dec 2008 but for many that was too late to take action...

AS long as confusion is encouraged in society the worst things will become for some and or many....

The 3% of society that are aware of the situation will continue to prosper.

Summary

Confusion remains king.... "Clarity"

Make sure your left hand does know what the right hand is doing. "Awareness"

Being alert to extremely fast changing markets... "Alertness"

These are some of my themes for 2009
On 24 January 2009 at 7:10 am Denis said:
I hope that outfits promoting "financial secrets" to the public at ridiculously-priced seminars will be outlawed. One simple rule is the more words they use in their ads, the more crap they are talking. It's generic, asterisk-heavy, vague and preys on the vulnerable.

Of course the real reason I have a problem with it is they might blow my cover. I am obviously privvy to all these insider secrets that makes me oodles of lovely money, no matter what happens. If I find out who the mole is, I will give him a chinese burn and a dead leg.
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AIA 4.55 2.29 2.59 2.65
ANZ 4.44 2.89 3.25 3.39
ANZ Special - 2.29 2.69 2.79
ASB Bank 4.45 2.29 2.59 2.65
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.29 2.59 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 2.89 3.19 3.39
BNZ - TotalMoney 4.55 - - -
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CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 ▼3.40 ▲3.50 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - ▲2.25 - -
ICBC 3.69 2.25 2.35 2.65
Kainga Ora 4.43 2.67 2.97 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.20 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.35 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 2.79 2.79 3.15
SBS Bank Special - 2.29 2.29 2.65
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.09 - -
The Co-operative Bank - Owner Occ 4.40 2.29 2.59 2.79
The Co-operative Bank - Standard 4.40 2.79 3.09 3.29
TSB Bank 5.34 3.09 3.29 3.45
TSB Special 4.54 2.29 2.49 2.65
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 2.29 2.69 2.79
Median 4.55 2.73 2.99 2.80

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