Forum Archive Index - February 2004

["Baa Baa" <baa_baa@hotmail.com>]

He must be. What surprised the mainstream economists, is no surprise to 
Goldbug. (ergo a 0.25% basic rate increase). Some months ago, we had this 
discussion on Kitco prior to the first Aus Reserve Bank annoucement, and 
they hiked rates, to the surprise of the fundamental economists; those that 
steadfastly refuse to see past a certain key sector profile, or beyond the 
shoreline to the global economic quagmire emerging before us.

So, Bollard (& cronies) decide it's best to prick the domestic property 
bubble by raising rates. This is in the face of a market already flattening, 
already exposed to higher interest rates due to banks moving first anyway, 
and declining investor confidence. [no wonder the fundamentalist economists 
are confounded]

Thereafter comes, slowing domestic investment interest (due to higher cost 
of money), and 'in theory' slower offshore investment in domestic property 
for the same reason (but imo a falsity due to offshore money typically 
buying outright/freehold as they see our rates as high already -ergo not for 
borrowing, but ideal for lending). Typically the RBNZ decides to hurt the 
common Kiwi first -the citizen and the businessperson.

The rise in rates quickly reflects in higher bank rates and foriegn 
investment in Kiwi assets accelerates! The already perky Kiwi$ seems 
destined to go 0.70 to the USD (and probably well above). This factor shuts 
down the 'export led recovery' through reducing revenues after forex for the 
same product volumes. Naturally, this disincents production and that 
declines too. Balance of trade as a result continues to expand on the 
negative side. The so called budget 'surplus' pales into insignificance. As 
an aside, the misguided investment of 100's of millions of NZ'ers 
savings/surplus into grossly overvalued / overbought foriegn funds/share 
markets is just a disaster in slowmotion.

So, what's the immediate foreseeable result?

1. Domestic borrowing slows and exisitng debt holders get penalised, 
Property falters.
2. Foreign investment accelerates and the Kiwi$ appreciates, perhaps beyond 
what most would consider acceptable, or manageable (not that it can be 
managed per se from the Kiwi side).
3. Export focused producers really hurt and shutdown production to reduce 
costs against falling revenues.
4. The overall economy sags - domestic spending declines, domestic 
production in response declines.

Why would Bollard be a goldbug in all of this? Well, of course a rising 
Kiwi$ offsets the rising GoldUS$ prices and physical metal in NZ continues 
its decline. (short term) http://finance.yahoo.com/q/bc?s=XAUNZD=X&t=2y&c= 
or, (long term) http://quote.yahoo.com/m5?s=XAU&t=NZD&a=1&c=3 and, (dont 
forget Silver) http://finance.yahoo.com/q/bc?s=XAgNZD=X&t=2y&c=

Bollard is providing a gift - potentially a gift of a lifetime - to Kiwis 
who:

a) Have minimal debt, preferrably none.
b) Have no exposure to businesses reliant on export trade
c) Have limited exposure to retail/wholesale businesses that feel the first 
pinch of higher domestic cost of money
d) Have enough cash/savings to be able to cycle a percentage into precious 
metals (or any commodity actually)
e) Are patient enough and aware enough to know 'buying weakness' is an 
accumulation opportunity and by nature, accumulation is a process which is 
fulfilled over time.

I have to say in summary, that I did expect basis rates to rise first, and I 
see this as a final chapter in the accumulation phase into weakness for 
Gold, Silver (and whatever commodity you fancy) in NZ$. The phase after this 
will see buying into strength, which is a -late to market- strategy, but 
perhaps a neccessaity as the 'late majority' / 'mass market' will fall into 
this category.

By the by, There is nothing NZ can do about the whipsaw effect coming 
through excessive USD liquidity, declining velocity of money, and increasing 
voltility of interest rates ... except, de-couple from the USD. That's 
unlikely though isn't it.

BAA

_________________________________________________________________
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http://www.xtra.co.nz/products/0,,5803,00.html !


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