It is a while since I have seen photos of placard carriers with banners predicting that the end of the world is here. From recent media reports one would have to think that it was all over bar the shouting. We have actually had all the shouting but the world is still revolving, daylight saving is here and summer is comingThere have been and still are all sorts of problems, or rather opportunities, so it is worth keeping an open mind and looking behind all the hype.
IT is true that most stock exchange measures record that the value of the total market securities has dropped. So what is new ? They have dropped in the past and will drop again. They also rise. The reality is that a declining sharemarket is not a problem unless you are a seller. It is instead an opportunity if you are a buyer. The media says the market has crashed if it has dropped but you have to keep in mind that their view is based on actual sales. You cannot have a sale unless you have a buyer who will match the seller.
That means that each time there is a sale there has been a buyer whose opinion was that it was a good time to buy. If you do not buy you miss the opportunity. That is good news which is not important as it is the bad news that attracts attention.
The New Zealand economy
Last year was a good one and our economy grew by over two per cent. This year there is little growth expected so it is all doom and gloom. We must by definition be having a depression or recession if there is no growth. If you think about it though surely it means that this year will be the same as last year, it is just that it will not be better. Sure, spending patterns will change for some people but overall the level of activity will be the same as last year. That cannot be all bad.
The world economy
It appears that the world still revolves around the United States of America, at least that is what the media thinks. They seem to forget about China and India. If the world economy or rather the US economy has a problem then by definition so do we. That does not always follow. Our manufacturing industries have largely gone and we are now back depending on our country cousins. The world population keeps growing and the demand for our food keeps increasing. We have seen some hugh price increases overseas and a lot of that has come back to benefit our farmers and growers. That has to be good for our economy.
The banks are broke
Thar is true for some offshore banks but that will not make much difference here. The dud ones overseas are closing or being taxpayer funded and that is creating opportunities for the others that have been properly managed. It is true that a rising tide raises all boats. It also follows that an ebbing tide will soon show up the skippers who have been sailing in shallow waters.
The American Sub Prime mortgage market is getting the blame for the problem. I prefer to accept that the blame lies with the incompetent managers who were taken in by their own hype. It was afterall just a local variation of the old Nigerian oil scam.
The statistics show that there has been a consumers borrowing binge. I am sure that is not actually as bad as it seems as a lot of the house based borrowing has been for investment in businesses. That was because it was cheaper for borrowers, and banks thought they knew the value of real estate as there was a valuation report to confirm the figures and justify the loans. The banks are now keeping separate figures for this type of borrowing so the statistics should in time become more reliable.
There is no doubt that spending patterns will change as more money goes into paying the higher rates of interest. That means there will be less for other purchases and that will be tough on some families and on some industries. Some firms will not be able to cope and will fail. That will mean job losses with all the personal distress that follows.
What it all means is that all businesses and all individuals will need to look closely at their incomes and expenses. If you are to survive you need to increase your income and or decrease your expenses. In that way you can tide things over until the media accepts that the glass is half full and not half empty. New Zealand has a lot going for it so do your bit to join in. Think carefully and good luck.