Your Predictions for 2023

[Gerald]

Merry christmas too everyone It's a great time of the year to remember how fortunate we all are to live in a good country and speculate on the capital markets.

[BlackPeter]

Never really understood this sentiment that is so common amoungst kiwis. A good book to read is Irrational Exurberance wherin Robert Shiller explains that over the long run, given comparable properties and section sizes there has generally been NONE or very little increases in house prices in real terms (after inflation). And why should property value growth exceed inflation? After all is not a house made of things that over the long run increase roughly in line with inflation, and there has never been a land scarcity issue except in major cities.

If the 2000-2100 period follows the 1890-2000 period you could possibly get absolutely destroyed levering up.

Seems to be just a wonderful bubble based on debt, speculation and regulations. Ask yourself if it is normal that a low risk investment that rarely goes down can deliver returns in excess of 50-60% per year to a levered property owner like the last 10 years.


" It is true that, for the United States as a whole, real home prices were 66 percent higher in 2004 than in 1890, according to the index my research assistants and I have put together. But all of that increase occurred in two brief periods: the time right after World War II and since 1998.

Other than those two periods, real home prices overall have been mostly flat or declining. Moreover, the overall increase, including the booms, is not very impressive -- 0.4 percent a year."

https://money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/

Some good charts:

You cannot view this attachment.
You cannot view this attachment. 


Anyway sorry for the distraction please keep going.

Good and well made point. Only thing I would like to point out is that you are talking about the long term price development of house prices, and yes, it does not make sense to assume that the price for a house is long term sustainably growing above inflation. Shareguy on the other hand was talking about the house price3 ripples he predicts for the year to come.

As we all know - the markets are in the short term a voting machine and in the long term a weighing machine ... and value rarely equals hype. You both might be right.

[Whome]

Gerald, you raise good points and very pertinent to the present housing situation. I'm not sure NZ housing trends necessarily follow US trends although probably a similar chart as there have been different influence factors in play.

This is the first downturn in house prices we have seen in NZ since the 70's, when the NZ economy began to expand, plenty of jobs and the NZ standard of living improved markedly and better materials supply meant there was a house for everyone - a bit simplistic but that's the gist.

Politically then everything was about production and nothing was ever said or taught about NZers saving for the future (which persists today), in fact there was a disincentive to save as savings were taxed while the production costs on goods and services were tax deductible. However there was still inflation, which raised the price on everyone's biggest asset. And still savings were taxed and no incentives to save.

Then along came the Dolf de Rouse books and the many well attended seminars available on how to own 20 houses by leveraging the finance on one for the next, and the tax breaks etc. - and still savings were taxed and there were no incentives to save.

The cowboy days leading up to the stock market crash in '87 just meant NZers would not touch shares compared to the easy safe money to be made from houses. All you had to do was to put down 10% deposit and the banks provided 90% lending based on the safe security of land and buildings, and you sat and waited for the house price rise because of the NZ belief that 'house prices never go down', and you collected 100% of the price rise as there was no CGT - all for a 10% outlay... not bad eh.... And therein lies the story albeit simplistic. No judgement here- Just saying it as I remember.

Shares have long been a lucrative hobby for me in NZ but I'm always careful who I talk to about shares as I have had too many look at me as if I blasphemed and should engage in self-flagellation to repent. It's time the investment mindset in this country changed away from housing.

I believe in NZ there should be tax offsets to incentivise saving. I believe there should be lots more local body bonds (govt backed) paying attractive returns to fund infrastructure in NZ as many trusts etc want the investment security offered by these instruments, and we would have less 3 Waters situations.

Anyway those are my thoughts and recollections.

[Whome]

Merry Christmas to all who make this forum such an interesting read

[Ferg]

I believe there should be lots more local body bonds (govt backed) paying attractive returns to fund infrastructure in NZ as many trusts etc want the investment security offered by these instruments, and we would have less 3 Waters situations.

Exactly this for both the reasons you outlined.  In theory one can buy local Government bonds, but given they are centralised you cannot get one in your local council and they likely centralise issuing them to pay the lowest interest rates possible, rather than have smaller councils being reamed by the market.

https://www.lgfa.co.nz/investors/lgfa-bonds

[blackcap]

Hi people, have finally found this site from the other one.

My predictions for 23, very loosly, are as follows:

Interest rates will keep going up but more slowly,
Housing prices will keep declining as more people are forced to sell
Equities in turn will fall or stay stagnant for this year, especially growth stocks.
Bond markets are going to suffer.
Cost of living will continue to rise and be positive in 2023 between 5-10%
Labour governement is going to get smashed at the election.

[Waltzing]

tiem they had "Robert Shiller"

on winner most hated channel again soon... cant understand why hes been not on prime time for a while..

[Basil]

Welcome aboard blackcap, I'm very pleased you found your way here and I am sure many others are too
Interesting comment about bond markets suffering some more...gosh it's been quite a remarkably painful year for the classic 60/40 shares /bond portfolio already.  Much more pain for bonds in 23 or just a bit more in your opinion?  Agree with you 23 is shaping up as just as challenging as 22 and let's be honest about it, this year has been really tough for the vast majority of investors.

A big thank you to the owner of this forum for providing us with such a great platform for discussion which seems generally to have been good healthy debate and for the efforts of admin administering and maintaining this site.    Your efforts are much appreciated.

Merry Christmas and happy holidays.

[KW]

Hi people, have finally found this site from the other one.

My predictions for 23, very loosly, are as follows:

Interest rates will keep going up but more slowly,
Housing prices will keep declining as more people are forced to sell
Equities in turn will fall or stay stagnant for this year, especially growth stocks.
Bond markets are going to suffer.
Cost of living will continue to rise and be positive in 2023 between 5-10%
Labour governement is going to get smashed at the election.

^ Pretty much sums it up.  Welcome to the grownups forum Blackcap  

Although, the sceptic in me keeps thinking that the central banks won't have the constitutional fortitude required to keep going as Governments on both sides and the general populace start screaming in real pain.  Will we see protests in the street?  Will the powers that be cave, and start dropping interest rates?  In which case inflation will probably take off again (but worse) and we will repeat the 1970's all over again. 

The worst leg of a bear market is the recession leg.  And we are about to enter it.  So my prediction is that there will be a "Lehman moment" in 2023 - to really flush market participants out so we can reach the "Capitulation" and "Despair" stages of a bear market. 

There will also be a good flush out of zombie companies that should have been killed off in the last recession but were saved by QE, and companies whose business models consist solely of burning shareholders cash.  Once again we will learn that "Cash is King" as the flood of cheap and easy money dries up and cashflow negative companies fold.  Expect more Sharesies type moves - prices go up, costs get reined in, the old school business model of making a profit to survive is born again.   Of course, this is highly inflationary as well, as companies stop subsidising consumers and start charging them the true cost of product/service delivery.

The market has further to fall - P/Es have been compressed, but now recession will compress earnings (which raises P/E) so P/Es will need to compress further. We should hopefully end up back where companies are trading on sustainable dividend yields higher than the current bank interest rates (as they should be) - more so for those on the NZX as they are lower growth than their international peers and thus deserve to be valued on a much lower multiple and returning a higher yield. 

[Fiordland Moose]

My (current) gut feel:

I reckon things may stay a stronger for longer, but the long mooted recession eventually occurs in middle or later half of 2023.  Aggregate demand will continue to outstrip supply in the early months of 2023, driven by a cannibalisation of household savings and robust nominal wage growth.  I note the household surveys, but don't put too much stock into them (everyone is surly).

The RBNZ will continue to hike until at least a 5.5% terminal rate is reached, maybe eventually higher, but may not be a linear journey.

I think in NZ (and more likely offshore) as a few volatile/commodity related components of CPI become naturally disinflationary - and may temporarily drive down overall CPI - the doves will gain a disproportionate voice in politics and monetary policy. I see a real risk too early pauses and/or reductions in cash rate occurring before rising again as continued wage growth starts to rebound and lift CPI after temporary falls.

That could give way to a few false rallies in tech, discretionary and overall equity performances in 2023 (even if they fall harder in 2024).   The tech bulls still want to run at the first sign of lower interest rates and they want to run hard, and it'll take time for the markets to beat that out of them. I believe what we are in for will resemble the post GFC period of 2011-2012, where we had shallow w shaped recessions, coupled with very weak equity market performances, and lots of discretionary business challenges. I don't think the end is near, but I think sentiment has a very long way to fall and it will take time.

I think tourism will run hard for the first 6-9 months in Australasia. Beyond that who knows but probably tappers off and eventually falls.

There will be some pivotal decision gateways on Onslow and the attendant impact on our generator companies

I think the Australian economy will continue to run relatively red hot - too hot - for the first 6-9 months of 2023, because their reserve bank governor is a bigger wet blanket than ours. That may (unduly) underpin trans-tasman related equities throughout 2023.  I think the NZD/AUD will remain strong before eventually weakening as AU has to lift its interest rate track at the same time NZ hits its terminal rate and the market prices in future cuts due to a weakening economy.

But none the less I see heaps of pressure on wage growth and underlying input growth, coupled with softening demand, that will shrink margins and company earnings even as revenue grows on the back of inflation, for the wide majority of NZX listed companies.  There are still many companies in the consumer discretionary, tech and now travel industries that are (currently) experiencing robust demand and layering heaps of costs into them, when on the horizon a perfect storm of softening demanding and rising costs will combine to shock margins later in the year.   I believe investors have a misplaced optimism when reported GDP numbers come in high and lagged company reports show positive trends - go back to 2011 and 2012 and look at the number of business failures and tanked share prices occurring during a modest recession, and it should give pause for thought.

I believe and hope there will be *some* opportunities to invest at below the cycle / fundamental value but it won't be obvious and it will take time to occur, and patience will be required. Calendar years don't perfectly encapsulate business cycles and a lot of these things could spill over into 2024 (or not). Reckon it'll be another tough year but we are slowly getting there.

[Basil]

Very pleased I started this thread as its flushed out some very interesting comments from a lot of highly experienced investors sounding the warning bell about the chances of another very challenging year ahead. 

I agree that there's no harm in keeping some powder dry at this stage and with some call account interest rates like Direct Broking at 3.90% (and likely headed to about 4.5% when the RBNZ likely tightens a lot again in February 23), at least you're getting a somewhat half reasonable return while you wait to pounce on some outstanding opportunity down the track.

For what it's worth my main strategy to weather this storm is to focus on stocks I believe will have an enduring gross yield of 8%+ and can pay that across economic cycles.  Using that primary investment filter with stock selection keeps the Beagle clan very well fed and watered with plenty left over for really enjoyable hobbies and pets.

While we all have different investment objectives and timeframes, for my stage of life being semi-retired and looking to build enduring retirement income, I use this filter ruthlessly in my stock selection criteria.  I should not have made an exception for a small 2% position in ARV yielding 4.7%, that was a mistake but if it keeps going down the way it has been lately it might be yielding 8% soon lol

Sir John Key opines on the outlook for 2023 https://www.newshub.co.nz/home/money/2022/12/sir-john-key-unveils-his-predictions-for-the-economy-in-2023.html

Maybe so we could all get the most out of this thread we morph this discussion into a question about what's your strategy to navigate the challenges of 2023 ? 

[Clearasmud]

Very pleased I started this thread as its flushed out some very interesting comments from a lot of highly experienced investors sounding the warning bell about the chances of another very challenging year ahead. 

I agree that there's no harm in keeping some powder dry at this stage and with some call account interest rates like Direct Broking at 3.90% (and likely headed to about 4.5% when the RBNZ likely tightens a lot again in February 23), at least you're getting a somewhat half reasonable return while you wait to pounce on some outstanding opportunity down the track.

For what it's worth my main strategy to weather this storm is to focus on stocks I believe will have an enduring gross yield of 8%+ and can pay that across economic cycles.  Using that primary investment filter with stock selection keeps the Beagle clan very well fed and watered with plenty left over for really enjoyable hobbies and pets.

While we all have different investment objectives and timeframes, for my stage of life being semi-retired and looking to build enduring retirement income, I use this filter ruthlessly in my stock selection criteria.  I should not have made an exception for a small 2% position in ARV yielding 4.7%, that was a mistake but if it keeps going down the way it has been lately it might be yielding 8% soon lol

Sir John Key opines on the outlook for 2023 https://www.newshub.co.nz/home/money/2022/12/sir-john-key-unveils-his-predictions-for-the-economy-in-2023.html

Maybe so we could all get the most out of this thread we morph this discussion into a question about what's your strategy to navigate the challenges of 2023 ? 

Basil, thanks for your posts here! I'm a couple of years older than you and not employed. We are living in Brisbane now.
I have some "powder" which I'll only deploy on down days over the next year. (note to self:be patient). Thank to the advice here!
Like you I'm into dividend stocks now
80% the rest specs

[Hectorplains]

NZ Herald brokers' picks...
OCA? 
AIR? 
You cannot view this attachment. Hmmm?

[Ferg]

That's a bit of a motley collection although it would be good to know the context behind their picks.  Are some picks based on wealth preservation in light of an expected recession?  It's hard to see SP growth in some of these picks.

[Clearasmud]

That's a bit of a motley collection although it would be good to know the context behind their picks.  Are some picks based on wealth preservation in light of an expected recession?  It's hard to see SP growth in some of these picks.

They explained their reasoning in the article.
Personally I thought you could do worse.