President Trump where to from here?
Well, if 2016 started out slow it’s definitely proved more exciting over the past few months. As I write this article in a café on Brandon Street, Wellington I look out on a very wet day with all of Featherston Street blocked off and Police standing on all corners. It’s November 15, one day after the 7.8 magnitude earthquake and the resulting destruction of Kaikoura and its surrounds.
Fortunately New Zealanders and our Government are well equipped to handle these events post Christchurch. What effect will this have on NZ? Continued pressure on our construction sector and infrastructure. The damage from this earthquake has so far been estimated at billions (and on edition now $5.3B). This may very well keep a lid on interest rates as we now rebuild a smaller area than Christchurch on the back of their rebuild. I’ll come back to interest rates.
The recent events of the Earthquake over shadow the world news of Donald Trump being elected President of the USA. This was a fascinating race for the presidency and will be one of the benchmarks for running a successful political campaign from nothing. I must admit I was scared of Donald Trump winning this election. Being such a radical candidate; building walls, banning Muslims, terminating trade deals and holding his twitching finger over the nuclear button. I am now trying to work out who he has hoodwinked more, the rednecks who voted for him, the world wide audience or the Republican political establishment. His 60 Minutes interview was quite presidential, he was a former Democrat and is considered a centrist despite his crazy twitter and speech making. The outcome of this election probably should have been expected, the seeds were sown during the Global Financial Crisis in 2007-2008 with the massive turmoil that ensued hurting Middle America. This election outcome is the social change they wanted that Obama didn’t deliver, these shock results happen when the masses aren’t listened to. Trump has done what he does best and hired smart people to listen to middle America all the while tapping into voter’s fears and daily struggles; immigrants are taking our jobs,Racism, Muslims kill our soldiers and blow up our citizens, the political system is rigged to the elites and globalisation lowers our standard of living by taking our jobs. Now he’s won and the hard bit actually starts in delivering policy and trying to make some changes. Down deep he probably wants to “Make America Great” again, can he deliver or is he attempting to build his own family legacy like the Kennedy or Bush family? The kids seem to be capable and will hold positions in the new administration to gain experience. Can you imagine Christmas at the Trumps this year over the Ham and Turkey? Donald: “I am still annoyed California voted for Hilary, all the liberal media are there,we can just go north and lump it in on the Mexican wall and cut it off. Kids what do you think?” Oh to be a fly on the wall.
Tongue in cheek aside, the traditional Republicans will clash with Trump, establishment versus the upstart. If you think Trump is extreme look at his running mate, Mike Pence, that man is a die hard Christian Republican and should be more of a worry for the locals than Trump should he ever get into power. Volatility will prevail throughout the western world through 2017 as the new US starts to reveal its ideas and agenda to the rest of us. Republicans borrow and spend. Democrats tax and spend so expect a bigger government budget deficit while also having an unemployment percentage shrinking on the back of stricter immigration and more infrastructure work, like building $25B walls. My bet is we will see the USA dollar power house up at some point as inflation takes off and interest rates climb. The Republicans now have the control to increase the government budget deficit. It’s going to be an interesting few years at the very least.
Back to NZ, the RBNZ’s new regulatory changes to investment property lending have really hit home over the past three months with no banks bar a couple of local small banks having lending for those borrowers with less than a 20 per cent deposit. Unless you are exempt and buying a new build or are using the Welcome Home Loan system it is nigh on impossible to fund these pre Xmas. Welcome Home Loans are a nightmare to execute for a client with even more paperwork than just your standard First Home Buyer. However the interest rates are good and ultimately we work it through, the key is to not have too much consumer debt. We are of course here to help with this as not all banks are created equal with this product. We have been hearing some interesting feedback from the banks around interest rates and funding their home loans, the easy money and low interest rates are looking like taking a break for 2017. The requirement for 40 per cent deposits is soaking up borrower’s deposits for property purchases which means less money to lend out. Essentially we have property prices climbing meaning more debt and less cash in the banks to lend out. A double whammy for them, in the past they have borrowed offshore but now have an 80 per cent hurdle to fund in NZ. The result is, they have to pay more to depositors for their cash to attract the funds or add more equity to grow. I suspect I’ll be the only one saying this but start expecting interest rates to climb next year and 2018 especially for long term fixed rates at three years plus. It’s not going to be 10 per cent but make sure you have capacity to pay more or have a good interest rate strategy that suits your own financial situation.
Lastly, have a Safe and Happy Christmas break and bring on 2017!