When The Bell Rings, A Meal’s Not Far Off.
Call it good timing, luck, or good fortune, but I was able to understand and exploit how property must increase in price, relatively early on.
When I could, I took advantage of what could be called a bug, or a feature, of a broken system. For at least a decade now, the central banking playbook became obvious to the masses. The strategy was simple:
Step one: Watch what drove interest rates.
Step two: Understand how government policy can change things.
Step three: Use these signals to predict the direction of home prices.
And if the going gets tough (earthquakes, lockdowns, etc), remember the playbook.
The Reserve Bank has a bias towards protecting the economy. We now hang out for interest rate announcements with a Pavlovian sense of anticipation. We’re no better conditioned than dogs waiting for a bell to ring. Bad stuff happens, rates go down, house prices go up. Easy.
But now, after almost 4 years of watching house prices stagnate, if you’re anything like me, you’re wondering if the rules have changed.
It’s scary to suggest this, but I think they have.
The Same Indicators, Now Mean Different Things?
The world is quietly sliding from a globalised free-trade model toward a kind of new industrial mercantilism.
It’s Not About The Economy, Stupid?!
Another change is that fiscal policy (government spending/taxation) and monetary policy (central bank rates and asset purchases) are no longer the sole drivers of economic outcomes. The economy, may no longer be the thing we protect at all costs, either. Predicting the future by tracking what central banks and governments used to do, may now be an outdated framework. It’s a shame, but the types of economists we listen to the most, haven’t yet read the memo.
I used to think we’d be climbing out of a minor property correction by now. I got it wrong, because my framework was outdated.
Policymaking has become a tool of foreign policy and national security. So interest rates, taxes, and even digital currencies like stablecoins are now instruments in global power struggles. Our economists are still bringing knives to proverbial gunfights, while China, the US, and others retool for a new cold war.
Free trade doesn’t work when you’re trading partner practices mercantilism. What governments do, matters far more than what we think they ought to do.
We’re Too Distracted, And It’s a Blind Spot.
It’s like Rome’s burning, but instead of figuring out what it means, we doom scroll through prepacked ideologies like bread and circus, waiting for our net worth to improve. Distraction’s everywhere, and I’m as susceptible as anyone. Is this ‘the way’, however? Perhaps the best economic resets go unnoticed?
Most experts say “ignore the noise, stay in the market, time will heal everything.” But is that still true? Maybe independence is over, too. Maybe governments and central banks, once separate, inevitably merge interests. Perhaps government stakes in sensitive companies will be the new normal. Perhaps Bitcoin, often dismissed as a speculative sideshow, becomes useful in absorbing higher levels of quantitative easing that must occur.
Free-Trade? Where We’re Going, We Don’t Need Globalisation.
Economic statecraft. Could this be the new paradigm?
Meet Rabobank Global Strategist, Michael Every. He laid out for me recently how economic policy is now wielded not for consumer welfare, but for the strategic advantage of nations. Financial repression, mandated industrial production….these are fast becoming the tools for a new Cold War. The US, China, and others, are forcing a return to mercantilism, and central banks worldwide (including the RBNZ) will likely dance to that tune [if not already, then eventually]. Industries will rise and fall on this basis. Maybe four years of zero real gains in property isn’t yet enough to catch our attention, who knows. I’m convinced there’s a reward for those first to understand this, however.
But What Does It All Mean For Me?
Real wealth begins in the mind, not in our investment account or the value of our home. We need to challenge our biases, let our internal “personas” argue, and look past the comfort zone of our own patch of grass. I’m thinking about how global statecraft could re-wire incentive structures, and what industries in New Zealand could benefit. If rare earths are important, if increasing our spending on military is important, if partnerships with the US military becomes important, there will be winners and losers out of this. On another level, is it really ethical now to exclude weapons manufacturers from our portfolios, when we’re defending ourselves? Don’t think this is important?
How long will it be, before either a Russian or Chinese nuclear submarine is located in NZ waters?
Can we trust traditional thinking and the politicians that this creates, to save us? Will institutions to adapt, or will inertia be their downfall? At both the national level and in our own households, we need to build a “grand macro strategy” – one resilient enough to weather the change coming. Echo chambers keep us stuck; critical thinking and open-mindedness move us forward.
What’s your strategy?
