NZX at a five year low

So the New Zealand stock exchange is at its lowest level in five years.  So what’s going on?

  1. Has the market been over-valued this whole time?
  2. Has the value of our capital (the implied future earnings of that capital) really fallen levels unseen in five years?
  3. Is the market over-reacting?
  4. Or finally, is the NZX-50 just massively unrepresentative of the actual performance of New Zealand capital?

However, to put our fall in perspective, the US S&P has just hit a 12 year low – and that is a much broader index.  I find it hard to believe that the value of capital in the US is down to its 1997 level …

The financial crisis explained in simple terms

This email was passed on to me by my office manager. It makes what happened seam absurd:)

Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her
loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps
track of the drinks consumed on a ledger (thereby granting the customers loans).

Read more

Unemployment over 11%?

NZI has suggested that unemployment may go over 11%.  Now although it sounds like this estimate is no more than random conjecture (the countries in the Rogoff study are not comparable to the New Zealand case), it is still worth putting what this means in some historical context.

unemploySource (Infoshare)

The time axis above gives us the “number of quarters”.

So during the recession of the late 80’s in NZ, when we suffered a massive shock to wealth (falling stocks), bank failures, threats of a credit downgrade, tightening fiscal policy (because of our high sovereign debt), tight monetary policy, a falling terms of trade, structural adjustments in the economy (as we dumped tariffs etc), and we had relatively inflexible labour and goods markets – unemployment peaked at 10.9%.

Now even if we believed the situation in NZ is as dire now (I think it is in some places overseas – but not here) it is important to note that it took five years for unemployment to get from 4% to 10.9%.  Even in a worst case scenario I think we can expect the adjustment to be similarly elongated this time.

Refusing bailouts: Sweden

The raging capitalist nation of Sweden has stated that they are against government bailouts for manufacturers (ht Econlog):

“Voters picked me because they wanted nursery schools, police and nurses, and not to buy loss-making car factories,” Enterprise and Energy Minister Maud Olofsson told Swedish public radio.

Very cool.

In other news I caught wind of a World Bank paper that said New Zealand was more protectionist than Europe – these are crazy times we live in 😛

Why Black?

You may be wondering why our website is black today, we have joined the New Zealand internet blackout protest against the new Guilt Upon Accusation law ‘Section 92A’ that calls for internet disconnection based on accusations of copyright infringement without a trial and without any evidence held up to court scrutiny. This is due to come into effect on February 28th unless immediate action is taken by the National Party.

Note that this law was passed by the previous Labour government, but inaction by the National government is just as bad….

More information available here

LEANZ March 09 Auckland Seminar

This month’s seminar by the Law and Economics Association of New Zealand (LEANZ):

Topic: Perspecitves on the ‘credit crunch’ and the state of finance markets

Speaker: Brendan O’Donovan, Chief Economist, Westpac

Date: Tuesday 10 March 2009

Venue: Chapman Tripp, Level 35, ANZ Centre, 23 Albert Street, Auckland

Time: 5:15 pm for a 5:30 pm start, followed by refreshments

RSVP: to:


As talk of the ‘credit crunch’ has given way to assessments of how long and how deep a recession will be, it is more important than ever to get an informed perspective on the negative and positive features of financial markets here and abroad.


Brendan O’Donovan has been Chief Economist with Westpac since 2003. Previously he has worked as Chief Economist for National Bank and worked as a macro-economist at the NZ Institute of Economic Research. Brendan has been published in NZ and international journals. He is a regular on the speaker circuit and is frequently providing comment to the media.