Economists Wrong 60% of the Time
27 September 2007
A year ago our Scottish Housekeeper picked USD70¢ for June 2007 — she was 16% shy. But she still blitzed trading bank economists who were picking USD60¢.
Interestingly trading bank economists now have a recent forecasting record of ‘WRONG 60% OF THE TIME�.
Even coin flipping is only 50%.
Economists came a dismal third to a Scottish Housekeeper and a 20¢ coin.
So what does your Editor think.
THE NZD UP OR DOWN?
We say down from here (81¢).
IS IT OVERVALUED?
Yes !
The British Economist rates the NZD as the most overvalued currency in the world.
The speed and extent of the rise is unprecedented.
We believe exporters who have been stock piling foreign currency in hope of a crash have finally converted to NZD (forced by their own liquidity pressures). There has been very large speculative activity over the past year (buying foreign currency forward contracts). Many contracts have matured and are being closed out by buying back NZD. And we strongly suspect at least one large speculator has been having a wee play.
These factors are temporary.
WILL THERE BE A CRASH IN THE NZD?
Possibly, if panic sets in amongst short term investors in NZD securities.
But the fundamentals have changed. Economists love to talk about fundamentals but the most fundamental thing right now is a fact; a high of US81¢!
Our thinking about the relative strength of the New Zealand economy (especially against the USD) has changed. We are a US70¢ economy.
We are one of a group of well established triple A credit rated nations who are feasting on the biggest boom in output, employment and income the world has ever seen — we are getting the dividends, especially from the massive supply of liquidity which has to be invested somewhere—in diversified portfolios.
A triple A rated politically stable, commodity based New Zealand is always worth having in a large investment portfolio.
The world boom has created a commodity price bonanza—we are enjoying that too.
Dear Reader; we hope you will have remembered our endless articles over the years attacking the economic illiterates and their value added fetishes.
If commodities make money and you do them well (e.g. farming) grab it with both hands. Comrade Jim’s furniture factories have still not happened and Fonterra’s value added division may have relatively languished but there are some pretty happy farmers out there, and a strong currency.
The graphs below clearly show commodities, not value added (or cost added) as the big winner.
IS A STRONG CURRENCY BAD?
No. It makes New Zealanders wealthy—our USD personal balance sheets are 25% stronger than a year ago (35% or more, if you own a home).
And it holds inflation in check while you pay each other more for doing less.
(Article from the NZTIF TimberFed News)