Investment Research Group
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Here are a few things I have noticed recently:
- Before Christmas a local home ware and gifts shop had a 30% off sale. Before Christmas! Last year there was no discounting when I bought my presents there. This led me to put out a SELL order on all retail shares in clients’ portfolios. In January this year the same shop had a 50% off sale. Now it is closing down.
- My local home handyman outlet, part of a national chain, also has closed down.
- Above many shops in wealthy central Auckland suburbs there are ‘for lease signs’. A few months ago there were none. These offices generally are used by the self employed or small businesses in the areas of consulting, public relations, advertising, IT and the like. The sudden emptying out of many of these offices suggests to me that the revenues of these small companies has been under pressure and, to save costs, many have either moved to cheaper locations or even back to the home office.
- My hairdresser reports that people are still coming in for trims but that sales of hair care and styling products has plummeted.
- Upmarket restaurants are advertising special deals where once you had to make reservations well in advance.
- Outside such restaurants are parked much fewer super luxury cars than there used to be. Where once pedestrians used to ogle Aston Martins and Lamborghinis and wish they could indulge in such conspicuous consumption, now they tend to turn their noses up at such crass showing off now that times are becoming tighter.
- Gardening centres report record demand for vegetable seeds and seedlings as people take up growing their own food.
- Dinner party conversations have turned to ways to economise and boasts about bargains obtained.
- A friend with a successful house painting business in Queenstown reports that work has dried up and even those with multi-million dollar holiday homes are deferring maintenance until next year.
- Some champagne-swilling acquaintances of mine are now talking up the merits of locally made champenoise (which actually is very good).
These and may other examples convince me that a quick return to the boom days of the past several years is not likely. The times have changed and most people are gradually replacing borrow-and-spend habits with prudence and conservatism.
I see this as a natural part of the economic cycle. Recessions are useful for ensuring poor investments are liquidated and capital allocated to more productive uses. Despite claims that capitalism is dead and government regulation is the way to ensure prosperity, actually it has been government decisions – such as massive creation of new money and credit to try and avoid recessions – which have got us into this mess.
From an investment perspective, investors are much more interested in dividend yields than they used to be and capital gains are no longer taken as a right. For the first time in 50 years, share yields are higher than bond yields and this could continue for many years (it was the normal state of affairs before 1960).
These attractive yields could underpin markets and there are high quality companies on both sides of the Tasman offering returns that are double and sometime triple that of bonds. Investing in shares is riskier than bonds but now returns reflect that.
