Inside Money: The great wall of cash
9:30 AM Tuesday Nov 22, 2011
Photo / Thinkstock
"Believe it or not there's a lot of money out there," an authorised financial adviser (AFA) told me in a carpark conversation last week, "only, people are too scared to anything with it."
Most of the money is here sitting in bank cash or term deposit accounts, slowly compounding in line with the low interest rates on offer.
"People would rather suck up the 4 (or so) per cent than risk losing capital," the AFA said.
As at September this year, bank deposits accounted for over $101 billion of household savings, up $10 billion from two years ago and more than $35 billion compared to September 2006.
On a similar five-year timescale the amount of money households have invested in managed funds (excluding investments via superannuation, KiwiSaver and life companies) has grown, barely, from $26.2 billion in June 2006 to $26.5 billion in June 2011.
The 2011 figure probably overstates the household managed funds as I think it also includes the $6.7 billion invested in cash PIEs, which effectively are term deposits.
But even if you take the figures at face value, the retail managed funds sector has been stagnant for many years, making it a tough market for those selling plain old funds, let alone exotic examples.
That hasn't stopped people trying though, including Clayton Coplestone who over the last couple of weeks has taken four or five investment managers on a road tour of New Zealand pitching fund ideas to financial advisers.
Coplestone's 'Meet the Manager' extravaganza included a take on this century's most publicised growth story as told by Australian financial planner and fund marketer, Simon Wu, head of Premium China Funds Management.
Wu rattled off some impressive, if horrifying, statistics to highlight the China miracle: x number of megapolises under construction; so many months waiting time for a BMW; infinite demand for Louis Vuitton handbags.
But it's too soon to tell whether that will tempt New Zealand's cashed up investors over the wall.
I believe it. Just one tiny problem. This so called money is someone else's debt - that's the way our financial *system* works. A world awash in "money" is one that's loaded with debt, debt that can't be repaid or even serviced by anything other than very modest interest rates. China has created an absurd amount of money/debt over the past three years, money that will either collapse or force a severe downturn and widespread bankruptcies.
And, in the end, it all comes down to the health of the western worlds dwindling middle class - burdened with excess debt, taxes and their jobs off-shored. Just how the hell are they expected to simultaneously spend to bolster the economy, pay down their loans,save for retirement and bail out their bankrupt Governments. Completely and utterly unsustainable.
Some things got to give.
America may well have been a economic power house post WW2=high wages, but its now in decline, 100 million Americans live near the poverty line=1/3 of population, their wages are being cut.
If NZs dont breed are relatively frugal, dont go out they of course could save heaps, a few could, the majority are struglling just to survive week to week.
Lets remember we are at the top of the OECD ladder in costs, when they are compare our wages, at the bottom of other statics.
It even a joke when Joke crows about a 3.2 pay increase for workers and inflation stands at 4.6 percent, thats a rise, yeah right, I dont see it improving under any party.