Our top New Zealand economists met this week and said the economy has had a "sweet spot", but is now at risk of a hard landing. Meaning a recession or, worse, a bust, once temporary factors ramping up growth wear off -- from about 2016 onwards.
The Christchurch rebuild has helped the economy a lot, but it could slow very quickly when the rebuild comes to an end.
Milk-solid prices have fallen more than 40 per cent this year, and many other countries are very keen indeed to supply the Chinese dairy market.
Log prices have fallen more than 30 per cent.
Low interest rates will gradually rise and could eventually crush the housing market.
We have had a surge in immigration, which hit a 10-year high in the year to June, but this is unlikely to continue at current levels for long.
Kiwis will again move to Australia as the Aussie economy recovers, so New Zealand's immigration is expected to be zero by 2018.
A soft landing for the economy is unlikely to happen, since it tends to have three gears -- first, fifth, and reverse.
New Zealand is always at risk from a possible slow down in China. Currently it's loosening housing policies to stop a fall in property prices.
The high New Zealand dollar is already falling on our less lively economic forecasts, and has fallen 5 per cent against the A$ and the US$ in just a few short weeks. Economists say the dollar could fall dramatically over the next few years.
Yes, I'm still a patriot
Don't get me wrong, I am as much a patriot as the next person. But I am also a financial adviser and I have to take into account what is going on domestically and around the world. I then apply a hefty dose of common sense when building investment portfolios.
So can we pick the top of a boom?
We can apply common sense. We can listen to people who have a lot to say. If they are buying houses, beach properties, and shares, and bragging about big gains, maybe the top of a boom is approaching.
*We can listen to the economists, but we need to separate the common sense from the waffle. However, they are probably right in this case.
*Always watch house prices: in Auckland and Christchurch they have reached insane levels, especially when compared to incomes.
*Watch interest rates -- if they are rising, it will usually be the RBNZ trying to slow the economy (maybe a boom) down.
*Watch our main export prices. If they fall a lot, the economy might slow or even stop.
*Do the opposite to everyone else -- if they are buying, start selling and vice versa.
*Don't listen to the incessant New Zealand rant that "we are doing better than Aussie" -- they will have their turn again on the upside.
What to do
*Don't just talk about it , do something (but don't overreact).
*Look at what would have worked in 2007.
*If you own more than two or three houses in New Zealand, think about selling one.
*Work towards holding higher than normal levels of cash in shorter-term deposits.
*Take profits off shares.
*Ensure you hold only high-quality bonds, and possibly buy more if and when interest rates rise.
*Diversify offshore, into both bonds and unhedged shares.
*Your unhedged offshore shares will in effect be in other currencies, so you will win if the New Zealand market falls -- another form of diversification.
*If you're not earning and are going to spend a lot of time offshore, put more money into overseas interests.
Alan Clarke is a financial and retirement adviser and author. His second book, The Great NZ Work, Money & Retirement Puzzle is available at www.acfs.co.nz.
Alan is an independent authorised financial adviser (AFA) FSP26532; his disclosure statement is available on request and free of charge.
