Alan Clarke: Take off rose-coloured glasses

Milk prices are headed down by 50 per cent

We have all been told how well New Zealand is doing and human nature, being what it is, we like to hear that. It makes us feel good.

However, those of us who deal with other people's money (OPMs) do not have - indeed cannot have - the luxury of enjoying the "feel good" headlines.

We are obliged to look under the covers and read and inquire, even if we don't like what we discover.

I must admit I have been surprised at the positive headlines in New Zealand given that:

-Milk prices are headed down by 50 per cent - a $6 billion drop in NZ exports.

-Auckland house prices have blown out from boom to extreme boom.

-The NZ dollar is too high, hurting our exporters and our tourism industry.

Here are some annoying "reality check" excerpts from Michael Pascoe, an Australian Business Day contributing editor:

"Uppity Kiwis feeling boastful about their dollar approaching parity with the mighty Aussie might do well to stick to rugby for their kicks. Their China-driven boom is coming to an end as quickly as Australia's. And NZ has less to fall back on when it does.

Trouble is, China has been busily investing and encouraging others to invest in increased and globally diversified milking. Just as iron ore miners have ramped up production both from existing provinces and new projects from Africa to Mongolia, Kiwi farmers are facing increased competition from South America to Russia and all points in between, including Australia.

This time last year I was in Uruguay, a country that, in several ways, is the New Zealand of South America. It's small, agricultural, relatively peaceful, has a similar population of 3 million or so, and has ridden cows to posterity, courtesy of Chinese demand. Uruguay is just one small example of the global market China has been developing as a source of commodities and consumers.

The ubiquity (present everywhere) of the Chinese approach tends to be missed by Australian commentary focused on iron ore. The standard Australian view of Chinese commodity demand is based solely on a housing and infrastructure boom devouring steel. It's funny then that milk prices have rather neatly matched iron ore prices since the 2013 peak. Who would have thought milk solids were a key ingredient of steel?

The reality is that the rise of China (and other developing nations) of course means greater demand for, and consumption of, 'Western' foods.

Cool heads know the stuff about Australia and NZ becoming the 'food basket of Asia' is nonsense.

NZ needs a weaker dollar as it is facing the same problem Australia has come to know too well - a dollar that is too strong for its own good and too slow to adjust to weakness in its key commodity export."

Very annoying indeed, given that we like to feel good about NZ.

WHAT SHOULD WE TAKE FROM IT?

Australia has taken a hit from the falling iron ore and coal prices and that hit is dragging on.

Steady growth is good, but there are sobering factors to consider.

NZ dairy prices are down nearly 50 per cent; Auckland property prices are madness, and we have a high NZ dollar. Does something have to give?

WHEN INVESTING, TAKE HEED

As an adviser I have learned that what I want to happen and what actually happens, are often far apart.

So I take heed of annoying Aussies, and many others, and always use the No1 tool available to me, diversification.

I ALSO USE A FEW MORE TOOLS

-What can my clients and I do?

-What can we do better?

-What can go wrong?

-All rose-coloured glasses are put under the wheels of the nearest road roller.