News } Tabak

Inflation, Interest Rates and Borrowing

It’s now coming up to 6 months since we started TBK Capital, and you may recall in our early publicity we said in our view inflation is not dead – simply hibernating.

Home, home again.
I like to be here when I can.
When I come home cold and tired
It’s good to warm my bones beside the fire.

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It’s now coming up to 6 months since we started TBK Capital, and you may recall in our early publicity we said in our view inflation is not dead – simply hibernating.

In a newsletter I wrote last January – called Inflation, Interest Rates and Opportunities - we had a look at the annual increase in the Consumer Price index since 2009. At the end of the newsletter I gave my view on where the New Zealand economy was heading and how that will affect raising debt and equity funds. To read that newsletter, visit our web site here

It now seems that while any rise in the Official Cash Rate will be delayed until at least next year, interest costs may increase regardless of any increase in the OCR. The Reserve Bank now says New Zealanders could face even higher mortgage and term deposit rates (relative to the OCR) as bank funding costs could increase if conditions in global financial markets do not improve. See Interest.co.nz article here

Interest Rates Offshore

It’s interesting to look at the current interest rates of the Central Banks of other countries and see when they last changed. If you click on the chart here you’ll see that only 17 of the 32 countries listed changed their rates this calendar year and only 4 of these were down.

We therefore have a situation where Governments are loath to raise interest rates for the fear of stifling the economy. Yet the longer they wait the more difficult it will be to combat inflation. In an article by Oliver Alder, Head of Global Economics for Credit Suisse, he concludes monetary inflation – being that driven by Central Bank policies – is on an inflationary path.

“To prevent an inflation trend from emerging, policy makers will therefore eventually have to change course; the longer they wait, the greater the risk that inflation expectations begin to become entrenched. At what point they act and how vigorously they pursue an anti-inflationary path will ultimately be determined by the degree to which the population and the political system will influence them in one or the other direction” he says. To read the article called “Are We Heading for Another Great Inflation?” Click here

One final thought on interest rates. As people seeking loan finance soon find out, unless they have good security, proven debt servicing ability, and an impeccable borrowing record, loans are hard to obtain.

And if a loan can be obtained, the interest rate has no relationship to the current low cost of bank finance. Second tier lenders are obtaining their core funding from parties prepared to take more risk in return for a higher interest rate and a clear short term repayment strategy.

The interest paid on a shorter term loan - which gives breathing space while revenue streams are proved, assets rationalised, property sales achieved, or loans refinanced - is immaterial in the short term. Our job is to get the money for you - and help is on its way.

More Help to Borrow Money

Since we started TBK Capital we’ve known the ability to source loans for clients would be a major part of our business. And I must admit I’ve been a bit slack in that respect, being sidetracked by other projects seeking finance other than debt. (See Projects Under Way below for examples.)

Well now I’m pleased to announce we’ve recently increased the team here at TBK Capital and therefore the opportunity to get more help to borrow money.

Ed McCullagh, our newest member, is a graduate of Otago and Victoria Universities and holds a BA (Hons Vic) / LLB. He was admitted to the Bar at Auckland in January 2006. He worked in the legal profession for the next three years, and then left to work in commercial real estate for Bayleys.

Since joining us he’s been making himself known to bank and non-bank lenders and is ready to help you. You can contact him on 09 307 3257, 022 100 9691 or by email at ed.mccullagh@tbkcapital.co.nz Be nice to him though, he holds a black belt in Goju Ryu karate.

A reminder that the debt funding we arrange is given on our web site and in the August newsletter. In summary this includes:

  • Residential and commercial real estate.
  • Finance for developments and subdivisions.
  • Almost completed developments requiring short term funds to finish for bank takeout.
  • Growing businesses strapped by lack of working capital. This can be resolved through bank and non-bank lenders.
  • Buyers or owners of properties looking to add value by re-furbishing and/or re-tenanting. Banks are reluctant as this falls into “development” territory but happy to re-finance when completed.
  • Business finance.
  • Plant, equipment and debtor finance. Good for financing expanding businesses.

We have access to private lenders. One in particular is interested in providing first mortgage, interest only finance for property in the $2 million to $5 million range. There are not many non-bank lenders who are willing or able to make loans of this magnitude.

Good to be Home

It’s easy to feel a bit downcast with all the nonsense going on with the governments and the economies in Europe and the U.S.

But as I’ve said on many occasions before, New Zealand is great place to live. Here are just a few pieces of good news about the economy.

  • The economy will accelerate to a 2.6% annual pace in the current year, from 1.5% in the year ended March, according to the NZIER Consensus Forecasts. New Zealand will prove resilient in the face of global uncertainty, which hasn’t yet impacted on forecasts, the survey says. Over the next three years, economic growth is expected to average 3.1%.
  • The New Zealand Superannuation Fund made its biggest annual return since establishment 8 years ago, making 25% after fees. The value of the fund increased by $3.9 billion in the 12 months ended June 30. Its previous best performance was in 2005-6 when it made an after fees return of 19%.
  • International markets remain volatile, with continuing high levels of debt impacting on investor confidence. However, the outlook for New Zealand’s major trading partners, including Australia and China, remains healthy. BusinessNZ’s Economic Conditions Index (ECI) sits at 19 for the September 2011 quarter, up 4 from the previous quarter and up 32 on a year ago.
  • The Rugby World Cup has been a resounding success. In the first 10 days overseas visitors spent $12 million more than in the same period last year and Auckland looks more likely to get its public transport system sorted out.
  • Daylight saving starts on Sunday.

It’s good to be living in NZ.

Cheers

JP

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