Welcome to 2011 the Year of the Rabbit, which began on February 3, the attributes of which include: money can be made without excess labour; lifestyle will be leisurely; people acknowledge persuasion works better than force; it is a congenial time for diplomacy, international relations and politics to get the front seat.
It started with the outlook for interest rates dismal, given that the economy is flat.
Inflation due to last year's tax cuts and GST rise is about 4%.
The Reserve bank did not raise the Official Cash Rate (OCR) at the last review as it is felt the inflation was temporary.
The OCR is unlikely to change before at least August as governor Dr Alan Bollard sees no pressure on underlying inflation to rise much further to cause an earlier review.
Economies internationally are very similar, with the United States in particular pushing as much money as possible into the system to keep it ticking over. Consumer reaction is contrary; worldwide everybody is concentrating on debt reduction, not spending.
Those with funds to invest seek satisfactory returns not available in fixed interest. Most country's official cash rates are less that 1% per annum.
In terms of returns this coming year the sharemarkets of the world are considered the place to be.
This is already evidenced in that markets such as the US and Asia have improved as funds have moved out of the banks.
In recent times there has been a rush into emerging markets but this has been counterproductive to them as they too would like to export to overcome debt problems.
Brazil has been in the news because while wanting to align with China, China is its biggest curse due to cheap imports.
As a result there has been a considerable decline in manufacturing in Brazil; the shoe industry has all but collapsed.
The Europe debt problems will be resolved because the core countries of France and Germany are committed to the Euroland concept and will allow failures. You have to feel sorry for Ireland, which has now found it has no escape from the euro currency as it used to do by devaluing anytime there was a problem.
The NZ sharemarket looks set to have a reasonable year as exporters in particular make gains with higher commodity prices that are negating some of the high-dollar problems.
We are still very competitive with the Australian dollar cross-rate and this is where we can take advantage of Australia's problems of floods and drought.
While the Year of the Rabbit suggests things will be satisfactory without much effort we cannot afford to be complacent.
The cost of living is rising with the recent rise in GST and the flow-on effect with food, petrol and other prices.
All should consider ways to reduce costs but do not dump life and other insurance policies or monthly drip-feeding of savings schemes without consulting your adviser.
It is possible to take a contribution holiday from KiwiSaver after one year's contributions but it is not recommended.
This can lead to withdrawals of existing savings to meet outgoings and invariably leads to increased borrowing by the most expensive method, on credit cards.
Credit card (debt) interest rates still average about 19%.
Debt reduction is still the best investment anyone can make. It does not make sense to have investments and a high debt level. Debts have to be paid from after-tax dollars. The minimum needed to be earned is $1.21 for every $1 paid off debt. (Tax rate of 17.5%). It is not possible to earn 21% on investments long term.
• Peter Smith is a certified financial planner and the principal of Kepler Group Otago Ltd. Email: pete@keplergroup.co.nz. A disclosure statement is available on request and free of charge.
