Norway

As a first go on this spanking new blog, here's an outline of the bullish case for anything Norwegian....

The Norwegian Central Bank cut interest rates on Wednesday May 6^th by 50bps to 1.5%, the lowest level in the Central Bank’s 193 year history. This means rates have come down 425bps from its peak of 5.75% in October 2008. Within an international context Norway enjoys the following:

o Net external creditor to the tune of $500bn.

o About $75bn of FX and gold reserves.

o A $350bn sovereign wealth fund.

o A current account surplus of about $85bn.

o About $85bn annual budget surplus.

o Underlying inflation of about 2.75%.

o Unemployment of about 3.5%.

These numbers put Norway together with an enviable group of nations of the world where monetary and fiscal stimulus will actually work well, rather than be counteracted by budget deficits and excessive public sector debt (US and UK). The fiscal strength of Norway is obviously due to the abundance of petroleum resources in Norway but also due to a strict fiscal regime over a long period of time. The petroleum wealth has been collected in a sovereign wealth fund and is invested in international capital markets. So, rates at 1.5%? I don’t think so.. it will be proven to be a huge policy mistake! With rates this low we are likely to see a significant boom in retail spending and house prices in Norway. Remember that only 3.5% of the population are unemployed! The positive interest shock from the 425bp reduction in rates is very significant and leaves the average consumer significantly better off financially even in the midst of a major global recession. Unemployment may continue to rise in line with international trends for a bit more but note that the Norwegian labour force is 65% or so employed directly or indirectly by the government. I am a huge fan of NOK, domestically orientated equities and the short end of the interest curve.